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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
TOO, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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[TOO, INC. LOGO]
8323 WALTON PARKWAY
NEW ALBANY, OHIO 43054
(614) 775-3500
April 9, 2003
Dear Stockholder:
You are cordially invited to attend our 2003 annual meeting of
stockholders. The meeting will be held on Tuesday, May 20, 2003, at 9:00 a.m.
Eastern Time, at our corporate offices, located at 8323 Walton Parkway, New
Albany, Ohio. If you need assistance in finding the location of the meeting,
please call our Investor Relations department at (614) 775-3500.
At the meeting, we will elect three directors to the Board and transact
other business as may come before the meeting. We will also report on our
financial and operating performance during 2002, and update stockholders on our
strategy for future growth.
It is very important that your shares be represented and voted at the
meeting. After reading the enclosed proxy statement, please sign, date and
return the enclosed proxy card, or take advantage of voting your proxy over the
telephone or the Internet.
We encourage you to take advantage of voting on the Internet because it
is an easy process and the least expensive way for us to tabulate your vote.
Also, if you vote on the Internet, you will have the option at that time to
enroll in Internet delivery of our proxy materials in the future.
We look forward to seeing you at the annual meeting.
Sincerely,
Michael W. Rayden
Chairman, President and Chief Executive Officer
[TOO, INC. LOGO]
8323 WALTON PARKWAY
NEW ALBANY, OHIO 43054
(614) 775-3500
------------------
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
May 20, 2003
The Annual Meeting of Stockholders of Too, Inc. will be held on
Tuesday, May 20, 2003, at 9:00 a.m. Eastern Time at the corporate offices of
Too, Inc., 8323 Walton Parkway, New Albany, Ohio, to conduct the following items
of business:
1. To elect three directors, each to serve a three-year term expiring
at the 2006 annual meeting of stockholders.
2. To transact other business properly coming before the meeting or any
adjournment thereof.
Stockholders who owned shares of our stock at the close of business on
March 24, 2003, are entitled to vote at the annual meeting. A complete list of
these stockholders will be available at our corporate offices prior to the
annual meeting.
By Order of the Board of Directors,
Michael W. Rayden
Chairman, President and Chief Executive Officer
TABLE OF CONTENTS
Information About the Annual Meeting and Voting........................................................................... 1
Election of Directors..................................................................................................... 3
Nominees and Directors................................................................................................. 3
Information Concerning the Board of Directors.......................................................................... 5
Committees of the Board of Directors................................................................................... 5
Executive Officers..................................................................................................... 5
Security Ownership of Directors and Management......................................................................... 6
Executive Compensation.................................................................................................... 7
Summary Compensation Table............................................................................................. 7
Stock Options.......................................................................................................... 8
Director Compensation.................................................................................................. 10
Employment Agreements with Certain Executive Officers.................................................................. 10
Report of the Stock Option and Compensation Committee..................................................................... 13
Compensation Philosophy................................................................................................ 13
Principal Compensation Elements........................................................................................ 14
CEO Compensation....................................................................................................... 15
Section 162(m)......................................................................................................... 15
Compensation Committee Interlocks and Insider Participation............................................................... 15
Stockholder Return Graph.................................................................................................. 16
Audit Committee........................................................................................................... 17
Audit Committee Report.................................................................................................... 17
Share Ownership of Principal Stockholders................................................................................. 18
Section 16(a) Beneficial Ownership Reporting Compliance................................................................... 19
Independent Accountants................................................................................................... 19
Fees of the Independent Accountants for the Fiscal Year Ended February 1, 2003............................................ 19
Stockholder Proposals..................................................................................................... 19
Solicitation Expenses..................................................................................................... 20
Certain Matters Relating to Proxy Materials and Annual Reports............................................................ 20
Other Matters............................................................................................................. 20
Financial Statements and Other Information................................................................................ F-1
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
The Board of Directors of Too, Inc. is soliciting your proxy to vote at
the 2003 Annual Meeting of Stockholders (or any adjournment of the meeting).
This proxy statement summarizes the information you need to know to vote at the
annual meeting. Throughout the proxy statement, the terms "We," "Our," "Limited
Too," "Too," and the "Company" refer to Too, Inc.
We began mailing this proxy statement and the enclosed proxy card on or
about April 9, 2003, to all stockholders entitled to vote. Our 2002 Summary
Annual Report is being sent with this proxy statement. Our audited financial
statements and related financial information about us are included in this proxy
statement beginning at page F-1.
DATE, TIME AND PLACE OF MEETING
Date: May 20, 2003
Time: 9:00 a.m. Eastern Time
Place: Too, Inc.
8323 Walton Parkway
New Albany, Ohio 43054
SHARES ENTITLED TO VOTE
Stockholders entitled to vote are those who owned our common stock at
the close of business on the record date, March 24, 2003. As of the record date,
there were 34,145,678 shares of Too, Inc. common stock outstanding. Each share
of common stock that you own entitles you to one vote.
VOTING YOUR PROXY
Whether or not you plan to attend the annual meeting, we urge you to
vote. Stockholders of record can give proxies by mailing their signed proxy
cards or by voting telephonically or on the Internet. Submitting your completed
proxy card, or voting telephonically or on the Internet, will not affect your
right to attend the annual meeting and vote.
The enclosed proxy card indicates the number of shares of our common
stock that you own as of the record date.
Instructions for the three methods of voting your proxy are listed on
your proxy card. If you complete and submit your proxy correctly, one of the
individuals named on your proxy card (your "proxy") will vote your shares as you
have directed. If you submit the proxy but do not make specific choices, your
proxy will follow the Board's recommendations and vote your shares:
- "FOR" the election of all three nominees for director (as described
on page 3).
If any other matter is presented at the annual meeting, your proxy will
vote in accordance with his or her best judgment. At the time this proxy
statement went to press, we knew of no other matters, beyond the election of the
aforementioned directors, to be acted on at the annual meeting.
REVOKING YOUR PROXY
You may revoke your proxy by:
- submitting a later dated proxy;
- notifying our Secretary in writing before the meeting that you have
revoked your proxy; or
- voting in person at the meeting.
-1-
VOTING IN PERSON
If you plan to attend the meeting and vote in person, a ballot will be
available when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must bring a letter from the nominee
indicating that you are the beneficial owner of the shares as of the close of
business on March 24, 2003, the record date for voting, and that you are
authorized to vote those shares at the annual meeting.
QUORUM REQUIREMENT
A quorum of stockholders is necessary to hold a valid meeting. The
presence at the meeting, in person or by proxy of the holders of shares
representing at least one-third of the votes of the common stock entitled to
vote constitutes a quorum. Abstentions and broker "non-votes" are counted as
present for establishing a quorum. A broker non-vote occurs on an item when a
broker is not permitted to vote on that item absent instruction from the
beneficial owner of the shares and no instruction is given.
VOTES NECESSARY
ITEM VOTE NECESSARY*
---- ---------------
Election of Directors Directors are elected by a plurality of the votes represented by the
shares of common stock present at the meeting in person or by proxy.
This means that the director nominee with the most affirmative votes
for a particular position is elected for that position.
Transaction of Other Business A plurality of the votes represented by the shares of common stock
present at the meeting in person or by proxy.
-------------------
* Under New York Stock Exchange rules, if your broker holds your shares in its
name, your broker is permitted to vote your shares on this item even if it does
not receive voting instructions from you.
For the election of directors, proxies that are marked "Withhold
Authority" and broker non-votes will not count toward a nominee's achievement of
a plurality, and, thus, will have no effect. As to each other matter submitted
to our stockholders for approval at the annual meeting, for purposes of
determining the number of shares of our common stock voting on the matter, (1)
abstentions will be counted and will have the effect of a negative vote, and (2)
broker non-votes will not be counted and, thus, will have no effect.
-2-
ELECTION OF DIRECTORS
The Board of Directors has nominated three directors for election at
the annual meeting. All of the nominees are currently serving as directors. If
you re-elect them, each will hold office for a three-year term expiring at the
2006 annual meeting or until his or her successor has been elected.
Your proxy will vote for each of the nominees unless you specifically
withhold authority to vote for a particular nominee. If any nominee is unable to
serve, your proxy may vote for another nominee proposed by the Board. We do not
know of any nominee of the Board who would be unable to serve as director if
elected.
Stockholders wishing to nominate directors for election may do so by
delivering to the Chairwoman of the Nominating Committee of the Company, not
less than 14 days nor more than 50 days before a meeting of the stockholders
called for the election of directors, a notice stating: (a) the name, age,
business address and, if known, residence address of each nominee proposed in
the notice; (b) the principal occupation or employment of each nominee; (c) the
number of shares of common stock of the Company beneficially owned by each
nominee; and (d) such other information as is required by the Company's bylaws.
No person may be elected as a director of the Company unless he or she has been
nominated by a stockholder in this manner or by the Board of Directors.
The Board of Directors recommends the ELECTION of all of the following
nominees of the Board of Directors:
NOMINEES AND DIRECTORS
Nominees of the Board of Directors for election at the 2003 annual
meeting
Sally A. Boyer Age 42
Ms. Boyer has served as our President of Merchandising since August
2002. Previously, Ms. Boyer served as our Executive Vice President of Planning,
Allocation, and Merchandising Operations from February 2001 to July 2002, as
Senior Vice President-Merchandising Operations since June 2000, and as Vice
President Merchandising Operations since May 1998. Ms. Boyer also held various
positions with us and The Limited, Inc., including as Vice President-Planning
and Distribution from 1995 to 1998. Before joining The Limited, Inc. in 1991,
she served as a Financial Consultant for Andersen Consulting from 1990 to 1991,
a Merchandise Planner for The Limited, Inc. from 1989 to 1990 and Merchandise
Controller of Youthland, Inc. from 1984 to 1989. Ms. Boyer was first elected to
the Board in August 2002.
Kent A. Kleeberger Age 51
Mr. Kleeberger has served as our Executive Vice President, Chief
Operating Officer and Chief Financial Officer since August 2002. He also serves
as our Secretary and Treasurer. Previously, Mr. Kleeberger served as our
Executive Vice President-Chief Financial Officer, Logistics and Systems from
February 2001 to July 2002. Mr. Kleeberger joined the Company as Vice President
and Chief Financial Officer in March 1998 following a 10-year career with The
Limited, Inc., including as Vice President-Controller of Victoria's Secret
Catalogue from 1991 to 1995 and Corporate Controller of The Limited, Inc. from
1995 to 1998. Mr. Kleeberger was first elected to the Board of Directors in
February 2000.
Nancy J. Kramer Age 47
Ms. Kramer is Chief Executive of Ten/Resource, a marketing firm
specializing in integrated marketing solutions for national brands. Ten/Resource
was founded by Ms. Kramer in 1981. Ms. Kramer was first elected to the Board of
Directors in August 1999.
-3-
Directors whose terms continue until the 2004 annual meeting
Elizabeth M. Eveillard Age 56
Ms. Eveillard is an independent financial consultant, and serves as a
financial consultant to Bear, Stearns & Co. until May 2003. Ms. Eveillard served
as Senior Managing Director, Retailing and Apparel Group, Bear, Stearns & Co.,
Inc. from 2000 until her retirement in April 2002. Prior to that time, Ms.
Eveillard served as the Managing Director, Head of Retailing Industry, Paine
Webber Corporation from 1988 to 2000. From 1972 to 1988, Ms. Eveillard held
various executive positions including Managing Director in the Merchandising
Group with Lehman Brothers. Ms. Eveillard also serves on the board of directors
of Value City Department Stores, Inc., Lillian Vernon Corporation, and Mayor's
Jewelers, Inc., all publicly held companies. Ms. Eveillard was first elected to
the Board of Directors in February 2003.
David A. Krinsky Age 54
Mr. Krinsky is a partner at the law firm of O'Melveny and Myers LLP in
Newport Beach, California. Before joining the firm as a partner in 1994, he was
a partner at the law firm of Pettis, Tester, Kruse & Krinsky. Mr. Krinsky is a
corporate attorney who specializes in mergers and acquisitions and securities
law. Mr. Krinsky was first elected to the Board of Directors in August 1999.
Kenneth J. Strottman Age 54
Mr. Strottman is the founder, President and Chief Executive Officer of
Strottman International, Inc., a marketing agency specializing in developing
promotional programs targeting children and families. Before founding his firm
in 1983, Mr. Strottman served as Vice President, Marketing, at Mattel, Inc. Mr.
Strottman was first elected to the Board of Directors in August 1999.
Directors whose terms continue until the 2005 annual meeting
Philip E. Mallott Age 45
Mr. Mallott is an independent financial consultant and part-time retail
stock analyst employed by Coker & Palmer. Prior to his current position, Mr.
Mallott spent 16 years in retail financial management. He retired as Vice
President and Chief Financial Officer of Intimate Brands, Inc. in February 2000,
a position he held since 1995. Prior to joining Intimate Brands in 1995, Mr.
Mallott had been Chief Financial Officer of Structure, Inc., a business operated
by The Limited, Inc. From 1991 to 1994, Mr. Mallott was Vice President-Finance
at Structure. Mr. Mallott was first elected to the Board of Directors in
February 2000. Mr. Mallott is also a nominee for election to the board of
directors of Big Lots, Inc., a publicly held company.
Michael W. Rayden Age 54
Mr. Rayden has served as our President and Chief Executive Officer
since March 1996. He was elected Chairman of the Board of the Company in August
1999. Before joining the Company, he served as President, Chief Executive
Officer and Chairman of the Board of Pacific Sunwear of California, Inc. from
1990 to 1996, President and Chief Executive Officer of The Stride Rite
Corporation from 1987 to 1989 and President and Chief Executive Officer of Eddie
Bauer Inc. from 1984 to 1987. Mr. Rayden also serves on the board of directors
of Strottman International, Inc., a privately held company. Mr. Rayden was first
elected to the Board of Directors in August 1999.
