UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 3, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-14987
TOO, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1333930
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3885 Morse Road, Columbus, OH 43219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-3500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days (or such shorter time as the Company became
effective).
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at December 13, 2001
------------ --------------------------------
$.01 Par Value 31,328,173 Shares
1
TOO, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the Thirteen and Thirty-Nine Weeks Ended
November 3, 2001 and October 28, 2000...................................................................... 3
Consolidated Balance Sheets
November 3, 2001 and February 3, 2001...................................................................... 4
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
November 3, 2001 and October 28, 2000...................................................................... 5
Notes to Consolidated Financial Statements.................................................................... 6
Report of Independent Accountants............................................................................. 10
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition................. 11
PART II. Other Information
Item 1. Legal Proceedings..................................................................................... 15
Item 4. Matters Submitted to a Vote of Security Holders....................................................... 15
Item 6. Exhibits and Reports on Form 8-K...................................................................... 15
Signature...................................................................................................... 16
Index to Exhibits.............................................................................................. 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands except per share amounts)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------------- ----------------------------------
November 3, October 28, November 3, October 28,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales $ 148,763 $ 133,829 $ 410,888 $ 360,897
Costs of goods sold, buying and
occupancy costs 97,381 88,572 273,569 241,437
----------- ----------- ----------- ----------
Gross income 51,382 45,257 137,319 119,460
General, administrative and store
operating expenses 37,968 34,118 112,204 99,109
----------- ----------- ----------- ----------
Operating income 13,414 11,139 25,115 20,351
Interest expense, net 74 461 583 1,310
----------- ----------- ----------- ----------
Income before income taxes 13,340 10,678 24,532 19,041
Provision for income taxes 5,300 4,300 9,800 7,600
----------- ----------- ----------- ----------
Net income $ 8,040 $ 6,378 $ 14,732 $ 11,441
=========== =========== =========== ==========
Earnings per share:
Basic $ 0.26 $ 0.21 $ 0.48 $ 0.37
=========== =========== =========== ==========
Diluted $ 0.25 $ 0.20 $ 0.46 $ 0.36
=========== =========== =========== ==========
Weighted average common shares:
Basic 31,042 30,741 30,931 30,736
=========== =========== =========== ==========
Diluted 32,131 31,797 31,882 31,774
=========== =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
November 3, February 3,
2001 2001
----------- -----------
(unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 24,036 $ 54,788
Receivables 6,748 2,422
Inventories 58,583 45,715
Store supplies 10,206 9,050
Deferred income taxes 3,475 2,898
Other 2,035 1,408
----------- -----------
Total current assets 105,083 116,281
Property and equipment, net 118,529 81,184
Deferred income taxes 8,394 10,321
Other assets 1,071 1,325
----------- -----------
TOTAL ASSETS $ 233,077 $ 209,111
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion long-term debt $ 13,750 $ -
Accounts payable 28,469 24,213
Accrued expenses 40,626 37,703
Income taxes payable 9,603 13,603
----------- -----------
Total current liabilities 92,448 75,519
Long-term debt 36,250 50,000
Other long-term liabilities 4,992 3,881
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized - -
Common stock, $.01 par value, 100 million shares
authorized, 31.1 million and 30.8 million issued and
outstanding, respectively 311 308
Paid in capital 31,349 26,408
Retained earnings 67,727 52,995
----------- -----------
Total shareholders' equity 99,387 79,711
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 233,077 $ 209,111
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Thirty-Nine Weeks Ended
---------------------------
November 3, October 28,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 14,732 $ 11,441
Impact of other operating activities on cash flows:
Depreciation and amortization 13,621 12,759
Changes in assets and liabilities:
Inventories (12,868) (19,381)
Accounts payable and accrued expenses 6,539 (1,901)
Income taxes (2,132) (2,133)
Other assets (2,153) (1,778)
Other liabilities 1,111 1,055
----------- -----------
Net cash provided by operating activities 18,850 62
----------- -----------
Investing activities:
Capital expenditures (54,030) (28,493)
----------- -----------
Net cash used for investing activities (54,030) (28,493)
----------- -----------
Financing activities:
Stock options, restricted stock and other equity changes 4,428 987
----------- -----------
Net cash provided by financing activities 4,428 987
----------- -----------
Net decrease in cash and equivalents (30,752) (27,444)
Cash and equivalents, beginning of period 54,788 59,984
----------- -----------
Cash and equivalents, end of period $ 24,036 $ 32,540
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
Too, Inc. (referred to herein as "the Company") is the operator of two
specialty retailing businesses, Limited Too and mishmash. Limited Too
sells apparel, underwear, sleepwear, swimwear, lifestyle and personal care
products for fashion-aware, trend-setting young girls ages seven to
fourteen years. mishmash, launched by the Company in late September 2001,
sells intimate apparel, cosmetics and personal care products, footwear,
jewelry, lifestyle shoes and select active apparel to young women ages
fourteen to twenty-one. The consolidated financial statements include the
accounts of Too, Inc. and its wholly owned subsidiaries and reflect the
Company's assets, liabilities, results of operations and cash flows on a
historical cost basis.
