UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 3, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14987
TOO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 31-1333930
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8323 WALTON PARKWAY, NEW ALBANY, OH 43054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (614) 775-3500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days (or such shorter time as the Company became
effective).
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK OUTSTANDING AT MAY 30, 2003
------------ ---------------------------
$.01 Par Value 34,312,898 Shares
1
TOO, INC.
TABLE OF CONTENTS
PAGE NO.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the Thirteen Weeks Ended
May 3, 2003 and May 4, 2002.................................................................... 3
Consolidated Balance Sheets
May 3, 2003 and February 1, 2003............................................................... 4
Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
May 3, 2003 and May 4, 2002.................................................................... 5
Notes to Consolidated Financial Statements.......................................................... 6
Report of Independent Accountants................................................................... 13
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition........ 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 19
Item 4. Controls and Procedures...................................................................... 20
PART II. Other Information
Item 1. Legal Proceedings............................................................................. 20
Item 6. Exhibits and Reports on Form 8-K.............................................................. 20
Signature ............................................................................................. 21
Certifications......................................................................................... 22
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTEEN WEEKS ENDED
----------------------
MAY 3, MAY 4,
2003 2002
--------- ---------
Net sales $ 140,127 $ 158,591
Costs of goods sold, buying and
occupancy costs 97,458 105,068
--------- ---------
Gross income 42,669 53,523
General, administrative and store
operating expenses 36,234 43,525
--------- ---------
Operating income 6,435 9,998
Interest (income) expense, net (124) 253
--------- ---------
Income before income taxes 6,559 9,745
Provision for income taxes 2,400 3,900
--------- ---------
Net income $ 4,159 $ 5,845
========= =========
Earnings per share:
Basic $ 0.12 $ 0.19
========= =========
Diluted $ 0.12 $ 0.18
========= =========
Weighted average common shares:
Basic 34,098 31,425
========= =========
Diluted 34,604 32,535
========= =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MAY 3, FEBRUARY 1,
2003 2003
---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 86,468 $ 101,300
Receivables 5,018 4,957
Inventories 50,291 55,080
Store supplies 13,006 12,285
Other 1,032 2,260
---------- -----------
Total current assets 155,815 175,882
Property and equipment, net 147,665 145,530
Deferred income taxes 14,929 14,929
Other assets 11,218 10,990
---------- -----------
Total assets $ 329,627 $ 347,331
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,954 $ 22,550
Accrued expenses 32,880 44,600
Income taxes payable 12,563 16,088
---------- -----------
Total current liabilities 59,397 83,238
Other long-term liabilities 11,409 10,433
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized - -
Common stock, $.01 par value, 100 million shares
authorized, 34.1 million issued and outstanding at
May 3, 2003 and February 1, 2003 341 341
Treasury stock, at cost, 29,709 shares (998) (998)
Paid in capital 115,423 114,421
Retained earnings 144,055 139,896
---------- -----------
Total shareholders' equity 258,821 253,660
---------- -----------
Total liabilities and shareholders' equity $ 329,627 $ 347,331
========== ===========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THIRTEEN WEEKS ENDED
--------------------------
MAY 3, MAY 4,
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,159 $ 5,845
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS:
Depreciation and amortization 4,682 5,399
CHANGES IN ASSETS AND LIABILITIES:
Inventories 4,789 10,122
Accounts payable and accrued expenses (20,045) (1,188)
Income taxes (3,561) (7,073)
Other assets (1,234) 1,443
Other liabilities 976 1,001
----------- ----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (10,234) 15,549
----------- ----------
INVESTING ACTIVITIES:
Capital expenditures (5,636) (15,560)
----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (5,636) (15,560)
----------- ----------
FINANCING ACTIVITIES:
Stock options, restricted stock and other equity changes 1,038 2,063
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,038 2,063
----------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (14,832) 2,052
Cash and equivalents, beginning of period 101,300 63,538
----------- ----------
Cash and equivalents, end of period $ 86,468 $ 65,590
=========== ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Too, Inc. (referred to herein as "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. See Note 10 to the
Consolidated Financial Statements for further information about the
Company's structure. The Consolidated Financial Statements include the
accounts of Too, Inc. and its wholly-owned subsidiaries and reflect the
Company's assets, liabilities, results of operations and cash flows on
a historical cost basis.