Fredric M. Roberts Age 60
Mr. Roberts is President of F.M. Roberts & Company, Inc., an investment
banking firm that Mr. Roberts established in 1980. Mr. Roberts served as 1993
Chairman of the Board of Governors of the National Association of Securities
Dealers ("NASD"). From 1994 to 1996, he was a member of the Nasdaq Stock Market
Board of Directors and
-4-
its Executive Committee. Mr. Roberts also serves on the board of directors of
Cost Plus, Inc., a publicly held company. Mr. Roberts was first elected to the
Board of Directors in February 2003.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
Our Board of Directors held six meetings in fiscal year 2002. During
fiscal year 2002, all of the directors attended 75 percent or more of the total
number of meetings of the Board (held during the period for which such person
was a director) and committees of the Board (held during the period for which
such person served).
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Audit Committee of the Board of Directors recommends the firm to be
employed as our independent public accountants and reviews the scope of the
audit and audit fees, including the review of the quarterly results and related
filings. In addition, the Audit Committee consults with the independent auditors
about the plan of audit, the resulting audit report and the accompanying
management letter. The Audit Committee also confers with the independent
auditors about the adequacy of internal accounting controls, as appropriate,
outside of the presence of management. The members of the Company's Audit
Committee are Philip E. Mallott, Chairman, Elizabeth M. Eveillard, David A.
Krinsky and Kenneth J. Strottman. Ms. Eveillard was appointed to the Audit
Committee in February 2003. The Audit Committee held seven meetings in fiscal
year 2002.
Stock Option and Compensation Committee
The Stock Option and Compensation Committee of the Board of Directors
reviews executive compensation and administers the Company's stock option and
performance and incentive plans. Its members are Fredric M. Roberts, Chairman,
Nancy J. Kramer and Kenneth J. Strottman. Mr. Roberts was appointed to the Stock
Option and Compensation Committee in February 2003. David A. Krinsky served as
the Chairman of the Stock Option and Compensation Committee until November 2002.
The Stock Option and Compensation Committee held five meetings in fiscal year
2002.
Nominating Committee
The Nominating Committee consists of Nancy J. Kramer, Chairwoman,
Elizabeth M. Eveillard and Fredric M. Roberts. Ms. Eveillard and Mr. Roberts
were appointed to the Nominating Committee in February 2003. Previously, Michael
W. Rayden served as a member of the Nominating Committee and Kenneth J.
Strottman served as Chairman of the Nominating Committee. The Nominating
Committee makes recommendations to the board of directors regarding the size and
composition of the board, establishes procedures for the nomination process and
recommends candidates for election to the board of directors. The Nominating
Committee will consider nominees recommended by stockholders for the 2004 annual
meeting of stockholders provided that the names of such nominees are submitted
in writing within the time period described above under "Election of Directors."
The Nominating Committee was established in March 2002 and held one meeting in
fiscal year 2002.
EXECUTIVE OFFICERS
In addition to Mr. Kleeberger, Mr. Rayden and Ms. Boyer, the following
persons are our executive officers:
Scott M. Bracale Age 41
Mr. Bracale has served as our Executive Vice President-Marketing,
Catalog and Web since August 2002. Previously, Mr. Bracale served as Senior Vice
President-General Manager-Catalog, Internet from February 2000 to July 2002, and
as Vice President and General Manager-Catalog from December 1998 to January
2000. Prior to joining the Company, Mr. Bracale was Vice President of Bass Pro
Shops Catalog Division from 1995 to 1998.
-5-
Joan E. Munnelly Age 50
Ms. Munnelly has served as our Executive Vice President-Merchandising
and Design for Casual and Active Sportswear since August 2002. Previously, Ms.
Munnelly served as Senior Vice President-General Merchandise Manager and
Design/Sportswear from February 2000 to July 2002, and as Vice President-General
Merchandise Manager of Casual Sportswear from September 1999 to January 2000.
Prior to joining the Company, Ms. Munnelly was Vice President of Merchandising
for Just Nikki and Velvet Pixies, divisions of Claire's Inc. from June 1997 to
September 1999.
James C. Petty Age 44
Mr. Petty has served as our Executive Vice President-Stores and Realty
since August 2002. Previously, Mr. Petty served as our Senior Vice
President-Stores from June 2000 to July 2002, and as our Vice President-Stores
from June 1997 to May 2000. Mr. Petty also held various positions involving
store management and operations with Old Navy, Inc., Banana Republic, Inc. and
The Gap, Inc. during his 13-year tenure with The Gap and its subsidiaries,
including Vice President-Store Operations of Old Navy, Inc. from 1994 to 1997
and Vice President-Store Operations of Banana Republic, Inc. from 1991 to 1994.
Ronald Sykes Age 61
Mr. Sykes has served as our Senior Vice President-Human Resources since
October 2000. Prior to joining the Company, he was a principal since October
1999 at Walker-Sykes Associates, LLC, an executive search firm. Mr. Sykes owned
his own executive search firm, Ron Sykes & Associates, from August 1998 to
October 1999. From April 1995 to August 1998, he was a senior human resources
executive with The Limited Stores Inc. Mr. Sykes has held similar positions with
F & R Lazarus, Stride Rite Corporation, Jordon Marche, A & S/Jordan Marche, and
Macy's East.
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
Below is a table with information providing the number of shares of
Too, Inc.'s common stock beneficially owned by each of the directors of the
Company, executive officers listed in the Summary Compensation Table below, and
all of the directors and executive officers of Too, Inc. as a group.
NUMBER OF
SHARES OF COMMON
STOCK BENEFICIALLY PERCENT
NAME OWNED(1)(2) OF CLASS
---- ----------- --------
Sally A. Boyer................................................................................... 91,576 (3) *
Scott M. Bracale................................................................................. 59,216 (4) *
Elizabeth M. Eveillard .......................................................................... 0 *
Kent A. Kleeberger............................................................................... 108,383 (5) *
Nancy J. Kramer.................................................................................. 8,794 (6) *
David A. Krinsky................................................................................. 8,750 (6) *
Philip E. Mallott................................................................................ 11,458 (6) *
James C. Petty................................................................................... 69,287 (7) *
Michael W. Rayden................................................................................ 605,199 (8) 1.8%
Fredric M. Roberts............................................................................... 0 *
Kenneth J. Strottman............................................................................. 21,250 (6)(9) *
All directors and executive officers as a group (13 persons)..................................... 1,046,963 3.0%
* Less than 1%
(1) Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised by the named person or shared with a spouse.
-6-
(2) Reflects ownership as of February 28, 2003.
(3) Includes options to purchase 68,290 shares exercisable within 60 days after
February 28, 2003.
(4) Includes options to purchase 58,883 shares exercisable within 60 days of
February 28, 2003.
(5) Includes options to purchase 90,899 shares exercisable within 60 days after
February 28, 2003.
(6) Includes options to purchase 8,750 shares exercisable within 60 days after
February 28, 2003.
(7) Includes options to purchase 54,628 shares exercisable within 60 days after
February 28, 2003.
(8) Includes options to purchase 550,113 shares exercisable within 60 days
after February 28, 2003.
(9) Includes 2,500 shares owned by Mr. Strottman's family members, for which
Mr. Strottman disclaims beneficial ownership.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by Too, Inc. to each of the
named executive officers of the Company for each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
OTHER ALL OTHER
ANNUAL SECURITIES COMPEN-
FISCAL COMPENSA- RESTRICTED UNDERLYING SATION
YEAR SALARY($) BONUS($)(1) TION($)(2) AWARDS OPTIONS ($)(3)
---- --------- ----------- ---------- ------ ------- ------
Michael W. Rayden..................... 2002 940,285 1,892,663 6,044 100,000 100,000 556,538
Chairman of the Board, Chief 2001 911,638 1,266,320 5,713 -- 100,000 2,255,751
Executive Officer and 2000 793,077 1,641,011 11,719 100,000 200,000 1,567,434
President
Kent A. Kleeberger.................... 2002 393,846 380,076 1,471 -- 65,000 149,859
Executive Vice President, 2001 338,461 253,200 1,367 -- 25,000 117,382
Chief Operating Officer and 2000 296,842 276,000 2,870 -- 25,000 107,469
Chief Financial Officer
Sally A. Boyer........................ 2002 389,615 375,276 1,369 -- 65,000 138,877
President of Merchandising 2001 338,461 253,200 1,238 -- 25,000 106,231
2000 292,411 270,000 2,420 -- 25,000 94,848
Scott M. Bracale...................... 2002 380,962 344,753 1,173 -- 45,000 106,132
Executive Vice President - 2001 342,692 235,500 1,140 -- 20,000 84,181
Marketing and Catalog/Web 2000 377,308 274,000 1,353 -- 25,000 85,765
James C. Petty........................ 2002 353,269 315,818 1,160 -- 45,000 109,091
Executive Vice President - 2001 312,116 213,000 978 -- 10,000 86,398
Stores and Realty 2000 287,638 256,400 2,090 -- 25,000 76,576
----------
(1) Represents the total of the performance-based incentive compensation for
the spring and fall selling seasons.
-7-
(2) Represents reimbursement of taxes on benefits paid on behalf of the listed
officers.
(3) Includes group term insurance premiums paid on behalf of executive officers
Kleeberger, Boyer, Bracale and Petty, executive life insurance premiums
paid on behalf of Mr. Rayden and contributions and employer matching
contributions to the qualified retirement plan and the non-qualified
supplemental retirement and alternative savings plans in the amounts of
$556,539, $149,859, $138,877, 106,132, and $109,091 for officers Rayden,
Kleeberger, Boyer, Bracale and Petty, respectively.
STOCK OPTIONS
The following table shows certain information regarding stock options
granted to the executive officers named in the Summary Compensation Table during
the 2002 fiscal year.
OPTIONS GRANTED IN FISCAL YEAR 2002
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS AT ASSUMED
---------------------------------------------------------- ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR OPTION TERMS($)(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
----- ------- ----------- --------- ---- ---------- ---------------
Michael W. Rayden..................... 100,000 11.8% $26.05 2/12/12 1,638,271 4,151,699
Kent A. Kleeberger.................... 25,000 3.0% $26.05 2/12/12 409,568 1,037,925
40,000 4.7% $25.95 7/24/12 652,793 1,654,305
Sally A. Boyer........................ 25,000 3.0% $26.05 2/12/12 409,568 1,037,925
40,000 4.7% $25.95 7/24/12 652,793 1,654,305
Scott M. Bracale...................... 20,000 2.4% $26.05 2/12/12 327,654 830,340
25,000 3.0% $25.95 7/24/12 407,995 1,033,940
James C. Petty........................ 20,000 2.4% $26.05 2/12/12 327,654 830,340
25,000 3.0% $25.95 7/24/12 407,995 1,033,940
---------------------------
(1) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, in the price of the Company's common stock. Such amounts are based
on the assumption that the option holders hold the options granted for
their full term. The actual value of the options will vary in accordance
with the market price of the Company's stock.
The following table provides certain information regarding the value of
stock options at the end of the fiscal year held by the executive officers named
in the Summary Compensation Table:
-8-
AGGREGATED OPTION EXERCISES IN 2002 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON REALIZED YEAR-END(#)(2) YEAR-END($)(3)
-------------- --------------
NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------ ----------- ------------- ----------- -------------
Michael W. Rayden..................... 26,799 593,754 407,069 719,358 2,688,370 3,560,547
Kent A. Kleeberger.................... 7,500 144,901 72,149 127,088 180,400 13,438
Sally A. Boyer........................ 13,859 216,270 49,540 135,686 37,351 14,353
Scott M. Bracale...................... 9,392 187,838 45,133 84,415 103,204 6,287
James C. Petty........................ -- -- 40,878 94,802 57,348 7,845
(1) Value realized was calculated based on the number of shares exercised
multiplied by the excess of the fair market value of a share of Too, Inc.
common stock on the date of exercise over the exercise price of the stock
option.
(2) Represents exercisable and unexercisable Too, Inc. stock options for the
individual as of February 1, 2003.
(3) Represents the total gain which would have been realized if all
in-the-money options held at fiscal year-end had been exercised, determined
by multiplying the number of shares underlying the options by the
difference between the per share option exercise price and per share fair
market value at year-end ($16.65 on January 31, 2003). An option is
in-the-money if the fair market value of the underlying shares exceeds the
exercise price of the option.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth additional information as of February 1,
2003, concerning shares of our common stock that may be issued upon the exercise
of options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our stockholders and plans or
arrangements not submitted to our stockholders for approval. The information
includes the number of shares covered by, and the weighted average exercise
price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES WEIGHTED-AVERAGE FOR ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE PRICE OF EQUITY COMPENSATION
EXERCISE OF OUTSTANDING OPTIONS, PLANS (EXCLUDING
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS SECURITIES REFLECTED
WARRANTS AND RIGHTS (b) IN COLUMN (a))
(a) (c)
Equity compensation plans approved
by security holders 3,320,478 $16.6174 1,162,081
Equity compensation plans not
approved by security holders -- -- --
Total 3,320,478 $16.6174 1,162,081
-9-
DIRECTOR COMPENSATION
Associates and officers who are directors receive no additional
compensation for services as directors. In 2002, cash compensation for
non-associate directors included the following:
- an annual retainer of $10,000 plus $1,500 for each committee chair
held;
- $1,000 for each Board meeting attended ($400 for a telephonic
meeting);
- $600 for each committee meeting attended ($200 for a telephonic
meeting); and
- $200 for each action in writing that our Board or any committee
takes.
Effective February 1, 2003, cash compensation for non-associate directors will
be adjusted as follows:
- an annual retainer of $25,000 for service on the Board of Directors,
paid quarterly in arrears;
- an annual retainer of $7,500 for service as Chairman of the Audit
Committee; and
- an annual retainer of $4,000 for service as Chairman of the Stock
Option and Compensation Committee.