The accompanying unaudited interim consolidated financial statements as of
November 3, 2001 and for the thirteen and thirty-nine week periods ended
November 3, 2001 and October 28, 2000, are presented to comply with the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's 2000 Annual Report on Form 10-K. In the opinion
of management, the accompanying interim consolidated financial statements
reflect all adjustments (which are of a normal, recurring nature) necessary
to present fairly the financial position, results of operations and cash
flows for the interim periods, but are not necessarily indicative of the
results of operations for a full fiscal year.
The consolidated financial statements as of November 3, 2001, and for the
thirteen and thirty-nine weeks ended November 3, 2001 and October 28, 2000
included herein have been reviewed by the independent public accounting
firm of PricewaterhouseCoopers LLP and the report of such firm follows the
notes to consolidated financial statements. PricewaterhouseCoopers LLP is
not subject to the liability provisions of Section 11 of the Securities Act
of 1933 for its report on the consolidated financial statements because
that report is not a "report" within the meaning of Sections 7 and 11 of
that Act.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
stock options or restricted stock were converted to common stock using the
treasury stock method.
6
The following table shows the amounts used in the computation of basic and
diluted earnings per share (in thousands):
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------- -----------------------------------
November 3, October 28, November 3, October 28,
2001 2000 2001 2000
------------------ -------------- ---------------- ----------------
Net income $ 8,040 $ 6,378 $ 14,732 $ 11,441
================= ============== ================ ===============
Weighted average common shares - basic 31,042 30,741 30,931 30,736
Dilutive effect of stock options
and restricted stock 1,089 1,056 951 1,038
----------------- -------------- ---------------- ---------------
Weighted average common shares - diluted 32,131 31,797 31,882 31,774
================= ============== ================ ===============
Due to the options' price exceeding the average market price of the common
shares for the reporting periods, certain options were excluded from the
calculation of net income per diluted share. In Fiscal 2001, options to
purchase 150,000 and 215,400 common shares, were not included in the
computation of net income per diluted share for the thirteen and thirty-
nine week periods ended November 3, 2001, respectively. In Fiscal 2000,
options to purchase 126,000 and 117,500 common shares, were not included in
the computation of net income per diluted share for the thirteen and
thirty-nine week periods ended October 28, 2000.
3. INVENTORIES
The fiscal year of the Company is comprised of two principal selling
seasons: Spring (the first and second quarters) and Fall (the third and
fourth quarters). Inventories are principally valued at the lower of
average cost or market, on a first-in, first-out basis utilizing the retail
method. Inventory valuation at the end of the first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates for
the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of (in thousands):
November 3, February 3,
2001 2001
------------------ ------------------
Land $ 8,021 $ 7,691
Furniture, fixtures and equipment 104,549 93,880
Leasehold improvements 41,454 42,528
Construction-in-progress 42,650 3,643
------------------ ------------------
Total 196,674 147,742
Less: accumulated depreciation and
amortization (78,145) (66,558)
------------------ ------------------
Property and equipment, net $ 118,529 $ 81,184
================== ==================
7
5. RELATIONSHIP WITH THE LIMITED
In connection with the August 23, 1999 Spin-off, the Company entered into a
service agreement with Limited Logistics Services (formerly known as
Limited Distribution Services), a wholly owned subsidiary of The Limited,
to provide distribution services to us covering flow of merchandise from
factory to our stores for up to three years after the Spin-off. Most of the
merchandise and related materials for the Company's stores are shipped to a
distribution center owned by The Limited in Columbus, Ohio, where the
merchandise is received, inspected, allocated and packed for shipment to
stores. Under the service agreement, The Limited distributes merchandise
and related materials using common and contract carriers to the Company's
stores. Inbound freight is charged to Too based upon actual receipts and
related charges, while outbound freight is charged based on a percentage of
cartons shipped.
