Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2004
---------------
( ) TRANSITIONAL 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
incorporation or organization) Identification Number)
8323 WALTON PARKWAY, NEW ALBANY, OHIO 43054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 614-775-3500
------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ----------------------------- -----------------------------------------
Common Shares, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------------------------------------------
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.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at August 2, 2003 was $608,681,356. There were 34,417,808 shares of
the Registrant's common stock outstanding at March 26, 2004.
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our proxy statement for the Annual Meeting of Stockholders scheduled
for May 13, 2004 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
THE COMPANY
Too, Inc. (hereafter referred to as "Too" or the "Company") is a rapidly growing
operator of two specialty retailing businesses, Limited Too and Justice. Limited
Too sells apparel, underwear, sleepwear, swimwear, lifestyle and personal care
products for fashion-aware, trend-setting girls ages seven to fourteen years.
Justice, launched by the Company in late January 2004, sells fashionable,
value-priced sportswear and key accessory items for girls ages seven to fourteen
years. Justice is intended to be located principally in non-mall locations such
as power, strip and specialty centers. The Company designs, sources and markets
products under the proprietary "Limited Too" and "Justice" brand names. During
the year, the Company discontinued its mishmash retail business in favor of
redirecting its resources to the Justice concept. In addition, the Company
announced it was ending its involvement in the Goldmark joint venture in fiscal
2003. Prior to the August 1999 Spin-off, the Company was a wholly-owned
subsidiary of The Limited, Inc. ("The Limited" or "Limited Brands").
In 1987, The Limited established "Limited Too" brand stores adjacent to or as
departments within The Limited stores to provide apparel to young girls, and
also apparel for infants and toddlers. From 1987 to the end of fiscal 1995, we
expanded our locations from two stores to 288 stores. In 1996, a new management
team recognized that its core customer had her own emerging sense of style and
revised our strategy to focus on girls seven to fourteen years of age as our
target customer group. Since then, we have implemented an aggressive store
opening campaign to capitalize on our business strengths and have grown our
Limited Too store base from 308 stores at the end of fiscal 1996 to 553 stores
in 46 states and Puerto Rico at the end of fiscal 2003.
In 1999, the Board of Directors of The Limited approved a plan to distribute to
its shareholders all of the outstanding common shares of Too, Inc. 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 initially
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 various agreements which covered
certain aspects of our past and ongoing relationships with The Limited.
3
DESCRIPTION OF OPERATIONS
Limited Too is a specialty retailer of quality apparel, underwear, sleepwear,
swimwear, lifestyle and personal care products for fashion-aware, trend-setting
young girls ages seven to fourteen years. Our target customers are active,
creative and image-conscious, enjoy shopping and want to describe themselves as
"fun" and "cool". We believe our target customers want a broad assortment of
merchandise for their range of dressing occasions, including school, leisure
activities or special occasions. We continually update our merchandise
assortment, which includes non-apparel merchandise, such as candy, jewelry,
toiletries, cosmetics and lifestyle furnishings for her room.
To attract our target customers, we create an in-store atmosphere that is
visually appealing and provides an enjoyable, safe and exciting shopping
experience. We design our stores to provide a "theme park" destination in the
mall and to encourage our customers to touch and sample our products. All of our
stores contain a wide variety of merchandise for a "one-stop shopping"
experience, which has been specifically designed to embody "a store for her"
theme. Our stores feature colorful storefront windows, light displays,
photographic sticker booths, gumball machines, and eye-catching photographs.
Additionally, all stores opened or remodeled since mid-1997 are under the "Girl
Power" format which further enhances the shopping experience.
Our merchandise includes:
- - apparel, such as jeans and other jeanswear and bottoms, knit tops and
T-shirts containing our brand name and other graphics, dresses and
outerwear
- - accessories, such as costume jewelry, hair ornaments, slippers, key
chains, wallets, backpacks, purses, watches and shoes
- - lifestyle products, such as bedroom furnishings, music, stationery and
candy
- - personal care products such as age-appropriate cosmetics and toiletries
- - add-ons, such as underwear, sleepwear and swimwear
Justice is our specialty retail brand launched in late January 2004, which
offers fashionable, value-priced sportswear for girls ages seven to fourteen
years. Justice also has key accessories, such as hats, belts and socks, as well
as jewelry and lifestyle items, all presented in a unique, fun store environment
primarily in "off-the-mall" locations. Five Justice store were open at the end
of fiscal 2003.
PRODUCT DEVELOPMENT
We develop substantially all of our Limited Too and Justice apparel and add-on
assortment through internal design groups, which allows us to create a vast
array of exclusive merchandise under our proprietary brands while bringing our
products to market expediently. Additionally, because our merchandise is sold
exclusively in our own stores, we are able to control the presentation and
pricing of our merchandise and provide a higher level of customer service.
4
SOURCING
We use a variety of sourcing arrangements. We purchased merchandise from
approximately 417 suppliers during fiscal 2003. Our largest supplier in fiscal
2003 was Li & Fung, which provided approximately 22% of our merchandise
purchases during the year. Historically, our largest apparel supplier was Mast
Industries, Inc., a wholly-owned subsidiary of Limited Brands. Mast Industries
supplied approximately 15% of the merchandise that we purchased in 2003, down
from 24% in 2002. We believe that all transactions that we have entered into
with Mast Industries over the years have been on terms consistent with an arm's
length basis since we have consistently treated them as if they were a third
party. We were not, and will not be, obligated to source products through Mast
Industries.
We source a significant amount of our merchandise from foreign factories located
primarily in the "Pacific Rim." We do not have any long-term merchandise supply
contracts, and many of our imports are subject to existing or potential duties,
tariffs or quotas that may limit the quantity of goods which may be imported
into the United States from countries in that region. Additionally, as we may
enter into manufacturing contracts in advance of the selling season, we may be
subject to shifts in demand for certain or all of our products. The Company's
business is subject to a variety of risks generally associated with doing
business in foreign markets and importing merchandise from abroad, such as
political instability, currency and exchange risks, and local business practice
and political issues. During fiscal 2002, we opened our first direct sourcing
office in Hong Kong. This arrangement allows us to bypass agents, brokers and
middlemen as we establish increased direct relationships with factories and
reduce our sourcing costs. We source primarily from factories with which we have
pre-existing relationships, and only on basic items. Direct sourcing purchases
represented approximately 7% of our total apparel purchases in fiscal 2003, and
we expect direct sourcing to account for approximately 20% to 25% of our hanging
merchandise purchases in 2004.
DISTRIBUTION
In connection with the August 1999 Spin-off, we entered into a services
agreement with Limited Logistics Services, a wholly-owned subsidiary of The
Limited, to provide distribution services to us covering flow of merchandise
from factory to our stores for up to three years after the date of Spin-off.
Historically, most of the merchandise and related materials for the Company's
stores were shipped to a distribution center owned by The Limited in Columbus,
Ohio, where the merchandise was received, inspected, allocated and packed for
shipment to stores. Under the service agreement, The Limited 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. On February 15, 2002, we opened our own, newly constructed
470,000 square foot distribution center in Etna Township, Ohio and cancelled our
contractual arrangement with The Limited.
INVENTORY MANAGEMENT
The Company's approach to inventory management emphasizes rapid turnover of a
broad assortment of outfits and taking markdowns where required to keep
merchandise fresh and current with fashion trends. Our policy is to maintain
sufficient quantities of inventory on hand in our retail stores and distribution
center so that we can offer customers a full selection of current merchandise.
5
SEASONALITY
The Company views the retail apparel market as having two principal selling
seasons, Spring and Fall. As is generally the case in the apparel industry, the
Company experiences its peak sales activity during the Fall season. This
seasonal sales pattern results in increased inventory during the back-to-school
and Christmas holiday selling periods. During fiscal year 2003, the highest
inventory level approximated $74.4 million at the November 2003 month-end and
the lowest inventory level approximated $37.4 million at the May 2003 month-end.
Merchandise sales are predominantly paid for by cash, personal check or credit
cards.