In addition, under our 1999 Non-Associate Director Stock Plan, each
director who is not an associate of our Company receives:
- an initial grant to purchase 5,000 shares of our common stock;
- an annual grant of options to purchase 5,000 shares of our common
stock at a price equal to the fair market value of the shares at the
grant date; and
- after three years of services as a director, a one-time grant of
options to purchase 15,000 shares.
EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVE OFFICERS
We entered into employment agreements with Mr. Rayden, Mr. Kleeberger, Ms.
Boyer, Mr. Bracale, Ms. Munnelly, and Mr. Petty effective September 15, 2000,
and with Mr. Sykes effective October 30, 2000. Except for Mr. Rayden, whose
agreement has an initial term of five years, each agreement has an initial term
of three years, after which it will renew automatically for additional one year
periods on the same terms and conditions, unless either party provides notice to
the other of an intention not to extend it at least 90 days prior to the
anniversary date. Furthermore, if a change in control (as defined in the
agreement) occurs during the term of the agreement, the term of the agreement
will be extended for two years from the date of the change in control.
Each employment agreement provides for a minimum annual base salary,
plus any increases in base compensation as may be authorized by the Board of
Directors after the date of the agreement. The agreements also provide for each
officer's continued participation in the Company's incentive compensation and
stock option plans and other benefits as described in the agreements.
The employment agreements require the Company to compensate each
officer and provide him or her with certain benefits if his or her employment is
terminated before the agreement expires. The compensation and benefits each
officer is entitled to receive vary depending upon whether his or her employment
is terminated: (1) by the Company for cause (as defined in the officer's
agreement), or voluntarily by the officer, or in the case of Mr. Rayden, other
than for good reason (as defined in his agreement); (2) by the Company other
than for cause, or in the case of Mr. Rayden, for good reason; (3)
-10-
involuntarily due to disability; (4) upon retirement; or (5) upon the officer's
death, under which circumstance the applicable compensation and benefits are
payable to the officer's beneficiaries.
If the officer's employment is terminated by the Company for cause,
voluntarily by the officer, or in the case of Mr. Rayden, if his employment is
terminated by the Company for cause or by Mr. Rayden for other than good reason
(as defined in his agreement), the officer's severance benefits payable under
the employment agreement will include:
- any accrued base salary and accrued vacation not paid as of the
termination date;
- vested benefits as of the termination date under the Company's
benefit, retirement, incentive and other plans; and
- in Mr. Rayden's case, continued payment of life insurance premiums
through the end of the calendar year.
If the officer's employment is terminated by the Company other than for
cause, or in the case of Mr. Rayden, for good reason (as defined in his
agreement), the officer's severance benefits payable under the employment
agreement will include:
- any accrued base salary and accrued vacation not paid as of the
termination date;
- a pro-rated bonus amount;
- vested benefits as of the termination date under the Company's
benefit, retirement, incentive and other plans;
- continued payment of 100% of base salary for 12 months, or in the
case of Mr. Rayden, a lump sum amount equal to two times the sum of
(i) base salary and (ii) the greater of Mr. Rayden's (a) annual par
target bonus opportunity in the year of termination or (b) the
actual annual bonus earned by Mr. Rayden in the year prior to the
year of termination;
- continued insurance benefits for one year (or, in Mr. Rayden's case,
two years);
- outplacement services and related travel costs up to a maximum of
$10,000 (or, in Mr. Rayden's case, $30,000); and
- in Mr. Rayden's case, acceleration of vesting of stock awards by 24
additional months and continued payment of life insurance premiums
through the end of the calendar year.
If the officer's employment is terminated involuntarily due to
disability, the officer's severance benefits payable under the employment
agreement will include:
- any accrued base salary and accrued vacation not paid as of the
disability date;
- a pro-rated bonus amount;
- vested benefits as of the termination date under the Company's
benefit, retirement, incentive and other plans;
- 100%, 80% and 60%, respectively, of base salary for the first,
second and third 12 months following the disability date (reduced by
amounts received by the officer under the Company's disability
plans);
- additional salary benefits if the officer is disabled beyond 36
months; and
- in Mr. Rayden's case, continued payment of life insurance premiums
through the end of the calendar year.
-11-
Notwithstanding the above, the salary continuation payments will cease upon the
earlier of (a) the disability ceasing to exist or (b) the officer's retirement.
If the officer's employment is terminated by reason of his or her
retirement, the officer's severance benefits will include the following:
- accrued base salary and accrued vacation not paid as of the
termination date;
- a pro-rated bonus amount; and
- vested benefits as of the termination date under the Company's
benefit, retirement, incentive and other plans.
If the officer's employment is terminated by reason of his or her
death, the Company's sole obligation will be to pay the officer's spouse, estate
or designated beneficiary, as the case may be, the same amounts due the officer
if he or she had retired, as described above.
The employment agreements also prohibit the officer from becoming
directly or indirectly connected with any business or entity that competes
directly or indirectly with the Company during the officer's employment with the
Company and for a period of one year (or in the case of Mr. Rayden, two years)
from the date of termination if employment is terminated: (1) by the Company for
any reason, (2) by the officer for any reason, or (3) by reason of either the
Company's or the officer's decision not to extend the term of the agreement. Mr.
Rayden's non-competition period will terminate after a change in control, upon a
termination by the Company for other than cause, or upon a termination by Mr.
Rayden for good reason. The non-competition periods of the other officers will
terminate upon termination by the Company other than for cause after a change in
control, or by the officer for good reason after a change in control.
We also entered into executive agreements with Mr. Rayden, Mr. Kleeberger,
Ms. Boyer, Mr. Bracale, Ms. Munnelly, and Mr. Petty effective September 15,
2000, and with Mr. Sykes effective October 30, 2000. Each agreement has an
initial term of three years, after which it will renew automatically for
additional one year periods on the same terms and conditions, unless the Company
provides notice to the officer of an intention not to extend the executive
agreement at least 30 days prior to the anniversary date. Furthermore, if a
change in control (as defined in the executive agreement) occurs during the term
of the executive agreement, the term of the agreement will be extended for two
years from the date of the change in control.
Under each executive agreement, the Company must provide severance
benefits to the officer if his or her employment is terminated (other than on
account of death or disability or for cause):
- by the Company at any time six months prior to a change in control
if such termination was in contemplation of such change in control
and was done to avoid the effects of the agreement;
- by the Company within 24 months after a change in control;
- by the officer for good reason (as defined in the executive
agreement) at any time within 24 months after a change in control;
or
- in the case of Mr. Rayden, by him with or without good reason during
the period beginning on the one year anniversary date of a change in
control and lasting for 30 days.
In addition to accrued compensation, bonuses, vested benefits and stock
options, the officer's severance benefits payable under the executive agreement
include:
- a lump sum cash payment equal to the sum of: (1) any accrued base
salary and vacation time payable as of the termination and (2) the
officer's base annual salary (as defined in the agreement)
multiplied by three;
-12-
- a lump sum cash payment equal to the sum of: (1) the pro-rated bonus
amount (as defined in the agreement) and (2) the highest annual
incentive compensation to which the officer would be entitled
multiplied by three;
- 36 months of continued insurance benefits;
- outplacement services and related travel costs up to a maximum of
$10,000 (or, in Mr. Rayden's case, $60,000).
Under the executive agreements, a change in control shall be deemed to
occur upon: (1) the acquisition by any person of 25% or more of the voting power
of the Company's outstanding securities; (2) a merger or consolidation of the
Company; (3) a sale of 50% or more of the Company's assets; (4) the liquidation
or dissolution of the Company; or (5) any transaction that has the same effect
as any of the foregoing.
RELATED PARTY TRANSACTIONS
Mr. Krinsky, a director of the Company, is a partner in the law firm of
O'Melveny and Myers LLP, which firm provided legal services to the Company in
fiscal 2002. Ms. Eveillard, a director of the Company, was Senior Managing
Director, Retailing and Apparel Group, Bear, Stearns & Co., Inc. from 2000 until
her retirement in April 2002, which firm provided investment banking services to
the Company in fiscal 2002.
The following Compensation Committee Report, Performance Graph, and
Audit Committee Report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any of
our filings under the Securities Act of 1933, or the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such Acts.
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
Our Stock Option and Compensation Committee has the power, among other
things, to do the following:
- review and approve our executive compensation philosophy and
policies and the application of such policies to the compensation of
our executive officers;
- determine the annual salary, bonus, stock grants and options, and
other benefits, direct and indirect, of our executives officers;
- review new executive compensation programs;
- establish and periodically review policies for the administration of
our executive compensation programs;
- approve certain employment arrangements with new employees.
COMPENSATION PHILOSOPHY
We seek to apply a consistent compensation philosophy for all of our
leadership group associates, including our executive officers. The primary goals
of our compensation program are to:
- attract and retain qualified executives;
- reward current and past individual performance;
- provide short-term and long-term incentives for good and excellent
future performance; and
- link total compensation for individual performance and our
performance to enhance stockholder value.
-13-
Accordingly, we have structured total compensation for our leadership
group associates to provide a portion of the compensation as fixed compensation
and a portion of the compensation as a variable amount based on performance. Our
philosophy is built on the following basic principles:
- To Pay for Outstanding Performance
We believe in paying for results. Individuals in leadership roles are
compensated based on a combination of total Company, business unit and
individual performance factors. Total Company performance is evaluated primarily
based on the degree by which financial targets are met or exceeded. In addition,
a significant portion of total compensation is in the form of equity-based
awards which ties into increases in stockholder value.
- To Pay Competitively
We are committed to providing a total compensation program designed to
attract the best senior leaders to our business and retain the best and most
consistent performers. To achieve this goal, we will periodically compare our
pay practices and overall pay levels with other leading retail, and where
appropriate, non-retail companies, and adjust our compensation guidelines based
on this review.
- To Pay Equitably
We believe that it is important to apply generally consistent
guidelines for substantially all associate compensation programs across our
Company, considering the size of unit, area of responsibility, complexity,
development stage, and performance of our Company, along with the performance of
the individual executive.
PRINCIPAL COMPENSATION ELEMENTS
The principal elements of our executive compensation packages are base
salary, short-term performance-based cash incentive compensation, and
equity-based long-term incentive programs.
Base Salary
The Committee annually reviews and approves the employment of each
executive officer, including the base salary. In determining salary adjustments,
the Committee considers the size and responsibility of the individual's
position, the business unit's overall performance, the individual's overall
performance and future potential, and the base salaries paid by competitors to
employees in comparable positions. Individual performance is measured against
the following factors: seasonal and annual business goals, business growth and
brand execution goals, and the recruitment and development of future leadership
talent. The Committee considers these factors subjectively in the aggregate, and
accords none a formula weight.
Performance-Based Cash Incentive Compensation
We have employed a short-term, performance-based cash incentive
compensation program for specified key leadership positions along with certain
other members of the Company's management that provides for incentive payments
based on the level of achievement of pre-established financial goals for each
six-month operating season. The goals under this plan for spring 2002 were based
on net income, and the goals for fall 2002 were based on operating income.
Goals, however, also may be based on other financial measures, including the
price of the Company's or an affiliate's common stock, stockholder return,
return on equity, return on investment, return on capital, sales productivity,
comparable store sales growth, economic profit, economic value added, operating
income, gross margin, sales, free cash flow, earnings per share, operating
company contribution or market share. These goals are generally determined prior
to or near the beginning of each season, and are based on an analysis of
historical performance and growth expectations for our business, expectations of
the public markets and progress toward achieving our long-range strategic plan
for the business. Target cash incentive
-14-
compensation opportunities are established annually for eligible executives
stated as a specific percentage of base salary, ranging from 10 percent to 150
percent of base salary. The amount of incentive compensation paid to
participating executives can range from zero to double their targets, based upon
the extent to which performance goals are achieved or exceeded. The maximum
amount payable to any participant may not exceed $3,000,000 in any year under
the incentive program.
Equity-Based Incentive Programs
The Committee believes that continued emphasis on equity-based
compensation opportunities encourages performance that enhances stockholder
value, thereby further linking leadership and stockholder objectives. We believe
that the magnitude and vesting schedule of the award also serve to retain key
performers.
The award opportunity level for each eligible participant depends on
the individual's responsibility level and potential within the Company,
competitive practices, and the market price of our common stock.
In 2002, the Company awarded stock options to key executives in the
amounts set forth in the Option Grants in Fiscal Year 2002 Table on page 9. The
option program utilizes vesting periods to encourage retention of key
executives. The exercise price for each option granted equals the fair market
value of the underlying common stock on the date of grant.
CEO COMPENSATION
We entered into an employment agreement with Mr. Rayden, effective
September 15, 2000. Under the terms of his employment agreement, Mr. Rayden may
receive equity compensation such as restricted stock, stock options, and
deferred compensation at the Compensation Committee's discretion. The terms of
Mr. Rayden's employment agreement are described above in this proxy statement
under the section entitled "Employment Agreements with Certain Executive
Officers."
In February 2002, the Company awarded 100,000 stock option shares in
Too, Inc. and 100,000 shares of restricted stock to Mr. Rayden.
SECTION 162(m)
The Budget Reconciliation Act of 1993 amended the Internal Revenue Code
to add Section 162(m) which bars a deduction to any publicly held corporation
for compensation paid to a "covered employee" in excess of $1 million per year
unless performance criteria are set by the Compensation Committee within 90 days
prior to the beginning of a performance period (or such earlier or later date as
is permitted by Section 162(m)). Generally, we intend that compensation paid to
our "covered employees" shall be deductible to the fullest extent permitted by
law.
Stock Option and Compensation Committee
Fredric M. Roberts, Chairman
Nancy J. Kramer
Kenneth J. Strottman
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Fredric M. Roberts, Nancy J. Kramer and Kenneth J. Strottman, who are not
employees of the Company, are members of the Stock Option and Compensation
Committee. Since 1993, Mr. Rayden has served as a member of the advisory board
of Strottman International, Inc., a privately held company, of which Mr.
Strottman is President and Chief Executive Officer. In his capacity as an
advisory board member, Mr. Rayden has no power to direct the activities of
Strottman International, Inc. or to set the compensation of Mr. Strottman.