The accompanying unaudited interim Consolidated Financial Statements as
of May 3, 2003 and for the thirteen weeks ended May 3, 2003 and May 4,
2002, are presented to comply with the rules and regulations of the
Securities and Exchange Commission. Accordingly, these Consolidated
Financial Statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto contained in the
Company's 2002 Form 10-K. In the opinion of management, the
accompanying interim Consolidated Financial Statements reflect all
adjustments (which are of a normal, recurring nature) necessary to
present fairly the financial position, results of operations and cash
flows for the interim periods, but are not necessarily indicative of
the results of operations for a full fiscal year.
The Consolidated Financial Statements as of May 3, 2003, and for the
thirteen weeks ended May 3, 2003 and May 4, 2002 included herein have
been reviewed by the independent public accounting firm of
PricewaterhouseCoopers LLP and the report of such firm follows the
notes to the Consolidated Financial Statements. PricewaterhouseCoopers
LLP is not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for its report on the Consolidated Financial
Statements because that report is not a "report" within the meaning of
Sections 7 and 11 of that Act.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. STOCK-BASED COMPENSATION
At May 3, 2003, the Company has various stock option and restricted
stock plans. 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 the
grant.
6
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," as amended by SFAS No. 148, to stock-based employee
compensation (in millions, except per share amounts):
THIRTEEN WEEKS ENDED
--------------------
MAY 3, MAY 4,
2003 2002
------ ------
Net Income, as reported $ 4.2 $ 5.8
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (1.0) (0.7)
------ ------
Pro forma net income $ 3.2 $ 5.1
====== ======
Earnings per share:
Basic - as reported $ 0.12 $ 0.19
====== ======
Basic - pro forma $ 0.09 $ 0.17
====== ======
Diluted - as reported $ 0.12 $ 0.18
====== ======
Diluted - pro forma $ 0.09 $ 0.16
====== ======
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 the thirteen weeks ended May
3, 2003 and May 4, 2002: expected life of 5.0, forfeiture rate of 20%
and no expected dividends. Additionally, price volatility of 52% and
50%, and a risk-free interest rate of 2.9% and 3.5%, is assumed for the
thirteen weeks ended May 3, 2003 and May 4, 2002, respectively. The
weighted average fair value of options granted during the first quarter
of fiscal years 2003 and 2002, respectively, was $7.30 and $12.35.
3. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could
occur if stock options or restricted stock were converted to common
stock using the treasury stock method.
7
The following table shows the amounts used in the computation of basic
and diluted earnings per share (in thousands):
THIRTEEN WEEKS ENDED
----------------------
MAY 3, MAY 4,
2003 2002
---------- ---------
Net income $ 4,159 $ 5,845
========== =========
Weighted average common shares - basic 34,098 31,425
Dilutive effect of stock options
and restricted stock 506 1,110
---------- ---------
Weighted average common shares - diluted 34,604 32,535
========== =========
Due to the options' strike price exceeding the average market price of
the common shares for the reporting periods, certain options were
excluded from the calculation of net income per diluted share. Options
to purchase 1,284,000 and 5,000 common shares were not included in the
computation of net income per diluted share for the thirteen weeks
ended May 3, 2003 and May 4, 2002, respectively.
4. INVENTORIES
The fiscal year of the Company is comprised of two principal selling
seasons: Spring (the first and second quarters) and Fall (the third and
fourth quarters). Inventories are principally valued at the lower of
average cost or market, on a first-in, first-out basis utilizing the
retail method. Inventory valuation at the end of the first and third
quarters reflects adjustments for inventory markdowns and shrinkage
estimates for the total selling season.