STORES
At the end of fiscal 2003, the Company operated 553 Limited Too and 5 Justice
stores in 46 states and Puerto Rico. The following table shows the number of
retail stores operated by the Company over the past five fiscal years:
FISCAL YEARS ENDED
-------------------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, JANUARY 29,
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- -----------
Limited Too:
Number of stores:
Beginning of year 510 459 406 352 319
Opened 49 56 57 58 42
Closed (6) (5) (4) (4) (9)
------- ------- ------- ------- -------
553 510 459 406 352
======= ======= ======= ======= =======
Stores remodeled 4 9 6 10 18
Stores in Girl Power format 333 280 216 156 89
% in Girl Power format 60% 55% 47% 38% 25%
Total square feet at period end
(thousands) 2,280 2,091 1,881 1,669 1,441
Average store size at period end
(square feet) 4,123 4,100 4,098 4,111 4,094
Annual sales per average square
foot $ 269 $ 319 $ 336 $ 341 $ 329
Number of mishmash stores - 12 7 - -
Number of Justice stores 5 - - - -
Additional information about the Company's business, including its revenues and
profits for the last three years, plus gross square footage is set forth under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in ITEM 7.
6
TRADEMARKS AND SERVICE MARKS
The Company owns trademarks and service marks, including Justice, used to
identify our merchandise and services, other than our brand name, Limited Too.
Many of these marks are registered with the U.S. Patent and Trademark Office.
These marks are important to us, and we intend to, directly or indirectly,
maintain and protect these marks and their registrations. However, we may choose
not to renew a registration of one or more of our merchandise marks if we
determine that the mark is no longer important to our business.
We also conduct business in foreign countries, principally because a substantial
portion of our merchandise is manufactured outside the United States. We have
registered marks in foreign countries to the degree necessary to protect these
marks, although there may be restrictions on the use of these marks in a limited
number of foreign jurisdictions.
A wholly-owned subsidiary of Limited Brands owns the brand name "Limited Too,"
which is registered in the United States and in numerous foreign countries. This
subsidiary licenses the brand name, royalty-free, to one of our wholly-owned
subsidiaries. In connection with the Spin-off, these subsidiaries entered into a
trademark and service mark licensing agreement that allows the Company to
operate under the "Limited Too" brand name in connection with our `tween
business. The agreement is for an initial term of five years after the Spin-off,
renewable annually thereafter at our option.
COMPETITION
The sale of apparel, accessories and personal care products through retail
stores and direct-to-consumer channels is a highly competitive business with
numerous competitors, including individual and chain fashion specialty stores,
department stores, discount retailers and direct marketers. Depth of selection,
colors and styles of merchandise, merchandise procurement and pricing, ability
to anticipate fashion trends and customer preferences, inventory control,
reputation, quality of merchandise, store design and location, advertising and
customer services are all important factors in competing successfully in the
retail industry. Additionally, factors affecting consumer spending such as
interest rates, employment levels, taxation and overall business conditions
could have a material adverse effect on the Company's results of operations and
financial condition.
ASSOCIATE RELATIONS
As of January 31, 2004, the Company employed approximately 8,900 associates
(none of whom were parties to a collective bargaining agreement), approximately
6,500 of whom were part-time. In addition, temporary associates are hired during
peak periods, such as the back-to-school and Christmas holiday shopping seasons.
AVAILABLE INFORMATION
The Company provides free of charge access to our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports, through our website, www.tooinc.com, as soon as reasonably
practicable after such reports are electronically filed with the Securities
Exchange Commission.
7
The Company also posted on its website, under the caption "Corporate
Governance," the Company's Corporate Governance Guidelines; Charters of its
Board of Directors' Audit Committee, Nominating and Governance Committee, and
Stock Option Compensation Committee; the Code of Ethics for Senior Financial
Officers; and Code of Business Conduct and Ethics, which applies to all of the
Company's directors and associates. These materials will also be provided
without charge to any stockholder submitting a written request to Too, Inc.,
Attn: Investor Relations, 8323 Walton Parkway, New Albany, Ohio 43054.
ITEM 2. PROPERTIES
Our home office facilities are located in New Albany, Ohio, within 10 miles of
our previous headquarters in Columbus, Ohio. In February 2002 we transitioned
our distribution operations to our own distribution center in Etna Township,
Ohio, within 15 miles of our home office facilities. Our distribution center is
approximately 470,000 square feet. We own both our distribution center and home
office facilities.
As of January 31, 2004, we operated 553 Limited Too and 5 Justice stores, which
are located primarily in shopping malls throughout the United States. Of these
stores, 459 were leased directly from third parties - principally shopping mall
developers - and 94 are governed by leases where the primary tenant is Limited
Brands or an affiliate of Limited Brands. Of the 459 stores directly leased, 46
are guaranteed by Limited Brands. Our leases expire at various dates between
2004 and 2014. In fiscal 2003, total store rent was $55.7 million. Minimum rent
commitments under non-cancelable store leases as of January 31, 2004 total $55.7
million, $51.9 million, $45.6 million, $38.4 million and $32.8 million for
fiscal years 2004 through 2008, respectively, and $87.8 million thereafter.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to fund all or a portion of the
cost of improvements. The cost of improvements varies widely, depending on the
size and location of the store. Lease terms are typically 10 years and usually
include a fixed minimum rent plus a contingent rent based on the store's annual
sales in excess of a specified amount. Certain operating costs such as common
area maintenance, utilities, insurance and taxes are typically paid by tenants.
Leases with Limited Brands or an affiliate of Limited Brands are on terms that
represent the proportionate share of the base rent payable in accordance with
the underlying lease plus the portion of any contingent rent payable in
accordance with the underlying lease attributable to our performance.
Additionally, Limited Brands provides guarantees on certain leases and assesses
a fee based on stores' sales exceeding defined levels.
ITEM 3. 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.
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Too, Inc. shares are traded on the New York Stock Exchange under the trading
symbol "TOO". The following is a summary of the high, low and close sales prices
of the Company's common stock as reported on the New York Stock Exchange for the
2003 and 2002 fiscal years:
SALES PRICE
---------------------------------
HIGH LOW CLOSE
--------- --------- ---------
2003 FISCAL YEAR
4th Quarter $ 20.75 $ 14.90 $ 15.30
3rd Quarter $ 18.07 $ 13.80 $ 16.50
2nd Quarter $ 21.95 $ 15.70 $ 17.90
1st Quarter $ 18.90 $ 13.45 $ 17.95
2002 FISCAL YEAR
4th Quarter $ 30.64 $ 16.32 $ 16.65
3rd Quarter $ 26.75 $ 19.45 $ 26.00
2nd Quarter $ 34.50 $ 21.60 $ 22.25
1st Quarter $ 32.00 $ 24.80 $ 30.38
The Company has not paid any dividends on its common stock and does not intend
to pay any dividends in the foreseeable future. It is expected that earnings
from the Company's operations will be retained and reinvested to support the
growth of the Company's business. At March 26, 2004, the Company had
approximately 15,962 shareholders of record.
9
ITEM 6. SELECTED FINANCIAL DATA
Due to the discontinuation of mishmash in 2003, its results are excluded for all
periods presented unless otherwise noted. The following data is in thousands,
except per share data, number of stores and annual sales per average square
foot:
FISCAL YEAR ENDED
---------------------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, JANUARY 29,
2004 2003 2002 2001 (1) 2000
---------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Net sales $ 598,681 $ 640,320 $ 600,875 $ 545,040 $ 450,426
Gross income (2) 199,678 237,232 217,644 192,581 158,189
General, administrative and store
operating expenses 154,275 157,991 150,278 137,285 115,734
Operating income 45,403 79,241 67,366 55,296 42,455
Income from continuing operations 28,531 48,524 40,083 32,245 24,576
Net income (3) $ 22,551 $ 47,338 $ 39,563 $ 32,245 $ 24,576
Earnings per share - basic (3) $ 0.66 $ 1.42 $ 1.28 $ 1.05 $ 0.80
Earnings per share - diluted (3) $ 0.65 $ 1.38 $ 1.23 $ 1.02 $ 0.79
BALANCE SHEET DATA:
Cash $ 115,886 $ 106,004 $ 75,993 $ 63,641 $ 67,503
Inventories 58,299 61,405 44,537 45,715 34,656
Total assets 391,454 358,360 278,032 217,964 186,112
Total debt - - 50,000 50,000 50,000
Total shareholders' equity 281,753 253,660 128,209 79,711 45,467
SELECTED OPERATING DATA:
Comparable store sales increase (decrease) (4) (7) (13)% (3)% 0% 4% 9%
Total net sales growth (decline) (6.5)% 6.6% 10.2% 21.0% 20.2%
Gross income rate (5) 33.4% 37.0% 36.2% 35.3% 35.1%
Operating income rate (5) 7.6% 12.4% 11.2% 10.1% 9.4%
Total number of stores open at
year end (8) 553 510 459 406 352
Total square feet at year end
(thousands) (8) 2,280 2,091 1,881 1,669 1,441
Annual sales per average square
foot (6) (8) $ 269 $ 319 $ 336 $ 341 $ 329
Net cash provided by operating activities $ 56,584 $ 55,712 $ 69,059 $ 30,544 $ 77,066
Capital expenditures $ 22,514 $ 39,739 $ 63,598 $ 36,308 $ 31,424
(1) Represents the 53-week fiscal year ended February 3, 2001.