Our main office is owned by Distribution Land Corp., a wholly owned
subsidiary of the Limited, and leased to us with a lease term expiring in
August 2002.
Our largest apparel supplier has been Mast Industries, Inc., a wholly owned
subsidiary of The Limited. Mast Industries supplied approximately 30% of
the apparel that we purchased in 2000. We believe that all transactions
that we have entered into with Mast Industries have been on terms that
would have been obtained on an arm's length basis since we treat them as if
they were a third party. We were not, and will not be, obligated to
continue to source products through Mast Industries.
Amounts payable to The Limited, including merchandise payables to Mast
Industries, approximated $13.3 million at November 3, 2001.
6. CREDIT FACILITY
During August 1999, the Company entered into a five-year $100 million
credit agreement (the "Credit Facility") with a syndicate of banks. The
Credit Facility is collateralized by virtually all assets of the Company
and is comprised of a $50 million five-year term loan and a $50 million
revolving loan commitment. The entire amount of the term portion was drawn
in order to fund a $50 million dividend to The Limited and $14 million was
drawn under the revolving loan commitment principally to repay a portion of
working capital advances made by the Limited prior to the Spin-off.
The $50 million revolving loan commitment is available to fund working
capital requirements and for general corporate purposes. Interest on
borrowings under the Credit Facility is based on matrix pricing applied to
either the London Interbank Offered Rate or Prime, as defined in the
agreement. Payments of principal under the term loan are due at various
dates from July 2002 to August 2004. A commitment fee based on matrix
pricing is charged on the unused portion of the revolving loan commitment.
The commitment fee is up to 1/2 of 1% of the unused revolving credit
commitment per annum. Under the terms of the Credit Facility, the Company
is required to comply with certain covenants including financial ratios.
The Credit Facility limits the Company from incurring certain additional
indebtedness and restricts substantial asset sales, capital expenditures
above approved limits and cash dividends. The Company is in compliance with
all applicable terms of the Credit Facility. As of November 3, 2001, there
were no amounts outstanding under the revolving portion of the Credit
Facility.
Current maturities of long-term debt for each of the next three fiscal
years are $17.5 million in 2002, $20.0 million in 2003, and $12.5 million
in 2004.
8
Interest expense, including the amortization of financing fees, amounted to
$916,000 for the quarter ending November 3, 2001. Interest expense was
partially offset by interest income of $842,000 for the quarter. Interest
expense and interest income amounted to $1,240,000 and $779,000,
respectively, for the quarter ending October 28, 2000. For the thirty-nine
week periods ended November 3, 2001 and October 28, 2000, interest expense
amounted to $3.0 and $3.7 million, respectively, and interest income
amounted to $2.4 million for both periods.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," will be
effective in the first quarter of 2002 and addresses the accounting for,
and classification of, various sales incentives. The Company has determined
that adopting the provisions of this EITF Issue will not have a material
impact on its consolidated financial statements.
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations," will be effective in the first quarter
of 2003. The standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes
a cost by increasing the carrying amount of the related long-lived asset.
Over time, the liability is accreted to its present value each period, and
the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon
settlement. Because costs associated with exiting leased properties at the
end of the lease terms are minimal, the Company believes that when the
statement is adopted, it will not have a significant effect on the
Company's results of operations or its financial position.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 144 supercedes SFAS 121 and applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30 (APB 30), "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business." SFAS 144
develops one accounting model (based on the model in SFAS 121) for long-
lived assets that are to be disposed of by sale. This model requires that
long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS
144 expands the scope of discontinued operations to include all components
of an entity with operations that (1) can be distinguished from the rest of
the entity and (2) will be eliminated from the ongoing operations of the
entity in a disposal transaction. SFAS 144 is effective for the Company's
first quarter in fiscal 2002. The Company is currently evaluating the
impact of adopting SFAS 144 but the Company's management does not expect
the adoption of SFAS 144 to have a significant impact on the results of
operations, cash flows or the financial position of the Company.