-15-
STOCKHOLDER RETURN GRAPH
The following graph shows a comparison, over a forty-two month period,
of the cumulative total return for Too, Inc. common stock, the Standard & Poor's
SmallCap 600 Index and the Standard & Poor's Apparel Retail Index, each of which
assumes an initial investment value of $100 on August 9, 1999, the first day of
trading of Too, Inc.'s stock, on a "when-issued" basis, on the New York Stock
Exchange. The comparison also assumes the reinvestment of any dividends.
COMPARISON OF 42 MONTH CUMULATIVE TOTAL RETURN*
AMONG TOO, INC., THE S & P SMALLCAP 600 INDEX
AND THE S & P APPAREL RETAIL INDEX
[LINE GRAPH]
Cumulative Total Return
----------------------------------------------
8/9/99 1/29/00 2/2/01 2/1/02 2/1/03
TOO INC 100.00 103.79 112.73 164.61 100.91
S & P SMALLCAP 600 100.00 104.62 125.88 129.72 106.01
S & P APPAREL RETAIL 100.00 83.94 78.36 55.32 48.94
* $100 invested on 8/9/99 in stock or on 7/31/99 in index-including reinvestment
of dividends.
Copyright(C)2002 Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
-16-
AUDIT COMMITTEE
The Audit Committee of the Board of Directors, which currently consists
of Philip E. Mallott, Chairman, Elizabeth M. Eveillard, David A. Krinsky and
Kenneth J. Strottman, met seven times during the 2002 fiscal year, however Ms.
Eveillard was not appointed to the Audit Committee until February 2003. All
members of the Audit Committee are independent as that term currently is defined
in Section 303.01 of the listing standards of the New York Stock Exchange. The
Audit Committee functions in accordance with a written charter adopted by the
Board of Directors.
AUDIT COMMITTEE REPORT
The primary responsibility of the Audit Committee is to assist the
Board of Directors in fulfilling its oversight responsibilities relating
primarily to the quality and integrity of Too, Inc.'s financial reporting
process and reports, its systems of internal accounting and controls, and the
independent audit of its financial statements. Management is responsible for
preparing the financial statements, and the outside auditor is responsible for
auditing those financial statements.
In fulfilling its oversight responsibilities, the Audit Committee
reviewed and discussed the audited financial statements in the Annual Report on
Form 10-K for the fiscal year ended February 1, 2003, with management and the
outside auditors, including their judgment about the quality and appropriateness
of accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. In addition, the Audit
Committee discussed with the outside auditors the matters required to be
communicated under generally accepted auditing standards by Auditing Standards
61. The Audit Committee also discussed with the outside auditors the auditors'
independence from management and the Company, and discussed the matters
contained in the outside auditors' formal written statement received by the
Company and required by the Independence Standards Board Standard No. 1.
The Audit Committee discussed with the Company's outside auditors the
overall scope and plan for their audit. The Audit Committee met separately with
the outside auditors, with and without management present, to discuss the
results of their examinations, including the integrity, adequacy, and
effectiveness of the accounting and financial reporting processes and controls,
and the overall quality of Too, Inc.'s reporting.
In reliance on the reviews and discussions referred to above, the Audit
committee recommended to the Board, and the Board has approved, that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended February 1, 2003, for filing with the Securities and Exchange Commission.
Audit Committee
Philip E. Mallott, Chairman
Elizabeth M. Eveillard
David A. Krinsky
Kenneth J. Strottman
-17-
SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table shows the names of owners of the Company's common
stock who, on February 28, 2003, were known by Too, Inc. to be beneficial owners
of more than 5% of the shares of common stock of the Company.
AMOUNT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY PERCENT
------------------------------------ OWNED(1) OF CLASS(2)
-------- -----------
FMR Corporation............................................................................ 3,668,905 (3) 10.76%
82 Devonshire Street
Boston, Massachusetts 02109
Wellington Management Company, LLP......................................................... 1,975,230 (4) 5.79%
75 State Street
Boston, Massachusetts 02109
AIM Management Group, Inc.................................................................. 1,733,935 (5) 5.10%
11 Greenway Plaza, Suite 100
Houston, Texas 77046
------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and or investment power with respect to those securities.
(2) "Percent of Class" is calculated by dividing the number of shares
beneficially owned by the total number of outstanding shares of the Company
on February 28, 2003, plus the number of shares such person has the right
to acquire within 60 days of February 28, 2003.
(3) Based on the Schedule 13G/A of FMR Corporation, filed with the Securities
and Exchange Commission on February 14, 2003.
(4) Based on the Schedule 13G/A of Wellington Management Company, LLP filed
with the Securities and Exchange Commission on February 12, 2003.
(5) Based on the Schedule 13G of AIM Management Company filed with the
Securities and Exchange Commission on February 10, 2003.
-18-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors, and greater than 10% stockholders to file reports of
ownership and changes in ownership of the Company's securities with the
Securities and Exchange Commission. SEC regulations require that copies of the
reports be provided to the Company. Based on our review of such reports, we
believe that all reporting persons complied with all filing requirements during
the fiscal year ended February 1, 2003, except for three late Form 4 filings for
Mr. Rayden and a one late Form 4 filing for Mr. Bracale.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP served as the independent accountants for
the Company for the 2002 fiscal year and throughout the periods covered by the
consolidated financial statements. Representatives of PricewaterhouseCoopers LLP
are expected to attend the annual meeting in order to respond to questions from
stockholders, and they will have the opportunity to make a statement.
FEES OF THE INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003
The following table shows the aggregate fees billed to the Company by
its independent accountants, Pricewaterhouse Coopers LLP, for services rendered
during the fiscal year ended February 1, 2003.
DESCRIPTION OF FEES AMOUNT
------------------- ------
Audit Fees (1).............................................................................................. $ 202,787
Financial Information Systems Design and Implementation Fees................................................ $ 0
All Other Fees (2)(3)....................................................................................... $ 243,773
--------------
(1) Includes fees for the audit of the February 1, 2003, financial statements
and reviews of the related quarterly financial statements.
(2) The Audit Committee of the Company's Board of Directors has considered
whether the rendering of such non-audit services by PricewaterhouseCoopers
LLP is compatible with maintaining their independence.
(3) Includes one-time fees for services rendered in connection with the
Company's follow-on offering of common stock in May 2002 and fees
associated with the audit of the third-party administrator for the
Company's health care benefit plan, and certain tax initiatives undertaken
in fiscal year 2002.
STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the proxy statement for the
2004 Annual Meeting of Stockholders should be submitted to the Secretary of the
Company at our corporate offices by December 11, 2003, but not before November
11, 2003. The Company may omit from the proxy statement and form of proxy
relating to the next annual meeting of stockholders any proposals which are not
received by the Secretary by December 11, 2003, or which are received before
November 11, 2003. Any stockholder proposal submitted outside the processes of
Rule 14a-8 under the Securities and Exchange Act of 1934 for presentation at our
2004 Annual Meeting will be considered untimely for purposes of Rule 14a-4 and
14a-5 if notice thereof is received by the Company after February 24, 2004. To
be submitted at the meeting, any such proposal must be a proper subject for
stockholder action under the laws of the State of Delaware.
Stockholder nominations for the Board of Directors to be elected at the
2004 Annual Meeting of Stockholders should be submitted not less than 14 days,
nor more than 50 days, before the 2004 Annual Meeting.
-19-
SOLICITATION EXPENSES
The Company will pay the expense of preparing, assembling, printing and
mailing the proxy form and the form of material used in solicitation of proxies.
Our associates may solicit proxies by telephone, mail services, electronic mail,
mailgram, facsimile, telegraph, cable and personal interview.
CERTAIN MATTERS RELATING TO PROXY MATERIALS AND ANNUAL REPORTS
The Securities and Exchange Commission has adopted amendments to its
rules regarding delivery of proxy statements and annual reports to stockholders
sharing the same address. We may now satisfy these delivery rules by delivering
a single proxy statement and annual report to an address shared by two or more
of our stockholders. This delivery method is referred to as "householding" and
can result in significant costs savings for us. To take advantage of this
opportunity, we have delivered only one proxy statement and annual report to
multiple stockholders who share an address, unless we received contrary
instructions from the impacted stockholders prior to the mailing date. We
undertake to deliver promptly upon written or oral request a separate copy of
the proxy statement or annual report, as requested, to a stockholder at a shared
address to which a single copy of those documents was delivered. If you prefer
to receive separate copies of a proxy statement or annual report, either now or
in the future, you can request a separate copy of the proxy statement or annual
report by writing to us at the following address: Investor Relations, Too, Inc.,
8323 Walton Parkway, New Albany, Ohio 43054, Attention: Robert C. Atkinson, or
by telephoning us at (614) 775-3500.
If you are currently a stockholder sharing an address with another Too,
Inc. stockholder and wish to have your future proxy statements and annual
reports householded, please contact Investor Relations at the above address or
telephone number.
OTHER MATTERS
A copy of our Annual Report on Form 10-K for the fiscal year ended
February 1, 2003, as filed with the Securities and Exchange Commission will be
sent to any stockholder without charge upon written request submitted to us at
the following address: Investor Relations, Too, Inc., 8323 Walton Parkway, New
Albany, Ohio 43054, Attention: Robert C. Atkinson, or by telephoning us at (614)
775-3500.
The Board of Directors knows of no other matters to be brought before
the annual meeting. However, if other matters should come before the meeting,
each of the persons named in the proxy intends to vote in accordance with their
judgement on such matters.
By Order of the Board of Directors
Michael W. Rayden
Chairman, President & Chief Executive Officer
-20-
FINANCIAL STATEMENTS AND OTHER INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our Consolidated Financial
Statements and the related notes to those Consolidated Financial Statements. For
the purposes of the following discussion, unless the context otherwise requires,
"Too, Inc.," "Too," "we," "our," "the Company" and "us" refer to Too, Inc. and
our wholly-owned subsidiaries.
GENERAL
Since our Spin-off from The Limited in August 1999, we have made solid progress
on several of our financial and strategic initiatives designed to improve our
financial performance and to build and strengthen our 360-degree brand. During
fiscal 2002, we have:
- increased sales 7% to $647.5 million;
- increased net income 20% to $47.3 million or $1.38 per diluted share versus
net income of $39.6 million or $1.23 per diluted share in fiscal 2001;
- mailed 30.1 million "catazines," which not only generated sales into its
own channel, but served to drive sales to the stores;
- completed a follow-on common stock offering that generated $73 million and
allowed us to eliminate our outstanding debt;
- completed construction on and transitioned to our new home office and
distribution center, along with assuming overall responsibility for inbound
and outbound logistics;
- rolled out new point of sale hardware and software to all our stores;
- opened new sourcing offices in Hong Kong and Guatemala;
- built a 36-member merchandising team for mishmash;
- started a new jewelry store joint venture with our Australian partner,
Angus & Coote (Holdings) Limited.
-F-1-
RESULTS OF OPERATIONS
Our results of operations, expressed as a percentage of sales, follow:
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001 (1)
------------- ------------- -------------
Net sales 100.0 % 100.0 % 100.0 %
Costs of goods sold, buying and
occupancy costs 63.3 63.9 64.7
------- ------- -------
Gross income 36.7 36.1 35.3
General, adminstrative and store
operating expenses 24.7 25.1 25.2
------- ------- -------
Operating income 11.9 11.0 10.1
Interest expense, net 0.1 0.1 0.3
------- ------- -------
Income before income taxes 11.9 10.9 9.9
Provision for income taxes 4.5 4.4 3.9
------- ------- -------
Net income 7.3 % 6.6 % 5.9 %
======= ======= =======
(1) Represents the 53-week fiscal year ended February 3, 2001.
Net income increased 20% in fiscal 2002 to $47.3 million or $1.38 per diluted
share versus net income of $39.6 million or $1.23 per diluted share in fiscal
2001. An increase in gross income and a reduction, as a percent of sales, in
general, administrative and store operating expenses resulted in a 90 basis
point improvement in operating income for fiscal 2002.
-F-2-
FINANCIAL SUMMARY
Summarized annual financial data for the last three fiscal years is presented
below:
FISCAL YEAR ENDED % CHANGE
------------------------------------------------- ----------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, 2001- 2000-
2003 2002 2001 (1) 2002 2001
--------------- --------------- --------------- ---- ----
Net sales (millions) $ 647.5 $ 602.7 $ 545.0 7 % 11 %
Limited Too:
Comparable store sales increase (decrease) (2) (3) (3) % 0 % 4 %
Annual sales per average square foot (4) $ 319 $ 336 $ 341 (5) % (1) %
Sales per average store (thousands) $ 1,302 $ 1,374 $ 1,418 (5) % (3) %
Average store size at year end (square feet) 4,100 4,098 4,111 - % - %
Total square feet at year end (thousands) 2,091 1,881 1,669 11 % 13 %
Number of stores:
Beginning of year 459 406 352
Opened 56 57 58
Closed (5) (4) (4)
----------- ----------- ----------
End of year 510 459 406
=========== =========== ==========
Stores remodeled 9 6 10
Stores with "Girl Power" format 280 216 156
Percentage of stores in "Girl Power" format 55 % 47 % 38 %
Number of mishmash stores 12 7 -
(1) Represents the 53-week fiscal year ended February 3, 2001.
(2) A store is included in our comparable store sales calculation once it
has completed 52 weeks of operation. Further, stores that have changed
more than 20% in square feet are treated as new stores for purposes of
this calculation.
(3) Comparable store sales for fiscal 2000 are for the 52-weeks ended
January 27, 2001.
(4) Annual sales per average square foot is the result of dividing net
sales for the fiscal year by average gross square feet, which reflects
the impact of opening and closing stores throughout the year.