(2) Gross income equals net sales less costs of goods sold, buying and
occupancy costs.
(3) Includes the impact of the loss on discontinued operations of mishmash, net
of tax, of $6.0 million, $1.2 million and $0.5 million for fiscal 2003,
2002 and 2001, respectively.
(4) 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 the purpose of this
calculation.
(5) Calculated as a percentage of net sales.
(6) 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.
(7) Comparable store sales for fiscal 2000 are for the 52-weeks ended January
27, 2001.
(8) Amounts exclude Justice stores.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following management's 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.
EXECUTIVE OVERVIEW
A Disappointing Year
All of us at Too, Inc. were disappointed with last year's results. Spring and
Back-To-School season fashion missteps resulted in a 7% net sales decline to
$598.7 million. The sales decline coupled with the discontinuation of mishmash,
our retail concept for teens and young women, resulted in a 52% decrease in net
income to $22.6 million, or $0.65 per diluted share. These results include
charges related to discontinued operations that reduced 2003 earnings by
approximately $6.0 million, net of tax, or $0.17 per share.
Sales results for the 2003 holiday season and the early 2004 spring season
indicate our 'tween fashions are much improved. This is due in part to last
year's strategic decision to re-focus exclusively on the 'tween girl. In May
2003, we simultaneously announced the discontinuation of mishmash and the launch
of Justice, our new retail concept for 'tween girls.
New 'Tween Concept
Justice is a unique retail concept, offering an exciting assortment of
fashionable apparel, related accessories, and popular lifestyle items just for
'tween girls. Stores are being sited primarily in off-the-mall power retail and
strip centers, locations different from Limited Too's mall-based store fleet. We
are designing, sourcing, and merchandising virtually all of our apparel under
our proprietary Justice brand. Price points with the Justice brand are
competitive with off-the-mall mass merchants and discounters.
The company plans to open 30 to 35 Justice stores in 2004, with 25 of those
scheduled to open by April 1st. We are clustering many of these stores in major
metropolitan areas such as Dallas, Atlanta, Chicago, Philadelphia, and Detroit
in order to optimize field management costs and to better leverage future
marketing plans.
Justice stores average 4,100 square feet, about the same size as the average
Limited Too. The interior design of Justice stores reflects the brand's value
proposition, resulting in lower buildout costs. Also, strip center rents and
associated common area maintenance charges are generally lower than traditional
mall locations.
We believe Justice is our best opportunity to gain incremental market share in
the $9.5 billion 'tween apparel market in retail strip centers that are most
often frequented by value-conscious customers.
11
Renewed Focus - Limited Too
Our fashion missteps in 2003 were due in part to the loss of customer focus. We
concentrated on changing fashion trends in line with the juniors market and
failed to meet the product expectations of our Limited Too customer. We have
since listened to the customer and have made the necessary changes that are
reconnecting us with her. We also made mid-year organizational changes that
drive a greater focus on our businesses. Further strengthening our customer
focus we initiated a program that places merchandising teams in stores on a
regular basis, allowing them to talk to customers and their parents and to learn
more about their tastes. We have also eliminated many other distractions that
had diverted our attention from our customer, the 'tween girl.
Discontinuing Our Teen Concepts
In May of 2003, we announced the discontinuation of our mishmash concept for
teen girls and the ending of our joint venture with specialty jewelry retailer
Angus & Coote (Holdings) Limited, which promoted their Goldmark jewelry brand in
our stores. While we were initially encouraged by the overall trend of these
businesses, we decided they would not reach the anticipated level of results as
quickly as originally planned, given the intense level of competition from
existing specialty retailers and other stores targeting teens. We closed 14 of
18 mishmash stores and the four Goldmark stores in the U.S. Four of the mishmash
locations have since been converted to Justice stores, an action that enables us
to test the viability of Justice in traditional shopping mall sites.
New Store Growth
In 2003, we opened 49 new Limited Too stores, remodeled four, and completed five
separations from the adjoining Limited store. We also closed six stores, ending
the year with 553 Limited Too stores in 46 states and Puerto Rico. Average
construction costs for new stores opened last year were $24 per square foot, net
of allowances, which was approximately 25% below 2002 costs, and 60% below the
average three years ago.
Our plan for 2004 calls for 20 to 25 new Limited Too stores and 30 to 35 Justice
stores, including the four converted locations. Limited Too will also remodel
approximately 20 stores, many of which will result in either store expansion or
relocation to a more advantageous position in the mall.
Brand Partnering Extended
Limited Too continues to create exciting marketing alliances with highly
recognizable consumer brands that are popular with 'tween girls. Hasbro's Tiger
Electronics, maker of the popular HitClips Discs micro music systems, is the
preferred electronics partner of Limited Too. Hasbro's Wizards of the Coast
launched their Star Sisterz collectable charm game exclusively with Limited Too
this spring. Lego's Clikits remains the preferred fashion designer kits at
Limited Too, and Nestle SweeTARTS is beginning its third year as the preferred
candy for our core brand. Our licensing agreement with Build-A-Bear Workshop, an
interactive entertainment retailer where guests create one-of-a-kind plush
animals, has been successful and is entering its second year.
12
Last fall, McDonald's restaurants throughout the U.S. distributed a discount
coupon for Limited Too stores on more than 60 million Mighty Kids meal bags and
sponsored a national television advertising campaign highlighting special
savings opportunities. The advertisements showcased some of our holiday apparel
styles on many of the youth-orientated networks. Based on the success of the
first campaign, Limited Too has partnered with McDonald's and Lego's Clikits for
another cross promotion during March and April of this year.
The significance of our preferred partnerships and licensing programs goes
beyond the heightened visibility they give our brands. They are an important
source of revenue, providing approximately $4.5 million in added revenue last
year principally from advertising in our catazine (catalog with editorial
comment), as well as creating cost effective means to accessing other forms of
advertising media such as television.
New Credit Agreement
In April 2003, Too, Inc. entered into a new credit facility with a syndicate of
banks consisting of a $100 million unsecured revolving loan commitment. The new
facility will give us greater access to working capital, if necessary, and
provide lower financing costs than the former facility. More importantly, the
company ended the year with no debt and $137 million in cash. Given our strong
cash position and current economic model, we expect to internally fund
substantially all of our 2004 capital needs, while generating $30 to $40 million
in cash flow.
Direct-Sourcing Benefit
Following a successful small-scale test two years ago, the company expanded its
direct-sourcing of apparel in 2003. Through our Hong Kong office, we have
contracted with a number of reliable, high-quality apparel manufacturers
throughout the Pacific Rim. We also have a Western Hemisphere sourcing team that
is identifying dependable producers for our goods in this part of the world. At
year-end 2003, we were direct sourcing about 14% of Limited Too's apparel and
expect to increase that penetration to 20% to 25% this year.
13
RESULTS OF OPERATIONS
On May 28, 2003, the Company announced the discontinuation of its mishmash
retail concept, and all mishmash stores were closed by November 25, 2003.
Accordingly, mishmash's operating results have been reflected as discontinued
operations in this Form 10-K. Unless otherwise indicated, the following
discussion relates only to Too, Inc.'s continuing operations.