9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Too, Inc.:
We have reviewed the accompanying consolidated balance sheet of Too, Inc. and
its subsidiaries (the "Company") as of November 3, 2001, and the related
consolidated statements of income for each of the thirteen and thirty-nine week
periods ended November 3, 2001 and October 28, 2000 and the consolidated
statements of cash flows for the thirty-nine week periods ended November 3, 2001
and October 28, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of February
3, 2001, and the related consolidated statements of income, shareholders'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated February 21, 2001 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet information as of February 3, 2001
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
November 13, 2001
10
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Net sales for the thirteen weeks ended November 3, 2001 were $148.8 million, an
increase of 11.2% from $133.8 million for the comparable period of 2000. Gross
income increased 13.5% to $51.4 million from $45.3 million in 2000 and operating
income rose 20.7% to $13.4 million from $11.1 million in 2000. Net income
increased 25.0% to $8.0 million from $6.4 million in 2000. Diluted earnings per
share increased 25% to $0.25, versus $.20 in 2000.
Net sales for the thirty-nine weeks ended November 3, 2001 were $410.9 million,
an increase of 13.9% from $360.9 million for the comparable period of 2000.
Gross income increased 14.9% to $137.3 million from $119.5 million in 2000 and
operating income rose 23.0% to $25.1 million from $20.4 million in 2000. Net
income increased 28.9% to $14.7 million from $11.4 million in 2000. Diluted
earnings per share increased 27.8% to $0.46, versus $.36 in 2000.
FINANCIAL SUMMARY
The following summarized financial and statistical data compares the thirteen
and thirty-nine week periods ended November 3, 2001, to the comparable 2000
period:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------------------ ---------------------------------------
November 3, October 28, Percent November 3, October 28, Percent
2001 2000 Change 2001 2001 Change
------------------------------------------ ---------------------------------------
Net sales (millions) $ 148.8 $ 133.8 11 % $ 410.9 $ 360.9 14 %
Comparable store sales performance /(1)/ 5% 1% 1% 6%
Retail sales per average square foot/(2)/ $ 83 $ 85 (2) % $ 233 $ 238 (2) %
Retail gross square feet at end of
quarter (thousands) 1,850 1,605 15 %
Stores with "Girl Power" format 206 138
Percentage of stores in "Girl Power"
format 46% 35%
Number of Stores:
-----------------
Limited Too:
Beginning of period 422 373 406 352
Opened 30 18 47 41
Closed - - (1) (2)
--------------------------- ----------------------
End of period 452 391 452 391
=========================== ======================
mishmash stores 6 -
===========================
/(1)/ A store is included in our comparable store sales calculation once it
has completed 52 weeks of operation. Further, stores that are expanded
more than 20% in square feet are treated as new stores for purposes of
this calculation. Fiscal 2001 comparable store sales are reported on a
calendar-shifted basis.
/(2)/ Retail sales per average square foot is the result of dividing net
sales for the fiscal quarter by average gross square feet, which
reflects the impact of opening and closing stores throughout the
quarter.
11
Net Sales
Net sales for the third quarter of 2001 increased 11.2% to $148.8 million from
$133.8 million in 2000. Comparable store sales increased 5% for the third
quarter 2001 compared to a 1% increase during third quarter 2000. Net sales
also benefited from a 15.3% increase in square footage growth over last year.
The best performing merchandise categories during the third quarter were active
wear led by graphic T's, cut and sewn casual tops, sweaters, jeans wear and
innerwear.
Gross Income
Gross income, expressed as a percentage of net sales, was 34.5% for the third
quarter of 2001, an increase of 70 basis points from a gross income rate of
33.8% for the third quarter of 2000. This rate increase was due to higher
initial mark-ups, which more than offset the increased promotional markdown rate
and a slightly higher buying and occupancy rate.