-F-3-
FISCAL YEAR ENDED FEBRUARY 1, 2003 COMPARED TO FISCAL YEAR ENDED FEBRUARY 2,
2002
NET SALES - Net sales for 2002 increased 7% to $647.5 million from $602.7
million for 2001. The increase was primarily a result of the net addition of 51
Limited Too and 5 mishmash stores, which was partially offset by a 3% decline in
comparable store sales. Within merchandise categories, sales of cut and sewn
casual tops, active apparel, led by active pants and shorts, and denim jeanswear
increased significantly over fiscal 2001. Also, the add-on category (principally
innerwear and swimwear) posted solid sales increases. Conversely, casual shorts
and casual pants posted sales decreases over prior year.
GROSS INCOME - The gross income rate, expressed as a percentage of net sales,
increased to 36.7% in fiscal 2002 from 36.1% for 2001. The increase in rate was
primarily attributable to a higher merchandise margin arising from improved
initial markups, which were partially offset by an increase in markdowns. This
increase in merchandise margin was partially offset by an increase in buying and
occupancy costs, expressed as a percentage of net sales, due to increased store
occupancy costs and incremental catazine production costs. The Company mailed
approximately 30.1 million catazines in fiscal 2002 compared to 21.7 million in
2001.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES - General, administrative
and store operating expenses, expressed as a percentage of net sales, decreased
to 24.7% from 25.1% for 2001. This decrease was primarily due to lower
distribution center expenses, and lower catazine and web fulfillment costs.
OPERATING INCOME - Operating income, expressed as a percentage of net sales,
increased to 11.9% for 2002 from 11.0% for 2001. The increase was attributable
to higher gross income and lower general, administrative and store operating
expenses, expressed as a percentage of sales.
INTEREST EXPENSE, NET - Interest expense, net of interest income, was $517,000
in fiscal 2002 compared to $583,000 in 2001. Interest expense was for the
long-term portion of borrowings under the Company's Credit Facility, while
interest income was earned on the short-term investment of cash balances.
Interest expense was $2.3 million and $3.8 million for fiscal years 2002 and
2001, respectively. The Company paid off the entire amount of the $50 million
term loan due under the Credit Facility in May of 2002 (see footnote 6 for more
information regarding the Credit Facility). Interest income was $1.8 million and
$3.2 million for fiscal years 2002 and 2001, respectively. The decrease in
interest income was due to lower interest rates available on short-term
securities.
INCOME TAXES - Income tax expense amounted to $29.4 million for 2002 compared to
$26.4 million for 2001. The income tax provision rate decreased from 40.0% to
38.3% as a result of realigning our corporate operations, including our direct
sourcing initiatives and investment in certain short-term, tax-free municipal
bonds.
-F-4-
FISCAL YEAR ENDED FEBRUARY 2, 2002 COMPARED TO FISCAL YEAR ENDED FEBRUARY 3,
2001
NET SALES - Net sales for 2001 increased 11% to $602.7 million from $545.0
million for 2000. The increase was primarily a result of the net addition of 53
Limited Too and 7 mishmash stores. Within merchandise categories, sales of cut
and sewn casual tops and active apparel, led by active bottoms and tees,
increased significantly. Also, the add-on category (principally innerwear,
underwear, bras and swimwear) posted solid sales increases.
GROSS INCOME - The gross income rate expressed as a percentage of net sales,
increased to 36.1% in fiscal 2001 from 35.3% for 2000. The increase in rate was
primarily attributable to a higher merchandise margin arising from improved
initial markups which were partially offset by an increase in markdowns. This
increase in merchandise margin was partially offset by an increase in buying and
occupancy costs, expressed as a percentage of net sales, due to increased store
occupancy costs and incremental catazine costs. The Company mailed approximately
21.7 million catazines in fiscal 2001 compared to 12.5 million in 2000.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES - General, administrative
and store operating expenses, expressed as a percentage of net sales, decreased
to 25.1% from 25.2% for 2000. This decrease was primarily due to lower home
office expenses, expressed as a percentage of sales.
OPERATING INCOME - Operating income, expressed as a percentage of net sales,
increased to 11.0% for 2001 from 10.1% for 2000. The increase was attributable
to higher gross income and lower general, administrative and store operating
expenses, expressed as a percentage of sales.
INTEREST EXPENSE, NET - Interest expense, net of interest income, amounted to
$583,000 in fiscal 2001 compared to $1.55 million in 2000. Interest expense was
for the term portion of borrowings under the Company's Credit Facility, while
interest income was earned on the short-term investment of cash balances.
Interest expense amounted to $3.8 million and $5.0 million for the fiscal years
2001 and 2000, respectively. The decrease in expense was due to lower interest
rates, as well as capitalization of interest on the construction of the
distribution center and home office. Interest expense also includes the
amortization of financing fees and related costs incurred in connection with the
Credit Facility.
Interest income amounted to $3.2 million and $3.5 million for the fiscal years
2001 and 2000, respectively. The decrease in interest income was due to lower
interest rates available on short-term securities.
INCOME TAXES - Income tax expense amounted to $26.4 million for 2001 compared to
$21.5 million for 2000. The annual effective tax rate remained unchanged at 40%
for fiscal 2001.
-F-5-
FINANCIAL CONDITION
Our balance sheet remains strong due to a substantial increase in operating
income and positive cash flow from operations. We were able to finance all
capital expenditures with working capital generated from operations and ended
the year with approximately $101.3 million in cash and equivalents. We also
raised $73.4 million through a follow-on common stock offering, enabling us to
pay off our entire outstanding debt balance. A more detailed discussion of
liquidity, capital resources and capital requirements follows.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities provided the resources to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures. A summary of the Company's working capital position
and capitalization follows (in thousands):
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2003 2002 2001
------------- --------------- ------------
Net cash provided by operating activities $ 60,708 $ 65,457 $ 29,209
Working capital, including current portion of long-
term debt of $17,500 at February 2, 2002 90,546 23,815 40,762
Capitalization:
Long-term debt - 32,500 50,000
Shareholders' equity 253,660 128,209 79,711
----------- ------------- ----------
Total capitalization $ 253,660 $ 160,709 $ 129,711
=========== ============= ==========
Additional amounts available under the revolving
portion of the Credit Facility $ 50,000 $ 50,000 $ 50,000
In connection with the Spin-off, the Company entered into a $100 million Credit
Facility used to finance a $50 million dividend to The Limited as well as the
repayment of a portion of working capital advances made by The Limited prior to
the Spin-off. As of February 1, 2003, there were no amounts outstanding under
the Credit Facility.
OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $60.7 million for fiscal
2002 versus $65.5 million for fiscal 2001. An increase in inventory levels,
other long-term assets and the timing of income tax payments more than offset
the increase in net income plus depreciation and accrued expenses. The increase
in inventory levels was due to a combination of an increase in new stores early
receipt of spring goods in January and, to a lesser extent, missed sales in late
December and the month of January. Net cash provided by operating activities
increased to $65.5 million for fiscal 2001 compared to $29.2 million for fiscal
2000. An increase in net income plus depreciation and amortization, the timing
of income taxes paid and a decreased investment in inventory were the primary
causes for the increase in fiscal 2001. In fiscal 2000, an increase in net
income plus depreciation and amortization was more than offset by the timing of
cash payments related to accounts payable and accrued expenses.
-F-6-
INVESTING ACTIVITIES
Capital expenditures amounted to $39.7 million, $63.6 million and $36.3 million
for fiscal years 2002, 2001 and 2000, respectively. We expended approximately
$22 million, $46 million and $10 million in connection with the construction of
our new home office and distribution center in fiscal years 2002, 2001 and 2000,
respectively. The balance of capital expenditures in fiscal 2002, 2001 and 2000
was incurred primarily to construct new stores and remodel existing stores. In
addition, investing activities included the Company's purchase of
corporate-owned life insurance policies in connection with the Company's
nonqualified benefit plans.
We anticipate spending between $23 million and $25 million in fiscal 2003 for
capital expenditures primarily for new stores, remodeling or expansion of
existing stores and related fixtures and equipment. We intend to add 250,000 to
270,000 square feet in 2003, which will represent a 12% to 13% increase over
year-end 2002. We anticipate that the increase will result from opening
approximately 50 to 55 new Limited Too stores and expanding approximately ten
stores identified for remodeling. Additionally, we plan to open from 12 to at
least 20 new mishmash stores during fiscal 2003.
We estimate that the average cost for leasehold improvements, furniture and
fixtures for Limited Too stores to be opened in 2002 will be between $155,000
and $180,000 per store, after giving effect to construction allowances. Average
pre-opening costs per store, which will be expensed as incurred, are expected to
approximate $10,000 while inventory purchases are expected to average less than
$70,000 per store.
We expect that substantially all capital expenditures in fiscal 2003 will be
funded by cash on hand and net cash provided by operating activities.
FINANCING ACTIVITIES
Financing activities in fiscal 2002 included stock option activity along with
the issuance of restricted stock. In addition, proceeds from the issuance of 2.4
million shares of common stock in connection with a follow-on offering
consummated in May 2002, and the corresponding repayment of the term loan, were
also reflected. Financing activities in 2001 and 2000 principally consisted of
the issuance of common shares related to restricted stock and stock options.
TRANSITIONAL SERVICES AND SEPARATION AGREEMENTS
In connection with the August 1999 Spin-off, the Company entered into several
Transitional Services and Separation Agreements (the "Transitional Services
Agreements") with The Limited regarding certain aspects of our ongoing
relationship. We believe that the terms of these agreements are similar to terms
achievable through arm's length negotiations with third parties.
A summary of some of the more significant Transitional Services Agreements
follows:
Trademark and Service Mark Licensing Agreement
We have entered into an exclusive trademark and service mark licensing agreement
(the "Trademark Agreement") with The Limited that allows us to operate under the
"Limited Too" brand name. The agreement had an initial term of five years after
the Spin-off, renewable annually at our option. All licenses granted under the
agreement will be granted free of charge. In return, we are required to provide
The Limited with the right to inspect our stores and distribution facilities and
an ability to review and approve our advertising. Under the Trademark Agreement,
we are only able to use the brand name "Limited Too" in connection with any
business in which we sell to our current target customer group or to infants and
toddlers. In addition, we may not use the Limited Too brand name or its
derivative that competes with merchandise currently offered by The Limited or
its subsidiaries, unless it is for our current target customer group. The
Limited has the right to terminate the Trademark Agreement under certain limited
conditions.
-F-7-
Services Agreement
The Services Agreement relates to transitional services that The Limited or its
subsidiaries or affiliates provided to us subsequent to the Spin-off. Under this
agreement, The Limited provided services in exchange for fees which we believe
were similar in material respects to what a third-party provider would charge,
and were based on several billing methodologies. Under one of these billing
methodologies, which was the most prevalent, The Limited provided us with
services at costs comparable to those charged to other businesses operated by
The Limited from time to time. We were generally obligated to purchase those
services at fees equal to The Limited's costs of providing the services plus 5%
of these costs. However, third-party cost components were not subject to the 5%
mark-on. In fiscal 2001 and 2000, the services that The Limited provided to us
principally related to merchandise distribution covering flow of goods from
factory to store. During the first quarter of fiscal 2002, we began operating
our own distribution center and cancelled the Services Agreement.
Store Leases Agreement
At February 1, 2003, 74 of our stores were adjacent to The Limited's stores. In
addition, many of these aforementioned stores are part of 102 stores that are
subject to sublease agreements (the "Store Leases Agreement") with The Limited
for stores where we occupy space that The Limited leases from third-party
landlords (the "Direct Limited Leases"). Under the terms of the Store Leases
Agreement, we are responsible for our proportionate share, based on the size of
our selling space, of all costs (principally rent, excess rent, if applicable,
maintenance and utilities).
All termination rights and other remedies under the Direct Limited Leases will
remain with The Limited. If The Limited decides to terminate any of the Direct
Limited Leases early, The Limited must first offer to assign such lease to us.
If, as a result of such early termination by The Limited, we are forced to
remodel our store or relocate within the mall, The Limited will compensate us
with a combination of cash payments and loans which will vary depending on the
remaining term of the affected store lease at the time the Limited closes its
adjacent store as follows:
CASH LOAN
REMAINING LEASE TERM PAYMENT AMOUNT
----------------------------- ------------ --------
Less than one year $ - $ 100,000
One to two years 50,000 100,000
Three to four years 100,000 100,000
Greater than four years 100,000 150,000
Approximately 24 of the Direct Limited Leases of which we are a part are
scheduled to expire during 2007 or later. We may not assign or sublet our
interest in those premises, except to an affiliate, without The Limited's
consent. If The Limited intends to sublet or assign its portion of the leased
premises under any of the Direct Limited Leases to any non-affiliate, it will be
required to give us 60 days notice, and we will be allowed to terminate our
interest on that basis.
Approximately 48 of our direct leases are guaranteed by The Limited. Pursuant to
the Store Leases Agreement, we are required to make additional payments to The
Limited as consideration for the guarantees that The Limited provides under such
leases along with amounts for adjacent stores based on those locations achieving
certain performance targets.
CONTRACTUAL OBLIGATIONS
The Company's significant contractual obligations consist primarily of store
leases. As detailed in Note 4 to the Consolidated Financial Statements, the
Company has minimum rent commitments under store lease agreements of
approximately $355 million, excluding any additional payments covering other
occupancy costs, such as maintenance and taxes.
-F-8-
CREDIT FACILITY
In August 1999, we entered into a five-year, $100 million collateralized Credit
Facility. The Credit Facility consisted 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 was interest only until the end of the third year at which time the
amortization of the outstanding principal balance would have begun. The Credit
Facility contains customary representations and warranties as well as certain
affirmative, negative and financial covenants.
In November 2001, the Company amended the Credit Facility. The amendment allows
for the investment of cash in short-term, AAA-rated municipal bonds, as well as
less stringent limitations on 2001 capital expenditures and on indebtedness
incurred in relation to lease agreements.