Net sales for the year-ended January 31, 2004 were $598.7 million, a decrease of
7% from $640.3 for the 2002 fiscal year. Gross income decreased 16% to $199.7
million in 2003 from $237.2 million in 2002 and operating income decreased 43%
to $45.4 million in 2003 from $79.2 million in 2002. Net income, which included
the loss on discontinued operations, decreased 52% to $22.6 million in 2003 from
$47.3 million in 2002. Diluted earnings per share decreased 53% to $0.65 in 2003
from $1.38 in 2002.
The following table represents the amounts shown in the Company's Consolidated
Statements of Income for the last three fiscal years expressed as a percentage
of net sales:
FISCAL YEAR ENDED
-----------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Costs of goods sold, buying and
occupancy costs 66.6 63.0 63.8
----- ---- ----
Gross income 33.4 37.0 36.2
General, adminstrative and store
operating expenses 25.8 24.7 25.0
----- ---- ----
Operating income 7.6 12.4 11.2
Interest expense, net 0.0 0.1 0.1
----- ---- ----
Income from continuing operations
before income taxes 7.6 12.3 11.1
Provision for income taxes 2.8 4.7 4.4
----- ---- ----
Income from continuing operations 4.8 7.6 6.7
Discontinued operations:
Loss from operations of mishmash, net of tax 0.2 0.2 0.1
Loss on mishmash store closings and impairment
charges, net of tax 0.8 0.0 0.0
----- ---- ----
Loss on discontinued operations 1.0 0.2 0.1
----- ---- ----
Net income 3.8% 7.4% 6.6%
===== ==== ====
14
FINANCIAL SUMMARY
Summarized annual financial data for the last three fiscal years is presented
below:
FISCAL YEAR ENDED % CHANGE
-----------------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2, 2002- 2001-
2004 2003 2002 2003 2002
---- ---- ---- ---- ----
Net sales (millions) $ 598.7 $ 640.3 $ 600.9 (7)% 7%
Limited Too:
Comparable store sales increase (decrease) (1) (13)% (3)% 0%
Annual sales per average square foot (2) $ 269 $ 319 $ 336 (16)% (5)%
Annual sales per average store (thousands) (3) $ 1,107 $ 1,302 $ 1,374 (15)% (5)%
Average store size at year end (square feet) 4,123 4,100 4,098 1% -%
Total square feet at year end (thousands) 2,280 2,091 1,881 9% 11%
Number of stores:
Beginning of year 510 459 406
Opened 49 56 57
Closed (6) (5) (4)
------- ------- -------
End of year 553 510 459
======= ======= =======
Stores remodeled 4 9 6
Stores in "Girl Power" format 333 280 216
Percentage of stores in "Girl Power" format 60% 55% 47%
Number of mishmash stores - 12 7
Number of Justice stores 5 - -
(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) 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.
(3) Annual sales per average store is the result of dividing net sales for
the fiscal year by average store count, which reflects the impact of
opening and closing stores throughout the year.
15
NET SALES
FISCAL 2003
Net sales decreased 7% to $598.7 million in fiscal 2003 from $640.3 million for
2002. The decrease was primarily a result of a 13% decline in comparable store
sales, which was partially offset by the net addition of 43 Limited Too stores.
The decrease in comparable store sales was attributable to fashion missteps in
both the spring and back-to-school apparel assortments, which incorporated
styles and colors prevalent in junior fashions, but were not popular with
Limited Too's core `tween customer. Inconsistent mall traffic and competition
from off-the-mall retailers also contributed to the decline.
Virtually all of the Company's apparel categories experienced average store
sales decreases during fiscal 2003. However, the non-apparel portion of the
business performed well as accessories, lifestyles, innerwear and athletic
footwear posted double-digit average store increases for the year. The
introduction of the "Fun Zone" area, located in the front corner of our stores,
was a major factor in the improvement of the non-apparel sales performance.
For Spring 2004, the apparel assortment will include more color, glitter and
greater embellishment. The Company will also continue to expand the Fun Zone
concept, which highlights non-apparel items such as accessories, jewelry, room
decor, electronics, music, candy, and personal care products.
FISCAL 2002
Net sales for 2002 increased 7% to $640.3 million from $600.9 million for 2001.
The increase was primarily a result of the net addition of 51 Limited Too
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
FISCAL 2003
The gross income rate, expressed as a percentage of net sales, decreased to
33.4% in fiscal 2003 from 37.0% for 2002. The rate decrease was due to higher
markdowns to clear slow-moving Spring and Back-to-School merchandise. The rate
decline was further exacerbated by the deleveraging of fixed buying and
occupancy costs such as rent and depreciation due to the negative comparable
store sales performance. Incremental catazines production costs also contributed
to the rate decline. The Company mailed approximately 40.3 million catazines in
fiscal 2003 compared to 30.1 million in 2002.
16
FISCAL 2002
The gross income rate, expressed as a percentage of net sales, increased to
37.0% in fiscal 2002 from 36.2% for 2001. The increase in rate was primarily
attributable to a higher merchandise margin arising from improved initial
markups, which was partially offset by an increase in markdowns. Also offsetting
the improved merchandise margin was 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
FISCAL 2003
General, administrative and store operating expenses, expressed as a percentage
of net sales, increased to 25.8% in fiscal 2003 from 24.7% for 2002 despite a
$3.7 million decline in dollars from 2002. The decrease in expenses was
primarily attributable to lower home office expenses, as well as a decrease in
distribution center costs.
Home office expenses decreased due to a number of factors including: lower
incentive compensation expense resulting from the Company's disappointing
financial performance; settlement proceeds received in lieu of a litigation
claim; and certain one-time expenses incurred in 2002 for brand protection
litigation, tax consulting and start-up costs associated with the Company's new
home office.
Distribution center costs have continued to decline since the Company opened its
new facility in early fiscal 2002. The cost improvement is primarily a result of
productivity gains, as measured in core units processed per labor hour.
FISCAL 2002
General, administrative and store operating expenses, expressed as a percentage
of net sales, decreased to 24.7% in fiscal 2002 from 25.0% for 2001. This
decrease was primarily due to lower distribution center expenses, and lower
catazine and web fulfillment costs.
OPERATING INCOME
FISCAL 2003
Operating income, expressed as a percentage of net sales, decreased to 7.6% in
fiscal 2003 from 12.4% for 2002. The decrease was attributable to lower
merchandise margins resulting from lower sales and higher markdowns, as well as
increased occupancy costs expressed as a percentage of net sales.
FISCAL 2002
Operating income, expressed as a percentage of net sales, increased to 12.4% in
fiscal 2002 from 11.2% for 2001. The increase was attributable to higher gross
income and lower general, administrative and store operating expenses, expressed
as a percentage of net sales.
17
INTEREST (INCOME) EXPENSE, NET
FISCAL 2003
Interest (income) expense, net, amounted to income of $128,000 for fiscal 2003
versus expense of $517,000 for 2002. Interest income is earned on investments in
money market securities and short-term, AAA-rated and insured municipal bonds.
Interest income was $1.6 million and $1.8 million for fiscal years 2003 and
2002, respectively. Interest expense represents facility and letters of credit
fees, as well as net interest expense related to the Company's nonqualified
benefit plans. Interest expense was $1.5 million and $2.3 million for fiscal
years 2003 and 2002, respectively.
FISCAL 2002
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 previous credit facility ("Old 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 Old Credit Facility in May of 2002. 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.
PROVISION FOR INCOME TAXES
FISCAL 2003
The provision for income taxes decreased to $17.0 million in fiscal 2003 from
$30.2 million for 2002. The income tax provision rate decreased to 37.3% in
fiscal 2003 from 38.3% in 2002. The rate decrease was primarily attributable to
investments in certain short-term, tax-free municipal bonds and the expansion of
our direct sourcing initiatives.
FISCAL 2002
Income tax expense amounted to $30.2 million for 2002 compared to $26.7 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.
DISCONTINUED OPERATIONS
On May 28, 2003, the Company announced that it was ending the rollout of its
mishmash retail concept in favor of redirecting its resources to the development
of a new concept, Justice, focused on value-priced sportswear and accessories
for `tween girls, ages 7 to 14. All 18 of the mishmash stores open at the time
of the announcement were closed by the end of November 2003.