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of (in thousands):
MAY 3, FEBRUARY 1,
2003 2003
------------- -----------
Land $ 8,041 $ 8,041
Buildings 41,715 41,611
Furniture, fixtures and equipment 143,088 140,312
Leasehold improvements 40,383 40,182
Construction-in-progress 4,942 1,587
------------- -----------
Total 238,169 231,733
Less: accumulated depreciation and amortization (90,504) (86,203)
------------- -----------
Property and equipment, net $ 147,665 $ 145,530
============= ===========
8
6. RELATED PARTY TRANSACTIONS
In connection with the August 23, 1999 Spin-off, the Company entered
into a service agreement with Limited Logistics Services, a
wholly-owned subsidiary of Limited Brands, to provide distribution
services to us covering transportation of merchandise to our stores for
up to three years after the Spin-off. Under the service agreement,
Limited Brands distributed merchandise and related materials using
common and contract carriers to the Company's stores. Inbound freight
was charged to Too based upon actual receipts and related charges,
while outbound freight was charged based on a percentage of cartons
shipped. The Company terminated the service agreement in mid-2002.
Our main office was owned by Distribution Land Corp., a wholly-owned
subsidiary of Limited Brands, and leased to us with a lease term
expiring in August 2002. In April 2002, the Company completed
construction of its new home office and terminated the aforementioned
lease.
Our largest apparel supplier has been Mast Industries, Inc., a
wholly-owned subsidiary of Limited Brands. Mast Industries supplied
approximately 24% of the apparel that we purchased in 2002. We believe
that all transactions that we have entered into with Mast Industries
have been on terms that would have been obtained on an arm's length
basis since we treat them as if they were a third party. We were not,
and will not be, obligated to continue to source products through Mast
Industries.
Amounts payable to Limited Brands, including merchandise payables to
Mast Industries, approximated $3.7 and $6.8 million at May 3, 2003 and
February 1, 2003, respectively.
During fiscal year 2002, the Company formed a 50% owned joint venture,
which is accounted for under the equity method of accounting. The
Company's investment in the joint venture amounted to $530,000 and
$620,000 as of May 3, 2003 and February 1, 2003, respectively. The
Company provides certain services to this joint venture for which the
Company is reimbursed. The net receivable due to the Company for these
services was $480,000 and $840,000 as of May 3, 2003 and February 1,
2003, respectively.
7. CREDIT FACILITY
During August 1999, the Company entered into a five-year $100 million
credit agreement with a syndicate of banks. This credit agreement was
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 Limited Brands. On May 24, 2002, the
Company paid off the entire $50 million term loan.
On April 29, 2003, the Company terminated the credit agreement and
entered into a new credit facility (the "Credit Facility") with a
syndicate of banks. The Credit Facility consists of a $100 million
revolving loan commitment. Interest expense on borrowings under the
Credit Facility is based on, at the borrower's option, either (1) the
higher of the Prime rate and the federal funds effective rate plus 1/2
of 1% or (2) matrix pricing applied to the London Interbank Offered
Rate. Under the terms of the Credit Facility, the Company is required
to comply with certain covenants, including financial ratios such as
leverage, coverage and tangible net worth. The Credit Facility limits
the Company from incurring certain additional indebtedness and
restricts substantial asset sales. The Company is in compliance with
all applicable terms of the Credit Facility. As of May 3, 2003, there
were no amounts outstanding under the Credit Facility.
9
Interest (income) expense consisted of the following (in thousands):
THIRTEEN WEEKS ENDED
-------------------------
MAY 3, MAY 4,
2003 2002
-------- --------
Interest expense $ 120 $ 1,038
Interest income (244) (785)
-------- --------
Net interest (income) expense $ (124) $ 253
======== ========
8. ADVERTISING BARTER TRANSACTIONS
The Company participates in advertising barter transactions whereby
advertising space is allotted to third-parties in the Company's catalog
in exchange for production of Limited Too promotional spots on
television including airtime and other costs associated with
cross-promotional events. 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. The Company has historically not received
cash for similar advertising. Therefore, no revenues or expenses were
recorded for the thirteen weeks ended May 3, 2003 and May 4, 2002.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," became effective in the
first quarter of 2003. The Statement 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 lease terms are minimal, the adoption of this
Statement did not have a material impact on the Company's Consolidated
Financial Statements.
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 are effective for 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 adoption of this statement did not
have a material impact on the Company's Consolidated Financial
Statements.
10
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 adoption of this Statement did not have a
material impact on the Company's Consolidated Financial Statements.
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
did 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 raised 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 and 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 and has included this information in Note 2.