On May 24, 2002, the Company sold 2.4 million shares of its common stock,
resulting in net proceeds of $73.4 million. On that day, the Company paid off
the entire $50 million term loan due under the Credit Facility, and the
remaining proceeds from the sale of common stock will be used for general
corporate purposes. The $50 million revolving loan commitment under the Credit
Facility remains in effect and is available to the Company for future business
purposes.
At year-end, the entire amount of the $50 million revolving credit commitment
was available to fund working capital requirements and for general corporate
purposes.
IMPACT OF INFLATION
Our results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, we believe that
the effects of inflation, if any, on our results of operations and financial
condition have been minor.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that impact the amounts reported in the Company's
consolidated financial statements and related notes. On an on-going basis,
management evaluates its estimates and judgments, including those related to
inventories, long-lived assets and sales returns. Management bases its estimates
and judgments on historical experience and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ
materially from management's estimates. Management believes the following
estimates and assumptions are most significant to reporting the Company's
results of operations and financial position.
Revenue Recognition - Retail sales are recorded when the customer takes
possession of merchandise. Markdowns associated with the Frequent Buyer and "Too
Bucks" Programs are recognized upon redemption in conjunction with a qualifying
purchase. Catalog and web sales are recorded upon shipment to the customer. A
reserve is provided for projected merchandise returns based on prior experience.
Inventories - Inventories are valued at the lower of average cost or market, on
a first-in, first-out basis, utilizing the retail method. Under the retail
method, the valuation of inventories at cost and the resulting gross margins are
calculated by applying a cost-to-retail ratio to the retail value of
inventories. The use of the retail method will result in valuing inventories at
the lower of cost or market if markdowns are currently taken as a reduction of
the retail value and cost of inventories. Inherent in the retail method are
certain significant management judgments and estimates including, among others,
initial merchandise markup, markdowns and shrinkage, which significantly impact
the ending inventory valuation at cost as well as the resulting gross margins.
The Company calculates inventory costs on an individual item-class basis to
ensure a high degree of accuracy in estimating the cost. Inventory valuation at
the end of the first and third quarters reflects adjustments for inventory
markdowns and shrinkage estimates for the total selling season.
-F-9-
Property and Equipment - Property and equipment are stated at cost, net of
accumulated depreciation and amortization. Service lives are established for
store assets ranging from 5 to 10 years for building improvements and 3 to 10
years for other property and equipment. Property and equipment at the home
office and distribution center are assigned service lives between 5 and 40
years. Assets are reviewed on an annual basis for impairment, and based on
management's judgment, are written down to the estimated fair value based on
anticipated future cash flows.
Income Taxes - Income taxes are calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method. Deferred tax assets and
liabilities are recognized based on the difference between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Inherent in the measurement of deferred balances are certain judgments
and interpretations of enacted tax laws and published guidance with respect to
applicability to the Company's operations. No valuation allowance has been
provided for deferred tax assets because management believes that it is more
likely than not that the full amount of the net deferred tax assets will be
realized in the future.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 the corresponding
estimated retirement 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.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" was issued by the Financial
Accounting Standards Board during the second quarter of 2002. SFAS 145
eliminates FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses
from extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in Accounting Principles Board (APB) Opinion No. 30. SFAS
145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 shall be
applied in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 are effective for transactions occurring after
May 15, 2002. All other provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. The Company believes that the
adoption of the provisions of this statement related to the rescission of
Statement 4 will not have a significant effect on the Company's results of
operations or its financial position. The adoption of the other provisions of
this statement did not have a material impact on the Company's consolidated
financial statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
was issued by the Financial Accounting Standards Board during the second quarter
of 2002. SFAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. SFAS 146
eliminates the definition and requirement for recognition of exit costs in EITF
Issue No. 94-3 where a liability for an exit cost was recognized at the date of
an entity's commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value. This
statement is effective for exit or disposal activities initiated after December
31, 2002. The Company believes that the adoption of this statement will not have
a significant impact on its results of operations or financial position.
-F-10-
Financial Accounting Standards Board Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued in November 2002. FIN 45
requires that upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation it assumes under the guarantee.
Guarantors will also be required to meet expanded disclosure obligations. The
initial recognition and measurement provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for annual and interim financial statements that end
after December 15, 2002. The adoption of this Interpretation will not have a
material impact on the Company's consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
issues raided in EITF 02-16, "Accounting by a Reseller for Cash Consideration
Received from a Vendor." This EITF issue addresses the timing of recognition for
rebates that are earned by resellers based on specified levels of purchases or
over specified periods of time. This guidance related to timing of recognition
is to be applied prospectively to new rebate arrangements entered into after
November 21, 2002. This EITF issue also addresses the classification of cash
consideration received from vendors in a reseller's income statement. The
guidance related to income statement classification is to be applied to all new
arrangements or arrangements modified after December 31, 2002. The adoption of
this issue did not have a material impact on the Company's consolidated
financial statements.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of SFAS No. 123" was issued in December 2002. SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company continues to account for stock-based
compensation using Accounting Principles Board Statement No. 25, "Accounting for
Stock Issued to Employees," and has not adopted the recognition provisions of
SFAS No. 123, as amended by SFAS No. 148. However, the Company has adopted the
disclosure provisions of SFAS No. 148 for the current fiscal year and has
included this information in Note 2.
-F-11-
SEASONALITY AND QUARTERLY FLUCTUATIONS
As illustrated in the table below, our business is highly seasonal, with
significantly higher sales, gross income and net income realized during the
fourth quarter, which includes the holiday selling season.
(in thousands, except percentages)
2002 QUARTERS FIRST SECOND THIRD FOURTH
------------- --------- ---------- --------- ----------
Net sales $ 158,591 $ 141,248 $ 164,629 $ 182,987
% of full year 24.5 % 21.8 % 25.4 % 28.3 %
Gross income $ 53,523 $ 49,445 $ 59,021 $ 75,460
% of full year 22.5 % 20.8 % 24.9 % 31.8 %
Net income $ 5,845 $ 5,531 $ 10,836 $ 25,126
% of full year 12.3 % 11.7 % 22.9 % 53.1 %
2001 QUARTERS
-------------
Net sales $ 136,657 $ 125,468 $ 148,763 $ 191,801
% of full year 22.7 % 20.8 % 24.7 % 31.8 %
Gross income $ 44,963 $ 40,974 $ 51,382 $ 80,203
% of full year 20.7 % 18.8 % 23.6 % 36.9 %
Net income $ 3,815 $ 2,877 $ 8,040 $ 24,831
% of full year 9.6 % 7.3 % 20.3 % 62.8 %
2000 QUARTERS (1)
-----------------
Net sales $ 118,753 $ 108,315 $ 133,829 $ 184,143
% of full year 21.8 % 19.9 % 24.5 % 33.8 %
Gross income $ 39,472 $ 34,731 $ 45,257 $ 73,121
% of full year 20.5 % 18.0 % 23.5 % 38.0 %
Net income $ 3,142 $ 1,921 $ 6,378 $ 20,804
% of full year 9.7 % 6.0 % 19.8 % 64.5 %
(1) The fourth quarter of fiscal year 2000 represents the 14-week period ended
February 3, 2001.
-F-12-
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 financial supplement to the proxy statement, including 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 financial supplement to the proxy
statement, including Management's Discussion and Analysis, relating to
anticipated direct sourcing in 2003, and anticipated capital expenditures in
2003 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 financial supplement to the proxy statement,
including Management's Discussion and Analysis, or otherwise made by management:
changes in consumer spending patterns, consumer preferences and overall 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-K, filed April 29, 2002, 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
To the extent we borrow under our Credit Facility, we will be exposed to market
risk related to changes in interest rates. At February 1, 2003, no borrowings
were outstanding under the Credit Facility. Additionally, we are exposed to
market risk related to interest rate risk on the investment of cash in
securities with original maturities of three months or less. These investments
are considered cash equivalents and are shown as such on the Consolidated
Balance Sheets. If there are changes in interest rates, those changes would
affect the interest income we earn on those investments.
-F-13-
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of Too, Inc.'s financial
statements and other financial information presented in this financial
supplement to the proxy statement. The financial statements were prepared in
accordance with accounting principles generally accepted in the United States of
America and include certain amounts based upon our estimates and assumptions.
We maintain an internal control structure designed to provide reasonable
assurance that Too's assets are safeguarded against loss or unauthorized use and
to produce the records necessary for the preparation of the financial
information. There are limits inherent in all systems of internal control based
on the recognition that the costs of such systems should be related to the
benefits derived. We believe our system of controls provides the appropriate
balance.
The financial statements have been audited and reported on by our independent
accountants, PricewaterhouseCoopers LLP who were given free access to all
financial records and related data, including minutes of the meetings of the
Board of Directors and Committees of the Board.
The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to our financial reporting process and our
control environment through periodic meetings with management and our
independent accountants.
Michael W. Rayden Kent A. Kleeberger
Chairman of the Board, President and Executive Vice President, Chief
Chief Executive Officer Operating Officer and Chief
Too, Inc. Financial Officer
Too, Inc.
-F-14-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Too, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, changes in shareholders' equity and cash
flows present fairly, in all material respects, the financial position of Too,
Inc. and its subsidiaries at February 1, 2003 and February 2, 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended February 1, 2003 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
February 21, 2003
-F-15-
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 2001 2000
---------------- ---------------- ----------------
Net sales $ 647,455 $ 602,689 $ 545,040
Costs of goods sold, buying and
occupancy costs 410,006 385,167 352,459
--------------- --------------- ---------------
Gross income 237,449 217,522 192,581
General, administrative and store
operating expenses 160,194 150,976 137,285
--------------- --------------- ---------------
Operating income 77,255 66,546 55,296
Interest expense, net 517 583 1,551
--------------- --------------- ---------------
Income before income taxes 76,738 65,963 53,745
Provision for income taxes 29,400 26,400 21,500
--------------- --------------- ---------------
Net income $ 47,338 $ 39,563 $ 32,245
=============== =============== ===============
NET INCOME PER SHARE:
Basic $ 1.42 $ 1.28 $ 1.05
=============== =============== ===============
Diluted $ 1.38 $ 1.23 $ 1.02
=============== =============== ===============
WEIGHTED AVERAGE COMMON SHARES:
Basic 33,263 31,020 30,740
=============== =============== ===============
Diluted 34,217 32,038 31,737
=============== =============== ===============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-F-16-
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FEBRUARY 1, FEBRUARY 2,
2003 2002
------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 101,300 $ 63,538
Receivables 4,957 2,547
Inventories 55,080 44,537
Store supplies 12,285 10,357
Other 2,260 2,409
------------- --------------
Total current assets 175,882 123,388
Property and equipment, net 145,530 126,415
Deferred income taxes 14,929 14,786
Other assets 10,990 988
------------- --------------
Total assets $ 347,331 $ 265,577
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion long-term debt $ - $ 17,500
Accounts payable 22,550 23,341
Accrued expenses 46,698 39,036
Income taxes payable 16,088 19,696
------------- --------------
Total current liabilities 85,336 99,573
Long-term debt, less current portion - 32,500
Other long-term liabilities 8,335 5,295
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized - -
Common stock, $.01 par value, 100 million shares authorized,
34.1 million and 31.3 million shares issued and outstanding
at February 1, 2003 and February 2, 2002, respectively 341 313
Treasury stock, at cost, 29,709 shares at February 1, 2003 (998) -
Paid in capital 114,421 35,338
Retained earnings 139,896 92,558
------------- --------------
Total shareholders' equity 253,660 128,209
------------- --------------
Total liabilities and shareholders' equity $ 347,331 $ 265,577
============= ==============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-F-17-
TOO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON SHARES TOTAL
------------------- TREASURY PAID IN RETAINED SHAREHOLDERS'
SHARES AMOUNT STOCK CAPITAL EARNINGS EQUITY
----------- ----------- ------------- ------------ ------------ --------------
BALANCES, JANUARY 29, 2000 30,674 $ 307 $ - $ 24,410 $ 20,750 $ 45,467
Net income 32,245 32,245
Issuance of common stock under stock
option and restricted stock plans 85 1 1,100 1,101
Other, including tax benefit related to
issuance of stock under stock option
and restricted stock plans 898 898
--------- --------- ----------- --------- -------- --------------
BALANCES, FEBRUARY 3, 2001 30,759 308 - 26,408 52,995 79,711
Net income 39,563 39,563
Issuance of common stock under stock
option and restricted stock plans 582 5 6,371 6,376
Other, including tax benefit related to
issuance of stock under stock option
and restricted stock plans 2,559 2,559
--------- --------- ----------- --------- -------- --------------
BALANCES, FEBRUARY 2, 2002 31,341 313 - 35,338 92,558 128,209
Net income 47,338 47,338
Issuance of common stock under
follow-on offering 2,400 24 73,370 73,394
Issuance of common stock under stock
option and restricted stock plans 350 4 5,128 5,132
Purchases of treasury stock (30) (998) (998)
Other, including tax benefit related to
issuance of stock under stock option
and restricted stock plans 585 585
--------- --------- ----------- --------- -------- --------------
BALANCES, FEBRUARY 1, 2003 34,061 $ 341 $ (998) $ 114,421 $ 139,896 $ 253,660
========= ========= =========== ========= ========= ==============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-F-18-
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
2002 2001 2000
--------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47,338 $ 39,563 $ 32,245
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS:
Depreciation and amortization 18,884 17,950 16,536
CHANGES IN ASSETS AND LIABILITIES:
Inventories (10,543) 1,178 (11,059)
Accounts payable and accrued expenses 7,476 536 (6,646)
Income taxes (1,867) 6,569 (2,319)
Other assets (3,620) (1,753) (1,386)
Other liabilities 3,040 1,414 1,838
-------------- --------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 60,708 65,457 29,209
-------------- --------------- --------------
INVESTING ACTIVITIES:
Capital expenditures (39,739) (63,598) (36,308)
Funding of nonqualified benefit plans (9,436) - -
-------------- --------------- --------------
NET CASH USED FOR INVESTING ACTIVITIES (49,175) (63,598) (36,308)
-------------- --------------- --------------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 73,394 - -
Repayment of term loan (50,000) - -
Purchases of treasury stock (998) - -
Stock options, restricted stock and other equity changes 3,833 6,891 1,903
-------------- --------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,229 6,891 1,903
-------------- --------------- --------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 37,762 8,750 (5,196)
Cash and equivalents, beginning of year 63,538 54,788 59,984
-------------- --------------- --------------
Cash and equivalents, end of year $ 101,300 $ 63,538 $ 54,788
============== =============== ==============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
-F-19-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Too, Inc., (referred to herein as "Too" or the "Company") is the operator of two
specialty retailing businesses, Limited Too and mishmash. Limited Too sells
apparel, underwear, sleepwear, swimwear, footwear, 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
cosmetics, sportswear, intimate apparel and footwear to young women ages
fourteen to nineteen. The assortment also includes accessories, jewelry, room
decor furnishings and lifestyle products. Goldmark, a 50% joint venture with
Angus & Coote (Holdings) Limited, was launched in late October 2002. Goldmark
offers real gold and sterling silver jewelry, watches, diamond rings and body
jewelry to men and women ages 15 to 30. The accompanying 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 Company was established in 1987 and, prior
to the August 1999 Spin-off, was a wholly-owned subsidiary of The Limited, Inc.