18
FISCAL 2003
Loss from discontinued operations increased to $6.0 million in fiscal 2003 from
$1.2 million in 2002. The fiscal 2003 increase was primarily due to $4.6 million
in charges, net of tax, for lease termination costs and asset impairment
charges.
FISCAL 2002
Loss from discontinued operations increased to $1.2 million in fiscal 2002 from
$0.5 million in 2001. The increase was primarily due to increased store payroll
costs from the addition of five stores during fiscal 2002.
FINANCIAL CONDITION
Our balance sheet remains strong due to positive cash flows from operations. We
were able to finance all capital expenditures with working capital generated
from operations and ended the year with approximately $137 million in cash. A
more detailed discussion of liquidity, capital resources and capital
requirements follows.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operating activities is the primary resource to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures. A summary of our working capital position and
capitalization follows (in thousands):
FISCAL YEAR ENDED
-------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2004 2003 2002
----------- ----------- -----------
Net cash provided by operating activities $ 56,584 $ 55,712 $ 69,059
Working capital, excluding restricted cash of $20.8 million at January 31,
2004, and including current portion of long-term debt of $17.5 million
at February 2, 2002 106,611 92,644 25,302
Capitalization:
Long-term debt - - 32,500
Shareholders' equity 281,753 253,660 128,209
-------- -------- --------
Total capitalization $281,753 $253,660 $160,709
======== ======== ========
Additional amounts available under the
credit facility $100,000 $ 50,000 $ 50,000
19
In connection with the Spin-off, the Company entered into the Old Credit
Facility, which was a $100 million credit facility, and used all of the term
portion 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. In fiscal 2003, the Company terminated the Old Credit Facility and
entered into a new credit facility ("New Credit Facility"), which consists of a
$100 million unsecured revolving loan commitment. The Company amended its New
Credit Facility in fiscal 2003 to modify certain financial covenants. In
exchange, the Company agreed to maintain a pledged investment account equal to
110% of any outstanding letters of credit or any revolving commitment usage,
which is shown as restricted cash.
OPERATING ACTIVITIES
Net cash provided by operating activities was $56.6 million, $55.7 million and
$69.1 million for fiscal years 2003, 2002 and 2001, respectively.
The increase in cash provided by operating activities in 2003 was primarily
driven by a decrease in inventories, offset by a 52% decline in net income.
Inventory levels at the end of fiscal 2003 decreased by 13% on an average store
basis from the end of 2002. The decrease in inventories was due to a combination
of early receipts of spring goods prior to the end of fiscal 2002 and, to a
lesser extent, missed sales in late December and January of fiscal 2002.
During fiscal 2003, the Company incurred non-cash charges as a result of
discontinuing the Company's mishmash retail concept, as well as ending the
Company's involvement in the Goldmark joint venture. The impairment charge
consisted of the write-off of the mishmash fixed assets and store supplies and
the investment in Goldmark.
The decrease in cash provided by operating activities in 2002 from 2001 was due
to an increase in inventory levels, an increase in other long-term assets and
the timing of income tax payments, which 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.
INVESTING ACTIVITIES
Net cash used for investing activities amounted to $47.4 million, $49.2 million
and $63.6 million for fiscal years 2003, 2002 and 2001, respectively.
The decrease in cash used for investing activities in 2003 versus 2002 was due
to a decrease in capital expenditures and the funding of the Company's
nonqualified benefit plans, which was partially offset by restricted cash.
Capital expenditures decreased to $22.5 million in fiscal 2003 from $39.7
million in 2002. The decrease is due to $22.1 million of expenditures incurred
in fiscal 2002 in connection with the construction of our new home office and
distribution center. Capital expenditures in 2003 were incurred primarily to
construct new Limited Too and Justice stores, and the remodel of existing
stores. See further discussion in the "Capital Expenditures" section below.
20
In connection with the Company's non-qualified benefit plans, additional
corporate-owned life insurance policies, with a cash value of $4.1 million, were
purchased in fiscal 2003 versus purchases of $9.4 million in 2002.
The decrease in cash used for investing activities in 2002 was due to a decrease
in capital expenditures in connection with the construction of our new home
office and distribution center. The Company incurred capital expenditures
related to this construction of $22.1 million in 2002 versus $45.6 million in
2001.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $0.7 million, $23.5
million and $6.9 million for fiscal years 2003, 2002 and 2001, respectively.
Financing activities in fiscal 2003 were primarily related to stock option
activity. The increase in cash provided by financing activities in 2002 was due
to proceeds from the issuance of 2.4 million shares of common stock in
connection with a follow-on offering, and the corresponding repayment of the
term loan portion of the Old Credit Facility, which occurred in May 2002.
CAPITAL EXPENDITURES
We anticipate spending between $20 million and $22 million in fiscal 2004 for
capital expenditures primarily for new stores, remodeling or expansion of
existing stores and related fixtures and equipment. We intend to add 240,000 to
260,000 square feet in 2004, which will represent a 10% to 11% increase over
year-end 2003. We anticipate that the increase will result from opening
approximately 20 to 25 new Limited Too stores and expanding about half of the
approximately 20 stores identified for remodeling. Additionally, we plan to open
approximately 30 to 35 Justice stores during fiscal 2004.
We estimate that the average cost for leasehold improvements, furniture and
fixtures for Limited Too stores to be opened in 2004 will be between $125,000
and $145,000 per store, net of 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 2004 will be
funded by cash on hand and net cash provided by operating activities.
21
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 remaining 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.
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, 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 January 31, 2004, 64 of our stores were adjacent to Limited Brands' stores.
In addition, many of these aforementioned stores are part of 94 stores that are
subject to sublease agreements (the "Store Leases Agreement") with Limited
Brands for stores where we occupy space that Limited Brands 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).
22
All termination rights and other remedies under the Direct Limited Leases will
remain with Limited Brands. If Limited Brands decides to terminate any of the
Direct Limited Leases early, Limited Brands must first offer to assign such
lease to us. If, as a result of such early termination by Limited Brands, we are
forced to remodel our store or relocate within the mall, Limited Brands 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 Limited
Brands 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 11 of the Direct Limited Leases of which we are a part are
scheduled to expire during 2008 or later. We may not assign or sublet our
interest in those premises, except to an affiliate, without Limited Brand's
consent. If Limited Brands 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 46 of our direct leases are guaranteed by Limited Brands. Pursuant
to the Store Leases Agreement, we are required to make additional payments to
Limited Brands as consideration for the guarantees that Limited Brands provides
under such leases along with amounts for adjacent stores based on those
locations achieving certain performance targets.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements, such as variable interest in
an unconsolidated entity, as of January 31, 2004.
23
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company has entered into agreements that create contractual obligations and
commercial commitments. These obligations and commitments may have an impact on
future liquidity and the availability of capital resources. The following tables
reflect these obligations and commitments as of January 31, 2004 (in thousands):
Contractual Obligations:
PAYMENTS DUE BY PERIOD
------------------------------------------------------------------------
LESS THAN 1-3 3-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
-------- --------- ------- --------- ---------
Long-term debt obligations $ - $ - $ - $ - $ -
Capital lease obligations - - - - -
Operating lease obligations (1) 313,604 56,891 97,675 71,225 87,813
Purchase obligations (2) 63,216 63,216 - - -
Other long-term liabilities - - - - -
-------- --------- ------- --------- ---------
Total $376,820 $120,107 $ 97,675 $ 71,225 $ 87,813
======== ======== ======== ========= =========
(1) Primarily consists of future minimum lease payments under the Company's
store operating leases.
(2) Represents outstanding purchase orders for merchandise and store
construction.
Commercial Commitments:
COMMITMENTS BY PERIOD
--------------------------------------------------------------------
LESS THAN 1-3 3-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
-------- -------- -------- -------- ----------
Oustanding letters of credit (1) $ 17,655 $ 17,655 $ - $ - $ -
Standby letters of credit 523 523 - - -
-------- -------- -------- -------- ----------
Total $ 18,178 $ 18,178 $ - $ - $ -
======== ======== ======== ======== ==========
(1) Consists of outstanding letter of credit commitments for the purchase of
merchandise.