FIN No. 46, "Consolidation of Variable Interest Entities," was issued
in January 2003. FIN 46 establishes accounting and disclosure
requirements for ownership interests in entities that have certain
financial or ownership characteristics (sometimes known as Special
Purpose Entities). FIN 46 is applicable for variable interest entities
created after January 31, 2003 and becomes effective in the first
fiscal year or interim accounting period beginning after June 15, 2003
for variable interest entities created before February 1, 2003. The
Company is currently evaluating the impact of adopting FIN 46, but the
Company's management does not expect the adoption of FIN 46 to have a
significant impact on the results of operations, cash flows or the
financial position of the Company.
11
10. SUBSEQUENT EVENT
On May 28, 2003, the Company announced that it is ending the rollout of
its mishmash retail concept in favor of redirecting its resources to
the development of a new concept focused on value-priced sportswear and
accessories for `tween girls, ages 7 to 14. The mishmash stores will
remain open through the back-to-school selling season, at which point
many of the stores will be converted to new concept stores. The Company
also announced the discontinuation of the Goldmark joint venture.
Management is currently in process of discussions with landlords
concerning the future economics of the existing store leases and,
accordingly, the Company cannot estimate the impact on the results of
operations, cash flows and financial position of the Company.
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Too, Inc.:
We have reviewed the accompanying consolidated balance sheet of Too, Inc. and
its subsidiaries (the "Company") as of May 3, 2003, and the related consolidated
statements of income and cash flows for each of the thirteen-week periods ended
May 3, 2003 and May 4, 2002. These interim financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of February
1, 2003, and the related consolidated statements of income, changes in
shareholders' equity, and of cash flows for the year then ended (not presented
herein), and in our report dated February 21, 2003 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet information
as of February 1, 2003 is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
May 14, 2003
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the thirteen weeks ended May 3, 2003 were $140.1 million, a
decrease of 12% from $158.6 million for the comparable period of 2002. Gross
income decreased 20% to $42.7 million from $53.5 million in 2002 and operating
income declined 36% to $6.4 million from $10.0 million in 2002. Net income
decreased 28% to $4.2 million from $5.8 million in 2002. Diluted earnings per
share declined 33% to $.12, versus $.18 in 2002.
FINANCIAL SUMMARY
The following summarized financial and statistical data compares the thirteen
week period ended May 3, 2003, to the comparable 2002 period:
Thirteen Weeks Ended
------------------------------------------
Percent
May 3, 2003 May 4, 2002 Change
----------- ----------- -------
Net sales (millions) $ 140.1 $ 158.6 (12)%
Limited Too:
Comparable store sales increase (decrease)(1) (18)% 4%
Sales per average square foot(2) $ 65 $ 82 (21)%
Sales per average store (thousands) $ 266 $ 335 (21)%
Average store size at quarter end (square feet) 4,117 4,096 1%
Total square feet at quarter end (thousands) 2,120 1,929 10%
Number of stores:
Beginning of period 510 459
Opened 7 13
Closed (2) (1)
-------- --------
End of period 515 471
======== ========
Stores remodeled 2 2
Stores with "Girl Power" format 289 230
Percentage of stores in "Girl Power" format 56% 49%
Number of mishmash stores 14 9
(1) 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.
(2) Sales per average square foot is the result of dividing net sales for
the fiscal quarter by average gross square feet, which reflects the
impact of opening and closing stores throughout the quarter.
NET SALES
Net sales for the first quarter of 2003 decreased 12% to $140.1 million from
$158.6 million in 2002. Comparable store sales declined 18% for the first
quarter of 2003 compared to 4% comparable store sales growth during the first
quarter of 2002. The decline resulted from a fashion misstep that hindered the
Company's results for the fourth quarter of fiscal 2002, and continued to impact
a portion of Limited Too's spring apparel assortment in the first quarter of
fiscal 2003. In addition, colder and more inclement weather, along with ebbing
consumer confidence and its consequent effect on mall traffic, contributed to
the first quarter decline. Finally, the late Easter holiday, and the resultant
shift of the redemption period of the Company's spring Too Bucks promotion,
caused a shift of approximately $6.5 million in sales from the first quarter to
the second quarter of fiscal 2003.