For the year-to-date period, the gross income rate increased 30 basis points to
33.4% from 33.1% in 2000. Higher initial mark-ups more than offset an increase
in the markdown rate and cost of increased catalog circulation.
General, Administrative and Store Operating Expenses
General, administrative and store operating expense, expressed as a percentage
of net sales, remained at 25.5% in the third quarter of 2001 versus the same
period in 2000. Lower home office and distribution center expenses were offset
by slightly higher store payroll, expenses related to mishmash, and marketing
expenses associated with the grand finale of the Passion for Fashion Tour held
in the first week of fiscal August.
On a year-to-date basis general, administrative and store operating expense
decreased by 20 basis points to 27.3% in 2001 from 27.5% in 2000. The decrease
during the year-to-date periods was due to lower home office expenses and lower
distribution center costs, expressed as a percentage of net sales, which were
partially offset by slightly higher store operating and marketing expenses.
Operating Income
Operating income, expressed as a percentage of net sales, was 9.0 % in the third
quarter of 2001 from 8.3% for the same period in 2000, resulting in a 70 basis
point increase. Year-to-date operating income increased 50 basis points to 6.1%
in 2001 compared to 5.6% in 2000. The increase in operating income, expressed
as a percentage of net sales, for both the quarter and year-to-date periods was
due to higher merchandise margins and lower home office and distribution center
expenses.
Income Taxes
Income tax expense, provided at an approximate rate of 40%, amounted to $5.3
million and $9.8 million for the quarter ending and year-to-date periods ending
November 3, 2001, respectively, compared to $4.3 million and $7.6 million for
the comparable periods ending October 28, 2000. We anticipate that the annual
effective tax rate will remain unchanged for the balance of fiscal 2001.
12
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided from operating activities provides the resources to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures.
Net cash provided by operating activities amounted to $18.9 million for the
thirty-nine weeks ending November 3, 2001 versus $62,000 for the same period in
2000. The increase in net cash provided by operating activities versus the
comparable period in 2000 was due to an increase in net income and depreciation
and a smaller increase in year-on-year inventories, including improved
leveraging via accounts payable.
Investing activities represented capital expenditures, which were primarily for
new and remodeled stores, as well as progress payments on the construction of
our new home office and distribution center.
Financing activities principally represented proceeds from employee stock option
exercises and the issuance of restricted stock.
A summary of our working capital position and capitalization follows
(thousands).
November 3, February 3,
2001 2001
--------------- --------------
Working capital $ 12,635 $ 40,762
=============== ==============
Capitalization:
Long-term debt 36,250 50,000
Shareholders' equity 99,387 79,711
--------------- --------------
Total capitalization $ 135,637 $ 129,711
=============== ==============
Amounts authorized under revolving portion
of credit facility $ 50,000 $ 50,000
=============== ==============
In August 1999, we entered into a five-year, $100 million collateralized Credit
Facility. The Credit Facility consists of a $50 million five-year term loan and
a $50 million, five-year annual revolving credit commitment. The Credit
Facility's interest rates, which reflect matrix pricing, are based on the London
Interbank Offered Rate or Prime plus a spread as defined in the agreement. The
term loan is interest only until the end of the third year at which time the
amortization of the outstanding principle balance will begin. The decrease in
long-term debt is due to the classification of $13.75 million payments due by
the end of the third quarter in 2002 as a current liability. The Credit
Facility contains customary representations and warranties as well as certain
affirmative, negative and financial covenants.
No amounts were borrowed against the $50 million revolving credit commitment
during the thirty-nine weeks ended November 3, 2001 and October 28, 2000.
13
Capital Expenditures
Capital expenditures totaled $54.0 million for the thirty-nine weeks ended
November 3, 2001 compared to $28.5 million for the comparable period of 2000.
2001 capital expenditures included $18.4 million for new and remodeled stores,
$27.9 million for the new distribution center and $7.7 million for the new home
office and other items. We anticipate spending approximately $70 to $72 million
in 2001 for capital expenditures including the construction of approximately 57
new stores, the remodel of 6 existing stores and 7 stores for our new concept,
mishmash, along with $48 to $51 million for our new Home Office and Distribution
Center facilities. Our store expansion and remodel program should add
approximately 220,000 gross square feet during 2001, representing a 13% increase
over year-end 2000. The Company expects that capital expenditures will be
funded principally by net cash provided by operating activities.