CREDIT FACILITY
In August 1999, we entered into a five-year, $100 million collateralized credit
facility. The Old Credit Facility consisted of a $50 million five-year term loan
and a $50 million, five-year annual revolving credit commitment. The Old Credit
Facility's interest rates, which reflected matrix pricing, were 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 Old Credit Facility contained customary representations and
warranties as well as certain affirmative, negative and financial covenants. In
November 2001, the Company amended the Old Credit Facility. The amendment
allowed 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.
24
On May 24, 2002, the Company sold 2.4 million shares of its common stock,
resulting in net proceeds of $73.4 million. Concurrently, the Company paid off
the entire $50 million term loan due under the Old Credit Facility, and the
remaining proceeds from the sale of common stock were used for general corporate
purposes. The $50 million revolving loan commitment under the Old Credit
Facility remained in effect and was available to the Company for future business
purposes.
On April 29, 2003, the Company terminated the aforementioned Old Credit Facility
and entered into the unsecured New Credit Facility with a syndicate of banks.
The New Credit Facility consists of a $100 million unsecured revolving loan
commitment. Interest expense on borrowings under the New Credit Facility is
based on, at the borrower's option, either (1) the higher of the Prime rate or
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 New Credit
Facility, the Company is required to comply with certain covenants, including
financial ratios such as leverage, coverage and tangible net worth. The New
Credit Facility limits the Company from incurring certain additional
indebtedness, restricts substantial asset sales and provides for a springing
lien against certain assets in the event of default. On September 16, 2003, the
New Credit Facility was amended, and the amendment became retroactively
effective as of July 31, 2003. In exchange for the modification of certain
financial covenants the Company agreed to maintain a pledged investment account
equal to 110% of any outstanding letters of credit or any revolving commitment
usage. As of January 31, 2004, the Company had outstanding letters of credit
under the New Credit Facility amounting to $18.2 million. The Company is in
compliance with all applicable terms of the amended New Credit Facility.
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 of merchandise to the
customer, which approximates the amount of revenue that would be recognized if
sales were recorded upon receipt by the customer. A reserve is provided for
projected merchandise returns based on prior experience.
25
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 when markdowns are currently taken as a reduction of
the retail value and cost of inventories. Inherent in the retail method are
certain management judgments and estimates including, among others, future
sales, 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 leasehold 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
The Financial Accounting Standards Board ("FASB") issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," in June 2001. SFAS No. 143
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. This Statement is
effective for fiscal years beginning after June 15, 2002. 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 results of
operations, cash flows or the financial position of the Company.
26
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," in April 2002.
SFAS No. 145 eliminates SFAS 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 No. 145 also 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 No. 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 SFAS No. 4 are effective for fiscal years
beginning after May 15, 2002. The provisions of this Statement related to SFAS
No. 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 results of operations, cash flows or the financial position of the
Company.
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," in June 2002. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 eliminates the definition and requirement
for recognition of exit costs in Emerging Issues Task Force ("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 No. 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. In accordance with SFAS No. 146, the Company recorded exit costs of
$1.2 million, net of tax, as a result of the discontinuation of the Company's
mishmash operations. Refer to Footnote 3 in Item 8 for further information.
The FASB issued Financial Accounting Standards Board Interpretation ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," in November 2002. FIN
No. 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 No. 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 results of operations, cash flows or the financial
position of the Company.
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," in November 2002. This consensus 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 consensus also addresses the
classification of cash consideration received from vendors in a reseller's
income statement. The guidance related to timing of recognition is to be applied
prospectively to new rebate arrangements entered into after November 21, 2002.
The guidance related to income statement classification is effective for all new
arrangements and arrangements modified after December 31, 2002. The adoption of
this consensus did not have a material impact on the results of operations, cash
flows or the financial position of the Company.
27
The FASB issued FIN No. 46, "Consolidation of Variable Interest Entities," in
January 2003. FIN No. 46 establishes accounting and disclosure requirements for
ownership interests in entities that have certain financial or ownership
characteristics (sometimes known as special purpose entities). Subsequent to
issuing FIN No. 46, the FASB continued to propose modifications and issue FASB
Staff Positions ("FSPs") that changed and clarified FIN No. 46. These
modifications and FSPs were subsequently incorporated into Fin No. 46 (revised)
("FIN No. 46R"), which was issued in November 2003 and replaces FIN No. 46.
Among other things, FIN No. 46R a) essentially excludes operating businesses
from its provisions subject to certain conditions, b) states the provisions of
FIN 46R are not required to be applied if a company is unable to obtain the
necessary information, c) includes new definitions and examples of what variable
interests are, d) clarifies and changes the definition of a variable interest
entity and e) clarifies and changes the definition and treatment of de facto
agents. This Interpretation is effective for companies that have interests in
variable interest entities or potential variable interest entities for periods
ending after December 15, 2003. Application of this Interpretation for all other
types of entities is required for periods ending after March 15, 2004. The
Company is currently evaluating the impact of adopting FIN No. 46R, but the
Company's management does not expect its adoption to have a significant impact
on the results of operations, cash flows or the financial position of the
Company.
The Emerging Issues Task Force ("EITF") reached a consensus on issues raised in
EITF 03-03, "Accounting for Retroactive Insurance Contracts Purchased by
Entities Other Than Insurance Enterprises," in May 2003. This consensus states
that a claims-made insurance policy that contains no retroactive provisions
should be accounted for on a prospective basis. However, if a claims-made
insurance policy contains a retroactive provision, the retroactive and
prospective provisions of the policy should be accounted for separately, if
practicable; otherwise, the claims-made insurance policy should be accounted for
entirely as a retroactive contract. The consensus is effective for all new
insurance arrangements entered into in the next reporting period beginning after
May 28, 2003. The adoption of this consensus did not have a significant impact
on the results of operations, cash flows or the financial position of the
Company.
28
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):
FIRST SECOND THIRD FOURTH
---------- --------- ----------- -----------
2003 QUARTERS
Net sales $ 137,971 $ 131,704 $ 146,020 $ 182,986
% of full year 23.0% 22.0% 24.4% 30.6%
Gross income $ 42,627 $ 39,808 $ 48,326 $ 68,917
% of full year 21.3% 19.9% 24.2% 34.5%
Income from continuing operations $ 4,596 $ 638 $ 5,204 $ 18,093
% of full year 16.1% 2.2% 18.2% 63.4%
Net income (loss) $ 4,159 $ (3,830) $ 4,521 $ 17,701
% of full year 18.4% (17.0)% 20.0% 78.5%
2002 QUARTERS
Net sales $ 157,407 $ 139,651 $ 162,906 $ 180,356
% of full year 24.6% 21.8% 25.4% 28.2%
Gross income $ 53,669 $ 49,391 $ 59,030 $ 75,142
% of full year 22.6% 20.8% 24.9% 31.7%
Income from continuing operations $ 6,183 $ 5,821 $ 11,197 $ 25,323
% of full year 12.7% 12.0% 23.1% 52.2%
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 $ 148,464 $ 190,286
% of full year 22.7% 20.9% 24.7% 31.7%
Gross income $ 44,976 $ 40,962 $ 51,636 $ 80,070
% of full year 20.7% 18.8% 23.7% 36.8%
Income from continuing operations $ 3,828 $ 2,865 $ 8,380 $ 25,010
% of full year 9.6% 7.1% 20.9% 62.4%
Net income $ 3,815 $ 2,877 $ 8,040 $ 24,831
% of full year 9.6% 7.3% 20.3% 62.8%
29
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 Form 10-K, 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 Form 10-K, including Management's Discussion and Analysis,
relating to anticipated direct sourcing in 2004, and anticipated capital
expenditures in 2004 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 Form 10-K, 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.
ITEM 7A. 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 January 31, 2004, 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.
30
REPORT OF MANAGEMENT
We are responsible for the preparation and integrity of Too, Inc.'s financial
statements and other financial information presented in this Form 10-K. 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
auditors, 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 of Directors, Executive Vice President and
President and Chief Executive Officer Chief Financial Officer
Too, Inc. Too, Inc.