The best performing merchandise categories during the thirteen weeks ended May
3, 2003 were casual shirts, lifestyle and jewelry. However, other than casual
shirts, each of our hanging merchandise categories posted average store
decreases during the first quarter versus the same period last year. In
addition, the sleepwear, personal care and footwear categories posted average
store decreases for the quarter.
14
GROSS INCOME
Gross income, expressed as a percentage of net sales, was 30.5% for the first
quarter of 2003, a decrease of 320 basis points from a gross income rate of
33.7% for the first quarter of 2002. This rate decrease was due to higher
markdowns, which more than offset a 100 basis point gain in initial mark-ups.
The rate decline was further exacerbated by our inability to leverage fixed
buying and occupancy costs due to the negative comparable store sales
performance.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
General, administrative and store operating expense, expressed as a percentage
of net sales, was 25.9% for the first quarter of 2003, a decrease of 150 basis
points from a rate of 27.4% for the first quarter of 2002. This rate decrease
was primarily due to lower incentive compensation expense, settlement proceeds
received in lieu of a litigation claim and certain one-time expenses incurred
last year for brand protection litigation, tax consulting, as well as moving and
start-up costs associated with the new home office and the newly opened
distribution center.
OPERATING INCOME
Operating income, expressed as a percentage of net sales, was 4.6% in the first
quarter of 2003, a decrease of 170 basis points from 6.3% for the same period in
2002. The decrease in the operating income rate for the quarter was due to lower
merchandise margins, higher markdown and occupancy rates, and despite lower
general, administrative and store operating expenses, expressed as a percentage
of sales.
INCOME TAXES
Income tax expense amounted to $2.4 million for the first quarter of 2003
compared to $3.9 million for the same period in 2002. The income tax provision
rate decreased from 40.0% to 36.6% as a result of realigning our corporate
operations, including our direct sourcing and supply chain management
initiatives which provided state tax benefits, and investment in certain
short-term, tax-free municipal bonds.
FINANCIAL CONDITION
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.
Net cash used for operating activities amounted to $10.2 million for the
thirteen weeks ended May 3, 2003 versus net cash provided by operating
activities of $15.5 million for the same period in 2002. The decrease was
primarily due to lower net income, accounts payable and accrued expenses, and
higher inventory levels. The decrease in accounts payable and accrued expenses
was due to the timing of store rent payments, a reduction in the accrual for
incentive compensation, and the redemption of post-holiday gift cards. The
higher inventory balance was a result of the later timing of the Company's
spring Too Bucks redemption period.
In the first quarter of fiscal 2003, investing activities represented capital
expenditures primarily for new and remodeled stores. In the first quarter of
fiscal 2002, capital expenditures also included progress payments on the
completion of construction of our new home office and distribution center.
Financing activities principally represented proceeds from employee stock option
exercises and the issuance of restricted stock.
15
A summary of our working capital position and capitalization follows (in
thousands).
MAY 3, FEBRUARY 1,
2003 2003
-------- -----------
Working capital $ 96,418 $ 92,644
Capitalization:
Shareholders' equity 258,821 253,660
-------- --------
Total capitalization $258,821 $253,660
======== ========
Additional amounts available under the revolving
portion of the Credit Facility $100,000 $ 50,000
======== ========
During August 1999, the Company entered into a five-year $100 million credit
agreement with a syndicate of banks. This credit agreement was 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 Limited
Brands. On May 24, 2002, the Company paid off the entire $50 million term loan.
On April 29, 2003, the Company terminated the aforementioned credit agreement
and entered into a new credit facility (the "Credit Facility") with a syndicate
of banks. The Credit Facility consists of a $100 million revolving loan
commitment. Interest expense on borrowings under the Credit Facility is based
on, at the borrower's option, either (1) the higher of the Prime rate and the
federal funds effective rate plus 1/2 of 1% or (2) matrix pricing applied to the
London Interbank Offered Rate. Under the terms of the Credit Facility, the
Company is required to comply with certain covenants, including financial ratios
such as leverage, coverage and tangible net worth. The Credit Facility limits
the Company from incurring certain additional indebtedness and restricts
substantial asset sales. The Company is in compliance with all applicable terms
of the Credit Facility. As of May 3, 2003, there were no amounts outstanding
under the Credit Facility.