("The Limited").
Effective August 23, 1999, The Limited distributed to its shareholders of record
as of August 11, 1999, all of its interest in Too on the basis of one share of
Too common stock for each seven shares of The Limited common stock (the
"Spin-off"). The Spin-off resulted in 30.7 million shares of Too common stock
outstanding as of August 23, 1999. As a result of the Spin-off, the Company
became an independent, separately traded, public company. In connection with the
Spin-off, Too and The Limited entered into certain agreements which are more
fully described in Note 8. From the time of the Spin-off until December 31,
2001, the Company's largest shareholder was also the largest shareholder of The
Limited.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Too and all
subsidiaries which are more than 50% owned. All significant intercompany
balances and transactions have been eliminated in consolidation. The Company has
one reportable segment which includes all of its products.
The Company's investment in its 50% owned joint venture is accounted for under
the equity method of accounting. Accordingly, the Company's share of net
earnings and losses from the venture is included in the Consolidated Statements
of Income. The joint venture is not material to Too's financial position, net
income or cash flows.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar year
in which the fiscal year commences. The results for fiscal years 2002 and 2001
represent the 52-week periods ended February 1, 2003 and February 2, 2002,
respectively, while the 2000 fiscal year represents the 53-week period ended
February 3, 2001.
CASH EQUIVALENTS
The Company considers short-term investments with original maturities of three
months or less to be cash equivalents.
INVENTORIES
Inventories are principally valued at the lower of average cost or market, on a
first-in, first-out basis, utilizing the retail method.
-F-20-
STORE SUPPLIES
The initial inventory of supplies for new stores including, but not limited to,
hangers, signage, security tags, packaging and point-of-sale supplies is
capitalized at the store opening date. In lieu of amortizing the initial
balance, subsequent shipments are expensed, except for new merchandise
presentation programs, which are capitalized. Store supply balances are
periodically reviewed and adjusted as appropriate for changes in supply levels
and costs.
CATALOG AND ADVERTISING COSTS
Catalog costs, principally catalog production and mailing costs, are amortized
over the expected revenue stream, which is generally three months from the date
that the catalogs are first mailed. All other advertising costs, including costs
associated with in-store photographs and direct mail campaigns, are expensed at
the time the promotion first appears in media or in the store. Advertising costs
amounted to $19.0 million, $14.8 million and $8.4 million for fiscal years 2002,
2001 and 2000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed on a straight-line basis, using service lives for store assets ranging
principally from 5 to 10 years for building improvements and 3 to 10 years for
other property and equipment. Property and equipment at the home office and
distribution center is assigned service lives between 5 and 40 years. The cost
of assets sold or retired and the related accumulated depreciation or
amortization are removed from the accounts, with any resulting gain or loss
included in net income. Interest costs associated with the construction of
certain long-term projects are capitalized. Maintenance and repairs are charged
to expense as incurred. Major renewals and betterments that extend service lives
are capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that full recoverability is questionable. Store assets
are reviewed by district, in accordance with the method by which management
reviews store performance. Factors used in the valuation include, but are not
limited to, management's plans for future operations, recent operating results
and projected cash flows. Impaired assets are written down to estimated fair
value with fair value generally being determined based on discounted expected
future cash flows. No impairment charges have been recorded based on
management's review.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are recognized based on the
difference between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect in the years when
those temporary differences are expected to reverse. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
REVENUE RECOGNITION
Sales are recorded when the customer takes possession of merchandise -- that is,
the point of sale. Markdowns associated with the Frequent Buyer and "Too Bucks"
programs are recognized upon redemption in conjunction with a qualifying
purchase. Catalog and Internet sales are recorded upon shipment to the customer.
A reserve is provided for projected merchandise returns based on prior
experience.
Amounts relating to shipping and handling billed to customers in a sale
transaction are classified as revenue. The Company considers related shipping
and handling costs to be the direct shipping charges associated with catalog and
e-commerce sales. Such costs are reflected in cost of goods sold, buying and
occupancy costs. The Company classifies employee discounts as a reduction of
revenue.
-F-21-
STORE PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged to operations as
incurred.
FINANCIAL INSTRUMENTS
The recorded values of financial instruments, including cash and equivalents,
receivables, the current portion of long-term debt and accounts payable,
approximate fair value due to their short maturity. The recorded value of
long-term debt as of February 2, 2002 approximated fair value as the interest
rate on such debt was reset near the end of fiscal 2001.
STOCK-BASED COMPENSATION
At February 1, 2003, the Company has various stock option and restricted stock
plans, which are described more fully in Note 10. The Company accounts for these
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock option-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
(in millions except per share amounts):
2002 2001 2000
------------- ------------ -------------
Net income, as reported $ 47.3 $ 39.6 $ 32.2
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects $ (2.8) $ (1.9) $ (1.3)
------------- ------------ ------------
Pro forma net income $ 44.5 $ 37.7 $ 30.9
============= ============ ============
Earnings per share:
Basic - as reported $ 1.42 $ 1.28 $ 1.05
============= ============ ============
Basic - pro forma $ 1.33 $ 1.22 $ 1.01
============= ============ ============
Diluted - as reported $ 1.38 $ 1.23 $ 1.02
============= ============ ============
Diluted - pro forma $ 1.30 $ 1.18 $ 0.97
============= ============ ============
The weighted average fair value per share of options granted is estimated using
the Black-Scholes option-pricing model and the following weighted average
assumptions for fiscal years 2002, 2001 and 2000, respectively: price volatility
of 50%, 40% and 45%, risk-free interest rate of 3.5%, 4.0% and 5.5%, and
expected life of 5.0, 5.0 and 5.5 years. Additionally, for fiscal years 2002,
2001 and 2000, no expected dividends are assumed and the forfeiture rate is 20%.
-F-22-
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 into common stock using the treasury stock
method.
A reconciliation of basic and diluted common shares used in the determination of
earnings per share follows (in thousands):
2002 2001 2000
---------------- ---------------- ----------------
Net income $ 47,338 $ 39,563 $ 32,245
=============== =============== ===============
Weighted average common shares - basic 33,263 31,020 30,740
Dilutive effect of stock options
and restricted stock 954 1,018 997
--------------- --------------- ---------------
Weighted average common shares - diluted 34,217 32,038 31,737
=============== =============== ===============
Options to purchase 155,400, 208,000 and 174,200 common shares were not included
in the computation of net income per diluted share for the fiscal years ended
February 1, 2003, February 2, 2002 and February 3, 2001, respectively, as the
options' exercise prices were greater than the average market price of the
common shares for the reported periods.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Because actual results may
differ from those estimates, the Company revises its estimates and assumptions
as new information becomes available.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 the corresponding
estimated retirement 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.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections" was issued by the Financial
Accounting Standards Board during the second quarter of 2002. SFAS 145
eliminates FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," and an amendment of that Statement, SFAS No. 64, "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses
from extinguishment of debt should be classified as extraordinary items only if
they meet the criteria in Accounting Principles Board (APB) Opinion No. 30. SFAS
145 amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed
-F-23-
conditions. The provisions of this Statement related to the rescission of
Statement 4 shall be applied in fiscal years beginning after May 15, 2002. The
provisions of this Statement related to Statement 13 are effective for
transactions occurring after May 15, 2002. All other provisions of this
Statement are effective for financial statements issued on or after May 15,
2002. The Company believes that the adoption of the provisions of this statement
related to the rescission of Statement 4 will not have a significant effect on
the Company's results of operations or its financial position. The adoption of
the other provisions of this statement did not have a material impact on the
Company's consolidated financial statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
was issued by the Financial Accounting Standards Board during the second quarter
of 2002. SFAS 146 requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is incurred. SFAS 146
eliminates the definition and requirement for recognition of exit costs in EITF
Issue No. 94-3 where a liability for an exit cost was recognized at the date of
an entity's commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value. This
statement is effective for exit or disposal activities initiated after December
31, 2002. The Company believes that the adoption of this statement will not have
a significant impact on its results of operations or financial position.
Financial Accounting Standards Board Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" was issued in November 2002. FIN 45
requires that upon issuance of a guarantee, the guarantor must recognize a
liability for the fair value of the obligation it assumes under the guarantee.
Guarantors will also be required to meet expanded disclosure obligations. The
initial recognition and measurement provisions of FIN 45 are effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for annual and interim financial statements that end
after December 15, 2002. The adoption of this Interpretation will not have a
material impact on the Company's consolidated financial statements.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
issues raided in EITF 02-16, "Accounting by a Reseller for Cash Consideration
Received from a Vendor." This EITF issue addresses the timing of recognition for
rebates that are earned by resellers based on specified levels of purchases or
over specified periods of time. This guidance related to timing of recognition
is to be applied prospectively to new rebate arrangements entered into after
November 21, 2002. This EITF issue also addresses the classification of cash
consideration received from vendors in a reseller's income statement. The
guidance related to income statement classification is to be applied to all new
arrangements or arrangements modified after December 31, 2002. The adoption of
this issue did not have a material impact on the Company's consolidated
financial statements.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of SFAS No. 123" was issued in December 2002. SFAS No.
148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company continues to account for stock-based
compensation using Accounting Principles Board Statement No. 25, "Accounting for
Stock Issued to Employees," and has not adopted the recognition provisions of
SFAS No. 123, as amended by SFAS No. 148. However, the Company has adopted the
disclosure provisions of SFAS No. 148 for the current fiscal year and has
included this information in Note 2.
-F-24-
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (in thousands):
FEBRUARY 1, FEBRUARY 2,
2003 2002
------------------ -------------------
Land $ 8,041 $ 7,797
Buildings 41,611 -
Furniture, fixtures and equipment 140,312 105,554
Leaseholds improvements 40,182 45,408
Construction-in-progress 1,587 49,069
----------------- ------------------
Total 231,733 207,828
Less: accumulated depreciation and
amortization (86,203) (81,413)
----------------- ------------------
Property and equipment, net $ 145,530 $ 126,415
================= ==================
4. LEASED FACILITIES AND COMMITMENTS
The Company operates stores under lease agreements expiring on various dates
through 2013. The initial terms of leases are generally 10 years. Annual store
rent is generally composed of a fixed minimum amount, plus contingent rent based
on a percentage of sales exceeding a stipulated amount. Many of the leases
provide for future rent escalations and renewal options. Most leases require the
Company to pay taxes, common area costs and certain other expenses.
At February 1, 2003, the Company operated 102 stores under sublease agreements
with The Limited. These sublease agreements require the Company to pay a
proportionate share, based on selling space, of all costs, principally rent,
maintenance, taxes and utilities. Pursuant to the sublease agreements, the
Company is required to pay contingent rent to The Limited if stores' sales
exceed a stipulated amount. The Limited also provides guarantees on 48 store
leases and assesses a fee based on stores' sales exceeding defined levels.
In addition, the Company leases certain equipment under operating lease
agreements that expire at various dates through 2007.
A summary of rent expense for the fiscal years 2002, 2001, and 2000 follows (in
thousands):
2002 2001 2000
-------------- -------------- --------------
Fixed minimum $ 49,242 $ 42,448 $ 36,881
Contingent 1,439 1,290 1,649
------------- ------------- -------------
Total store rent 50,681 43,738 38,530
Equipment and other 4,583 1,311 1,074
------------- ------------- -------------
Total rent expense $ 55,264 $ 45,049 $ 39,604
============= ============= =============
-F-25-
A summary of minimum rent commitments under noncancellable leases as of February
1, 2003 follows (in thousands):
2003 $ 55,658
2004 53,993
2005 48,639
2006 41,815
2007 32,604
Thereafter 121,966
5. ACCRUED EXPENSES
Accrued expenses consisted of (in thousands):
FEBRUARY 1, FEBRUARY 2,
2003 2002
--------------- ------------------
Compensation, payroll taxes and benefits $ 14,471 $ 16,474
Rent and store expenses 12,738 7,225
Deferred revenue 8,063 6,120
Taxes, other than income 4,747 3,727
Other 6,679 5,490
-------------- -----------------
Total $ 46,698 $ 39,036
============== =================
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 was 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. On May 24, 2002, the Company paid off the entire $50
million term loan due under the Credit Facility.
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. 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 February 1, 2003, there were no amounts outstanding
under the revolving portion of the Credit Facility.
-F-26-
Net interest expense consisted of the following (in thousands):
2002 2001 2000
--------------- --------------- -----------------
Interest expense $ 2,347 $ 3,787 $ 5,044
Interest income (1,830) (3,204) (3,493)
-------------- -------------- ----------------
Net interest expense $ 517 $ 583 $ 1,551
============== ============== ================
Interest paid in fiscal 2002, 2001 and 2000 amounted to $1.1 million, $3.0
million and $4.7 million, respectively.
7. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
2002 2001 2000
--------------- ---------------- ------------------
CURRENT:
Federal $ 23,667 $ 21,877 $ 19,534
State 3,738 5,073 4,443
-------------- --------------- -----------------
Total current 27,405 26,950 23,977
DEFERRED:
Federal 1,781 (626) (2,347)
State 214 76 (130)
-------------- --------------- -----------------
Total deferred 1,995 (550) (2,477)
-------------- --------------- -----------------
Total income tax provision $ 29,400 $ 26,400 $ 21,500
============== =============== =================
A reconciliation between the statutory federal income tax rate and the effective
income tax rate follows:
2002 2001 2000
------ ------ ------
Federal income tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal benefit 3.5 4.5 4.5
Other items, net (0.2) 0.5 0.5
------ ----- -----
Total effective income tax rate 38.3 % 40.0 % 40.0 %
====== ===== =====
-F-27-
The effect of temporary differences, which give rise to net deferred tax
balances, was as follows (in thousands):
2002 2001
---------------------------------------- ---------------------------------------
Assets Liabilities Total Assets Liabilities Total
----------- -------------- ------------- ------------ ------------- ------------
Book depreciation in excess of tax $ 2,842 - $ 2,842 $ 3,764 - $ 3,764
Rent 995 - 995 1,366 - 1,366
Inventory 2,035 - 2,035 1,495 - 1,495
Accrued expenses 6,160 - 6,160 5,679 - 5,679
Store supplies - basis differential - (3,752) (3,752) - (2,594) (2,594)
Other, net 3,494 - 3,494 4,059 - 4,059
------------ ------------ ------------- ------------ ----------- -------------
Total deferred income taxes $ 15,526 $ (3,752) $ 11,774 $ 16,363 $ (2,594) $ 13,769
============ ============ ============= ============ =========== =============
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount of the
net deferred tax assets will be realized in the future.
Income taxes payable included net current deferred tax liabilities of $3.2
million and $1.0 million in fiscal years 2002 and 2001, respectively.
Subsequent to the Spin-off, the Company began filing its tax returns on a
separate basis. Prior to the Spin-off, income tax obligations were treated as
being settled through the intercompany accounts as if the Company was filing its
income tax returns on a separate company basis. Amounts paid to The Limited
related to income tax liabilities incurred prior to the Spin-off totaled
$640,000, and $8.5 million in fiscal years 2001 and 2000, respectively.
Subsequent to the Spin-off, the Company made income tax payments directly to
taxing authorities amounting to $29.9 million, $21.4 million, and $16.1 in
fiscal years 2002, 2001 and 2000, respectively.
8. RELATED PARTY TRANSACTIONS
Prior to the Spin-off, the Company and The Limited entered into service
agreements for generally a terms of one to three years with most of the
agreements having expired during fiscal 2000. Expiring in fiscal 2002 were
service agreements for the use by the Company for home office space and
distribution services covering flow of goods from factory to store. These
agreements were for a term of up to three years from the Spin-off date. Costs
for these services were The Limited's costs of providing the services plus 5% of
these costs, excluding any markup on third-party costs. Both agreements were
terminated in the first quarter of 2002.
Significant merchandise purchases were made from Mast, a wholly-owned subsidiary
of The Limited. In fiscal year 2000, merchandise purchases were also made from
Gryphon, an indirect subsidiary of The Limited. Mast is a contract manufacturer
and apparel importer while Gryphon was a developer of fragrance and personal
care products as well as a contract manufacturer. Prices are negotiated on a
competitive basis by merchants of Too with Mast and other manufacturers.
-F-28-
The following table summarizes amounts incurred related to transactions between
Too and The Limited (in thousands):
2002 2001 2000
--------------- ----------------- ---------------
Merchandise purchases $ 56,920 $ 67,441 $ 74,866
Capital expenditures 1,554 - 9,038
Inbound and outbound shipping 3,929 8,359 8,717
Store leasing, construction and management 17,758 19,144 34,799
Distribution center, MIS and home office expenses 1,804 8,571 12,325
-------------- ---------------- --------------
$ 81,965 $ 103,515 $ 139,745
============== ================ ==============
Amounts payable to the Limited were $6.8 million at February 1, 2003 and $8.0
million at February 2, 2002.
During fiscal year 2002, the Company formed a 50% joint venture, which is
accounted for under the equity method of accounting. At February 1, 2003, the
Company's investment in the joint venture amounted to $620,000. The net
receivable due to the Company from the joint venture was $840,000 at February 1,
2003.
9. RETIREMENT BENEFITS
The Company sponsors a qualified defined contribution retirement plan. The
Company's contributions to this plan are based on a percentage of the
associates' eligible annual compensation. Participation in the qualified plan is
available to all associates who have completed 1,000 or more hours of service
with the Company during certain 12-month periods and attained the age of 21.
The Company also sponsors a nonqualified supplemental retirement plan and a
nonqualified alternate savings plan. The Company's contributions to the
supplemental retirement plan are based on a percentage of the associates'
eligible annual compensation. In the case of the alternate savings plan, the
Company's contributions are based on a match of the associates' contribution up
to a pre-determined percentage. Participation in the nonqualified plan is
subject to service and compensation requirements. As of February 1, 2003 and
February 2, 2002, the Company had accrued $10.4 million and $6.8 million,
respectively, for its obligations under these plans. The Company purchased
corporate-owned life insurance policies during 2002 in connection with the
nonqualified plans. The cash surrender value of these policies included in other
long-term assets was $9.4 million at February 1, 2003.
The cost of these plans was $5.4 million, $4.9 million, and $4.2 million in
fiscal years 2002, 2001 and 2000, respectively.
10. STOCK-BASED COMPENSATION
The Company has stock option and restricted stock plans which provide incentive
stock options, non-qualified stock options and restricted stock to officers,
directors and key associates. Stock options are granted at the fair market value
of the Company's common shares on the date of grant and generally have 10-year
terms. Most option grants generally vest ratably over the first four
anniversaries of the grant date.
Approximately 100,000 restricted shares were granted in 2002 and 2000 with total
market value at the grant date of $2.6 million and $2.7 million, respectively.
Both restricted share grants in 2002 and 2000 were subject to performance
requirements, all of which have been met. The market value of restricted shares,
as adjusted at the measurement date for shares with performance requirements, is
being amortized over the vesting period. Compensation expense related to
restricted shares amounted to $2.5 million, $2.7 million and $4.3 million for
2002, 2001 and 2000, respectively. No restricted shares were granted in 2001.
-F-29-
A summary of changes in the Company's stock option plans for fiscal years 2002,
2001 and 2000 is presented below:
2002 2001 2000
---------------------------- --------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE OPTION NUMBER OF AVERAGE OPTION NUMBER OF AVERAGE OPTION
SHARES PRICE/SHARE SHARES PRICE/SHARE SHARES PRICE/SHARE
----------- ---------------- ----------- --------------- ------------ ---------------
Outstanding at beginning of year 2,405,000 $16 2,336,200 $14 1,897,400 $11
Granted and converted 746,900 $26 499,100 $17 614,300 $26
Exercised (191,800) $12 (393,800) $10 (38,400) $10
Canceled (58,600) $24 (36,500) $17 (137,100) $16
---------- --------- ----------- --------- ----------- ---------
Outstanding at end of year 2,901,500 $18 2,405,000 $16 2,336,200 $14
========== ========= =========== ========= =========== =========
Options exercisable at end of year 961,500 $16 662,000 $15 514,200 $11
========== ========= =========== ========= =========== =========
The following table summarizes information about stock options outstanding at
February 1, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- -------------- ------------------ ---------------- ------------- ----------------
$5 - $10 543,200 4.3 $7 264,700 $7
$10 - $15 369,100 5.3 $11 222,200 $12
$15 - $20 712,600 7.4 $16 231,700 $17
$20 - $25 74,700 8.3 $23 24,800 $23
$25 - $32 1,201,900 8.4 $27 218,100 $27
------------ ------- -------- ---------- -------
2,901,500 7.0 $18 961,500 $16
============ ======= ======== ========== =======
Shares reserved under the various plans amounted to 5.4 million as of February
1, 2003 and February 2, 2002, and 3.8 million as of February 3, 2001,
respectively. The weighted average fair value of options granted during fiscal
years 2002, 2001 and 2000, respectively, was $12.35, $6.99 and $13.29.
Under APB 25, no compensation expense is recognized in the financial statements
for stock options. Had compensation expense been recognized for stock-based
compensation plans in accordance with the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company would
have recorded net income of $44.5 million, $37.7 million and $30.9 million, and
diluted earnings per share of $1.30, $1.18 and $.97, for fiscal years 2002, 2001
and 2000, respectively.
-F-30-
11. ADVERTISING BARTER TRANSACTIONS
During fiscal 2002, the Company entered into advertising and cross promotion
barter transactions whereby advertising space was allotted to third parties in
the Company's catalog in exchange for production of Limited Too television
commercials, airtime and other advertising. The Company accounts for barter
transactions in accordance with EITF 99-17, "Accounting for Advertising Barter
Transactions." EITF 99-17 requires that barter transactions be recorded at the
fair value of advertising surrendered only if the fair value is determinable
based on the entity's own historical practice of receiving cash for similar
advertising. No revenues or expenses were recorded for the year-ended February
1, 2003.
12. COMMON STOCK FINANCING
On May 24, 2002, the Company sold 2.4 million shares of its common stock,
resulting in net proceeds of $73.4 million. On that day, the Company paid off
the entire $50 million term loan due under the Credit Facility and the remaining
proceeds from the sale of common stock will be used for general corporate
purposes. The $50 million revolving loan commitment under the Credit Facility
remains in effect and is available to the Company for future business purposes.
13. LEGAL MATTERS
There are various claims, lawsuits and other legal actions pending for and
against Too incident to the operations of its business. It is the opinion of
management that the ultimate resolution of these matters will not have a
material adverse effect on Too's results of operations, cash flows or financial
position.
-F-31-
14. QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002 FIRST SECOND THIRD FOURTH
--------------------------------------------- ----------------- ----------------- ----------------- ----------------
Net sales $ 158,591 $ 141,248 $ 164,629 $ 182,987
Gross income 53,523 49,445 59,021 75,460
General, administrative and
store operating expenses 43,525 39,898 41,606 35,165
Net income 5,845 5,531 10,836 25,126
Earnings per share - basic $ 0.19 $ 0.17 $ 0.32 $ 0.74
Earnings per share - diluted $ 0.18 $ 0.16 $ 0.31 $ 0.72
Market price per share:
- High $ 32.00 $ 34.50 $ 26.75 $ 30.64
- Low $ 24.80 $ 21.60 $ 19.45 $ 16.32
- Close $ 30.38 $ 22.25 $ 26.00 $ 16.65
2001 FIRST SECOND THIRD FOURTH
--------------------------------------------- ----------------- ----------------- ----------------- ----------------
Net sales $ 136,657 $ 125,468 $ 148,763 $ 191,801
Gross income 44,963 40,974 51,382 80,203
General, administrative and
store operating expenses 38,516 35,720 37,968 38,772
Net income 3,815 2,877 8,040 24,831
Earnings per share - basic $ 0.12 $ 0.09 $ 0.26 $ 0.79
Earnings per share - diluted $ 0.12 $ 0.09 $ 0.25 $ 0.77
Market price per share:
- High $ 21.53 $ 27.40 $ 29.10 $ 30.23
- Low $ 15.27 $ 18.43 $ 18.00 $ 23.00
- Close $ 19.04 $ 23.20 $ 27.35 $ 27.16
-F-32-
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
TOO, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2003
The undersigned hereby appoints Michael W. Rayden and Kent A. Kleeberger, or
either of them acting alone, as proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
on the reverse side of this ballot, all of the shares of Common Stock of Too,
Inc. (the "Company") that the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held at 9:00 A.M. Eastern Daylight Time on May 20,
2003, at the Company's corporate offices located at 8323 Walton Parkway, New
Albany, Ohio, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD
OF DIRECTORS.
PLEASE VOTE YOUR PROXY PROMPTLY BY FOLLOWING THE
VOTING INSTRUCTIONS ON THE REVERSE SIDE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
________________________________________________________________________________
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK
INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS
--------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
________________________________________________________________________________
TOO, INC.
1. Directors Recommend: A vote for election of the following nominees:
01) Sally A. Boyer
02) Kent A. Kleeberger
03) Nancy J. Kramer
For Withhold For All To withhold authority to vote, mark
All All Except "For All Except" and write the nominee's
number on the line below.
[ ] [ ] [ ]
_______________________________________
2. To transact such other business properly coming before the meeting or any
adjournment thereof.
The undersigned acknowledges receipt with
this Proxy of a copy of the Notice of Annual
Meeting of Stockholders and Proxy Statement
dated April 9, 2003.
IMPORTANT: Please date this proxy and sign
exactly as your name or names appear hereon.
If stock is held jointly, signature should
include both names. Executors, Administrators,
Trustees, Guardians and others signing in a
representative capacity should indicate full
titles.
----------------------------------------------- ------------ ----------------------------------- -----------
----------------------------------------------- ------------ ----------------------------------- -----------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
________________________________________________________________________________
[TOO, INC. LOGO]
8323 WALTON PARKWAY
NEW ALBANY, OH 43054
VOTE BY INTERNET - WWW.PROXYVOTE.COM
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time
the day before the cut-off date or meeting
date. Have your proxy card in hand when you
access the web site. You will be prompted to
enter your 12-digit Control Number which is
located below to obtain your records and to
create an electronic voting instruction
form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M.
Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in
hand when you call. You will be prompted to
enter your 12-digit Control Number which is
located below and then follow the simple
instructions the Vote Voice provides you.
VOTE BY MAIL
Mark, sign, and date your proxy card and
return it in the postage-paid envelope we
have provided or return it to Too, Inc. c/o
ADP, 51 Mercedes Way, Edgewood, NY 11717.