31
REPORT OF INDEPENDENT AUDITORS
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 January 31, 2004 and February 1, 2003, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2004 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 24, 2004
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002 2001
--------- --------- ---------
Net sales $ 598,681 $ 640,320 $ 600,875
Costs of goods sold, buying and
occupancy costs 399,003 403,088 383,231
--------- --------- ---------
Gross income 199,678 237,232 217,644
General, administrative and store
operating expenses 154,275 157,991 150,278
--------- --------- ---------
Operating income 45,403 79,241 67,366
Interest (income) expense, net (128) 517 583
--------- --------- ---------
Income from continuing operations
before income taxes 45,531 78,724 66,783
Provision for income taxes 17,000 30,200 26,700
--------- --------- ---------
Income from continuing operations 28,531 48,524 40,083
Discontinued operations:
Loss from operations of mishmash, net of tax 1,391 1,186 520
Loss on mishmash store closings and impairment
charges, net of tax 4,589 - -
--------- --------- ---------
Loss on discontinued operations 5,980 1,186 520
--------- --------- ---------
Net income $ 22,551 $ 47,338 $ 39,563
========= ========= =========
INCOME (LOSS) PER SHARE - BASIC:
Continuing operations $ 0.83 $ 1.46 $ 1.29
Discontinued operations (0.17) (0.04) (0.01)
--------- --------- ---------
Net income per basic share $ 0.66 $ 1.42 $ 1.28
========= ========= =========
INCOME (LOSS) PER SHARE - DILUTED:
Continuing operations $ 0.82 $ 1.42 $ 1.25
Discontinued operations (0.17) (0.04) (0.02)
--------- --------- ---------
Net income per diluted share $ 0.65 $ 1.38 $ 1.23
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES:
Basic 34,258 33,263 31,020
========= ========= =========
Diluted 34,642 34,217 32,038
========= ========= =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
33
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 115,886 $ 106,004
Restricted cash 20,846 -
Receivables 6,802 4,957
Income taxes receivable 5,542 -
Inventories 58,299 61,405
Store supplies 13,285 12,285
Other 2,542 2,260
--------- ---------
Total current assets 223,202 186,911
Property and equipment, net 147,038 145,530
Deferred income taxes 6,780 14,929
Other assets 14,434 10,990
--------- ---------
Total assets $ 391,454 $ 358,360
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 36,556 $ 33,579
Accrued expenses 41,725 44,600
Income taxes payable 17,464 16,088
--------- ---------
Total current liabilities 95,745 94,267
Other long-term liabilities 13,956 10,433
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized - -
Common stock, $.01 par value, 100 million shares authorized,
34.4 million and 34.1 million shares issued and outstanding
at January 31, 2004 and February 1, 2003, respectively 344 341
Treasury stock, at cost, 29,709 shares (998) (998)
Paid in capital 119,960 114,421
Retained earnings 162,447 139,896
--------- ---------
Total shareholders' equity 281,753 253,660
--------- ---------
Total liabilities and shareholders' equity $ 391,454 $ 358,360
========= =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
34
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, 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
Net income 22,551 22,551
Issuance of common stock under stock
option and restricted stock plans 301 3 4,759 4,762
Other, including tax benefit related to
issuance of stock under stock option
and restricted stock plans 780 780
------ -------- -------- -------- -------- ----------
BALANCES, JANUARY 31, 2004 34,362 $ 344 $ (998) $119,960 $162,447 $ 281,753
====== ======== ======== ======== ======== ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
35
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
2003 2002 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,551 $ 47,338 $ 39,563
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS:
Depreciation and amortization 19,704 18,884 17,950
Loss on impairment of assets 6,121 - -
CHANGES IN ASSETS AND LIABILITIES:
Inventories 3,106 (16,868) 1,178
Accounts payable and accrued expenses 1,688 8,194 3,800
Income taxes 4,011 (1,867) 6,569
Other assets (4,120) (3,620) (1,753)
Other liabilities 3,523 3,651 1,752
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,584 55,712 69,059
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (22,514) (39,739) (63,598)
Funding of nonqualified benefit plans (4,059) (9,436) -
Restricted cash (20,846) - -
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (47,419) (49,175) (63,598)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 73,394 -
Repayment of term loan - (50,000) -
Purchases of treasury stock - (998) -
Stock options and other equity changes 717 1,078 6,891
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 717 23,474 6,891
--------- --------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 9,882 30,011 12,352
Cash and equivalents, beginning of year 106,004 75,993 63,641
--------- --------- ---------
Cash and equivalents, end of year $ 115,886 $ 106,004 $ 75,993
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Accrual for point of sale operating lease buy out $ 3,068 $ - $ -
========= ========= =========
Issuance of restricted stock $ 4,797 $ 2,755 $ 2,043
========= ========= =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
36
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 Justice. 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. Justice, launched by the Company in late January 2004, sells value-priced
sportswear and accessories for girls ages seven to fourteen years.
On May 28, 2003, the Company announced the discontinuation of its mishmash
retail concept in favor of redirecting its resources to the Justice concept. See
Note 3 for further information regarding the Company's discontinued operations.
Also on that date, the Company announced it was ending its involvement in the
Goldmark joint venture. See Note 9 for further information.
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" or "Limited
Brands").
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 9. 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 that 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.
37
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 2003, 2002 and
2001 represent the 52-week periods ended January 31, 2004, February 1, 2003 and
February 2, 2002.
CASH EQUIVALENTS
The Company considers short-term investments with original maturities of three
months or less to be cash equivalents. Outstanding checks classified in Accounts
Payable and in Accrued Expenses on the balance sheet totaled $13.2 million and
$4.7 million as of January 31, 2004 and February 1, 2003, respectively.
RESTRICTED CASH
Restricted cash represents the restriction from withdrawal of cash that backs
the Company's outstanding letter of credit agreements, as well as funds held in
an insurance trust for the benefit of the Company's workers' compensation
insurance carriers.
INVENTORIES
Inventories are principally valued at the lower of average cost or market, on a
first-in, first-out basis, utilizing the retail method.
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. 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 $18.7 million, $19.0 million and $14.8 million for fiscal years
2003, 2002 and 2001, respectively.
38
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 leasehold 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. Excluding charges associated with the discontinuation of
mishmash, 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. 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 of merchandise to the customer, which approximates the
amount of revenue that would be recognized if sales were recorded upon receipt
by 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. Revenue from gift cards, gift certificates and store merchandise
credits is recognized at the time of redemption. Revenues also include certain
sales of advertising space in the Company's catalog, and are recognized over the
expected revenue stream of the catalog.
STORE PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged to operations as
incurred.
39
FINANCIAL INSTRUMENTS
The recorded values of financial instruments, including cash and equivalents,
receivables and accounts payable, approximate fair value due to their short
maturity.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under the recognition and
measurement principles of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, no compensation expense for stock options has been recognized as
all options granted had an exercise price equal to the market value of the
underlying common stock on the date of the grant. The Company does recognize
compensation expense related to restricted stock awards.
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," to stock-based employee compensation
(in millions, except per share amounts):
2003 2002 2001
--------- --------- ---------
Net income, as reported $ 22.6 $ 47.3 $ 39.6
Stock-based compensation expense recorded
under APB Opinion No. 25, net of tax 0.6 1.5 1.6
Stock-based compensation expense
determined under fair value based
method, net of tax (3.8) (4.2) (3.4)
--------- --------- ---------
Pro forma net income $ 19.4 $ 44.6 $ 37.8
========= ========= =========
Earnings per share:
Basic - as reported $ 0.66 $ 1.42 $ 1.28
========= ========= =========
Basic - pro forma $ 0.57 $ 1.34 $ 1.22
========= ========= =========
Diluted - as reported $ 0.65 $ 1.38 $ 1.23
========= ========= =========
Diluted - pro forma $ 0.56 $ 1.30 $ 1.18
========= ========= =========
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:
2003 2002 2001
---- ---- ----
Expected life 5.0 5.0 5.0
Forfeiture rate 20% 20% 20%
Dividend rate 0% 0% 0%
Price volatility 52% 50% 40%
Risk-free interest rate 2.9% 3.5% 4.0%
40
The weighted average fair value of options granted was $7.36, $12.35 and $6.99
for fiscal 2003, 2002 and 2001, respectively.