Recently Issued Accounting Pronouncements
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," will be
effective in the first quarter of 2002 and addresses the accounting for, and
classification of, various sales incentives. The Company has determined that
adopting the provisions of this EITF Issue will not have a material impact on
its consolidated financial statements.
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," will be effective in the first quarter of 2003.
The standard requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. Because costs associated with exiting
leased properties at the end of the lease terms are minimal, the Company
believes that when the statement is adopted, it will not have a significant
effect on the Company's results of operations or its financial position.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
supercedes SFAS 121 and applies to all long-lived assets (including discontinued
operations) and consequently amends Accounting Principles Board Opinion No. 30
(APB 30), "Reporting Results of Operations Reporting the Effects of Disposal of
a Segment of a Business." SFAS 144 develops one accounting model (based on the
model in SFAS 121) for long-lived assets that are to be disposed of by sale.
This model requires that long-lived assets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell.
Additionally, SFAS 144 expands the scope of discontinued operations to include
all components of an entity with operations that (1) can be distinguished from
the rest of the entity and (2) will be eliminated from the ongoing operations of
the entity in a disposal transaction. SFAS 144 is effective for the Company's
first quarter in fiscal 2002. The Company is currently evaluating the impact of
adopting SFAS 144 but the Company's management does not expect the adoption of
SFAS 144 to have a significant impact on the results of operations, cash flows
or the financial position of the Company.
Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Management's Discussion and Analysis or made by management of the Company
involve risks and uncertainties and are subject to change based on various
important factors, many of which may be beyond the Company's control. Forward-
looking statements are indicated by words such as "anticipate," "estimate,"
"expect," "intend," "risk," "could," "may," "will," "pro forma," "likely,"
"possible," "potential," and similar words and phrases and the negative forms
and variations of these words and phrases, and include statements in this
Management's Discussion and Analysis relating to the annual effective tax rate,
anticipated capital expenditures in 2001 for new stores and the remodeling or
expansion of existing stores, and the related funding. The following factors,
among others, in some cases have affected, and in the future could affect, the
Company's financial performance and actual results and could cause future
performance and financial results to differ materially from those expressed or
implied in any forward-looking statements included in this Management's
Discussion and Analysis or otherwise made by management: changes in consumer
spending patterns, consumer preferences and overall
14
economic conditions; the impact of competition and pricing; changes in weather
patterns; currency and exchange risks; changes in existing or potential trade
restrictions, duties, tariffs or quotas; changes in political or financial
stability; changes in postal rates and charges and paper and printing costs;
availability of suitable store locations at appropriate terms; ability to
develop new merchandise; ability to hire and train associates; and/or other risk
factors that may be described in the Risk Factors section of the Company's Form
10, filed August 18, 1999, as well as other filings with the Securities and
Exchange Commission. Future economic and industry trends that could potentially
impact revenue and profitability are difficult to predict. Therefore, there can
be no assurance that the forward-looking statements included herein will prove
to be accurate. In light of the significant uncertainties in the forward-looking
statements included herein, the inclusion of such information should not be
regarded a representation by the Company, or any other person, that the
objectives of the Company will be achieved. The forward-looking statements made
herein are based on information presently available to the management of the
Company. The Company assumes no obligation to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 4. Matters Submitted to a Vote of Security Holders
Not applicable.
Item 6. Exhibits
(a) Exhibits
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Report of
Independent Accountants.
(b) Reports on Form 8-K
On August 14, 2001, the Company filed a current report on Form 8-K that
reported the Board's adoption of the Rights Agreement (also known as a
stockholders rights plan) contained therein.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOO, INC.
(Registrant)
By /S/ Kent A. Kleeberger
-----------------------
Kent A. Kleeberger,
Executive Vice President - Chief Financial Officer,
Logistics and Systems
Secretary and Treasurer
(duly authorized officer and Principal Financial
and Accounting Officer)
Date: December 14, 2001
16
EXHIBIT INDEX
Exhibit
No. Document
--- --------
15 Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent
Accountants.
17