CAPITAL EXPENDITURES
Capital expenditures, primarily for new and remodeled stores, totaled $5.6
million for the thirteen weeks ended May 3, 2003 compared to $15.6 million for
the comparable period in 2002. The decrease is primarily due to the $12.3
million in costs the Company incurred in 2002 for the completion of construction
of its new distribution center and home office. We anticipate spending between
$25 million and $27 million in fiscal 2003 primarily for new stores, remodeling
or expansion of existing stores and related fixtures and equipment. We intend to
add 290,000 to 310,000 square feet in 2003, which will represent a 14% to 15%
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 10 to 11 new mishmash stores during fiscal 2003. We expect substantially
all capital expenditures in fiscal 2003 will be funded by cash on hand and net
cash provided by operating activities.
16
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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,
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.
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," became effective in the first quarter of 2003.
The Statement 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 lease
terms are minimal, the adoption of this Statement did not have a material impact
on the Company's Consolidated Financial Statements.
17
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 are
effective for 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 adoption 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 adoption of this Statement did not have a material impact on the
Company's Consolidated Financial Statements.
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 did 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 raised 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 and 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 and has included this information in Note
2.
FIN No. 46, "Consolidation of Variable Interest Entities," was issued in January
2003. FIN 46 establishes accounting and disclosure requirements for ownership
interests in entities that have certain financial or ownership characteristics
(sometimes known as Special Purpose Entities). FIN 46 is applicable for variable
interest entities created after January 31, 2003 and becomes effective in the
first fiscal year or interim accounting period beginning after June 15, 2003 for
variable interest entities created
18
before February 1, 2003. The Company is currently evaluating the impact of
adopting FIN 46, but the Company's management does not expect the adoption of
FIN 46 to have a significant impact on the results of operations, cash flows or
the financial position of the Company.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Management's Discussion and Analysis or made by management of the Company
involve risks and uncertainties and are subject to change based on various
important factors, many of which may be beyond the Company's control.
Forward-looking statements are indicated by words such as "anticipate,"
"estimate," "expect," "intend," "risk," "could," "may," "will," "pro forma,"
"likely," "possible," "potential," and similar words and phrases and the
negative forms and variations of these words and phrases, and include statements
in this Management's Discussion and Analysis relating to anticipated capital
expenditures in 2003 for new stores, the remodeling or expansion of existing
stores and the related funding thereof. The following factors, among others, in
some cases have affected, and in the future could affect, the Company's
financial performance and actual results and could cause future performance and
financial results to differ materially from those expressed or implied in any
forward-looking statements included in this Management's Discussion and Analysis
or otherwise made by management: changes in consumer spending patterns, consumer
preferences and overall 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 Safe Harbor Statement and
Business Risks 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.
ITEM 3. 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 May 3, 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.
19
ITEM 4. Controls and Procedures
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based upon this evaluation, our
Chief Executive Officer along with our Chief Financial Officer concluded that
our disclosure controls and procedures are effective in timely alerting them to
material information relating to us (including our consolidated subsidiaries)
required to be included in our periodic SEC reports. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.
Since the date of our evaluation to the filing date of this Quarterly Report on
Form 10-Q, there have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
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.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.28 Credit Agreement among Too, Inc., various lending institutions
and National City Bank as Syndication Agent and Administrative
Agent (incorporated by reference to Exhibit 10.1 to the Current
Report on For 8-K Filed on May 7, 2003).
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of Report
of Independent Accountants.
99.1 Certification of Periodic Report by the Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.2 Certification of Periodic Report by the Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
None.
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOO, INC.
(Registrant)
By /s/ Kent A. Kleeberger
-----------------------------------------
Kent A. Kleeberger
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(duly authorized officer and Principal
Financial and Accounting Officer)
Date: June 6, 2003
21
CERTIFICATION
I, Michael Rayden, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Too, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 6, 2003
/s/ Michael W. Rayden
------------------------------------
Michael W. Rayden
Chairman of the Board, President and
Chief Executive Officer
22
CERTIFICATION
I, Kent Kleeberger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Too, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 6, 2003
/s/ Kent A. Kleeberger
--------------------------
Kent A. Kleeberger
Executive Vice President, Chief
Operating Officer and Chief Financial
Officer
23