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.
The following table shows the amounts used in the computation of basic and
diluted earnings per share (in thousands):
2003 2002 2001
------- ------- -------
Net income $22,551 $47,338 $39,563
======= ======= =======
Weighted average common shares - basic 34,258 33,263 31,020
Dilutive effect of stock options
and restricted stock 384 954 1,018
------- ------- -------
Weighted average common shares - diluted 34,642 34,217 32,038
======= ======= =======
Due to the options' strike price exceeding the average market price of the
common shares for the reporting periods, options to purchase 1,031,700, 155,400
and 208,000 common shares were not included in the computation for fiscal 2003,
2002 and 2001, respectively.
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
The Financial Accounting Standards Board ("FASB") issued SFAS No. 143,
"Accounting for Asset Retirement Obligations," in June 2001. SFAS No. 143
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. This Statement is
effective for fiscal years beginning after June 15, 2002. 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 results of
operations, cash flows or the financial position of the Company.
41
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," in April 2002.
SFAS No. 145 eliminates SFAS 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 No. 145 also 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 No. 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 SFAS No. 4 are effective for fiscal years
beginning after May 15, 2002. The provisions of this Statement related to SFAS
No. 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 results of operations, cash flows or the financial position of the
Company.
The FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities," in June 2002. SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS No. 146 eliminates the definition and requirement
for recognition of exit costs in Emerging Issues Task Force ("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 No. 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. In accordance with SFAS No. 146, the Company recorded exit costs of
$1.2 million, net of tax, as a result of the discontinuation of the Company's
mishmash operations. Refer to Footnote 3 for further information.
The FASB issued Financial Accounting Standards Board Interpretation ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," in November 2002. FIN
No. 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 No. 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 results of operations, cash flows or the financial
position of the Company.
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," in November 2002. This consensus 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 consensus also addresses the
classification of cash consideration received from vendors in a reseller's
income statement. The guidance related to timing of recognition is to be applied
prospectively to new rebate arrangements entered into after November 21, 2002.
The guidance related to income statement classification is effective for all new
arrangements and arrangements modified after December 31, 2002. The adoption of
this consensus did not have a material impact on the results of operations, cash
flows or the financial position of the Company.
42
The FASB issued FIN No. 46, "Consolidation of Variable Interest Entities," in
January 2003. FIN No. 46 establishes accounting and disclosure requirements for
ownership interests in entities that have certain financial or ownership
characteristics (sometimes known as special purpose entities). Subsequent to
issuing FIN No. 46, the FASB continued to propose modifications and issue FASB
Staff Positions ("FSPs") that changed and clarified FIN No. 46. These
modifications and FSPs were subsequently incorporated into Fin No. 46 (revised)
("FIN No. 46R"), which was issued in November 2003 and replaces FIN No. 46.
Among other things, FIN No. 46R a) essentially excludes operating businesses
from its provisions subject to certain conditions, b) states the provisions of
FIN 46R are not required to be applied if a company is unable to obtain the
necessary information, c) includes new definitions and examples of what variable
interests are, d) clarifies and changes the definition of a variable interest
entity and e) clarifies and changes the definition and treatment of de facto
agents. This Interpretation is effective for companies that have interests in
variable interest entities or potential variable interest entities for periods
ending after December 15, 2003. Application of this Interpretation for all other
types of entities is required for periods ending after March 15, 2004. The
Company is currently evaluating the impact of adopting FIN No. 46R, but the
Company's management does not expect its adoption to have a significant impact
on the results of operations, cash flows or the financial position of the
Company.
The Emerging Issues Task Force ("EITF") reached a consensus on issues raised in
EITF 03-03, "Accounting for Retroactive Insurance Contracts Purchased by
Entities Other Than Insurance Enterprises," in May 2003. This consensus states
that a claims-made insurance policy that contains no retroactive provisions
should be accounted for on a prospective basis. However, if a claims-made
insurance policy contains a retroactive provision, the retroactive and
prospective provisions of the policy should be accounted for separately, if
practicable; otherwise, the claims-made insurance policy should be accounted for
entirely as a retroactive contract. The consensus is effective for all new
insurance arrangements entered into in the next reporting period beginning after
May 28, 2003. The adoption of this consensus did not have a significant impact
on the results of operations, cash flows or the financial position of the
Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period Consolidated
Financial Statements to conform to the current period presentation.
3. DISCONTINUED OPERATIONS
On May 28, 2003, the Company announced the discontinuation 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. All 18 of the mishmash stores open at the time of the announcement
were closed by the end of November 2003. Four of the former mishmash locations
have been converted to the Justice format and have since reopened. In accordance
with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," the Company has reclassified its Consolidated Statements
of Income to segregate the revenues and expenses of its mishmash operations. The
net operating results of mishmash are shown in the Discontinued Operations
section of the Consolidated Statements of Income. As a result, a loss on
discontinued operations, net of tax, of $6.0 million, $1.2 million and $0.5
million for fiscal 2003, 2002 and 2001, respectively, has been reflected in the
Consolidated Statements of Income. The loss in fiscal 2003 is comprised of an
after-tax loss from operations of mishmash of $1.4 million and an after-tax
43
loss on mishmash store closings and impairment charges of $4.6 million. The loss
from operations of mishmash includes net sales of $8.3 million, $7.1 million and
$1.8 million for fiscal 2003, 2002 and 2001, respectively.
The store closing costs were recorded in accordance with the provisions of SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The
following table provides a detail of each major type of cost associated with the
store closings (in thousands):
2003
-------
One-time termination benefits $ 41
Contract termination costs 1,704
Other associated costs 245
-------
Store closing costs 1,990
Income tax benefit (780)
-------
Store closing costs, net of tax $ 1,210
=======
The following table provides a reconciliation of the liability balance during
the year, which is included in the Accrued Expenses line of the Consolidated
Balance Sheets (in thousands):
BEGINNING ENDING
ACCRUAL ACCRUAL
BALANCE CURRENT COSTS BALANCE
FEBRUARY 1, PERIOD PAID OR JANUARY 31,
2003 EXPENSE SETTLED 2004
----------- ------- ------- -----------
One-time termination benefits $ - $ 41 $ (41) $ -
Contract termination costs - 1,704 (512) 1,192
Other associated costs - 245 (245) -
------ ------ ------ ------
Store closing costs liability $ - $1,990 $ (798) $1,192
====== ====== ====== ======
The Company does not expect to incur any additional material expenses in
association with these store closing activities. All store closing liabilities
are expected to be settled in fiscal 2004.
In accordance with SFAS No. 144, an impairment charge of $5.5 million ($3.4
million, net of tax), was incurred. The impairment charge reflects the
difference between the carrying value and fair value of mishmash's store assets.
44
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (in thousands):
JANUARY 31 FEBRUARY 1,
2004 2003
---------- -----------
Land $ 8,103 $ 8,041
Buildings 42,045 41,611
Furniture, fixtures and equipment 163,748 140,312
Leaseholds improvements 33,192 40,182
Construction-in-progress 4,378 1,587
--------- ---------
Total 251,466 231,733
Less: accumulated depreciation and
amortization (104,428) (86,203)
--------- ---------
Property and equipment, net $ 147,038 $ 145,530
========= =========
5. LEASED FACILITIES AND COMMITMENTS
The Company operates stores under lease agreements expiring on various dates
through 2014. 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 January 31, 2004, the Company operated 94 stores under sublease agreements
with Limited Brands. 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 Limited Brands if stores' sales
exceed a stipulated amount. Limited Brands also provides guarantees on 46 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 fiscal 2003, 2002, and 2001 follows (in
thousands):
2003 2002 2001
------- ------- -------
Fixed minimum $53,926 $49,242 $42,448
Contingent 1,801 1,439 1,290
------- ------- -------
Total store rent 55,727 50,681 43,738
Equipment and other 3,523 4,427 1,311
------- ------- -------
Total rent expense $59,250 $55,108 $45,049
======= ======= =======
45
A summary of rent commitments under noncancelable operating leases as of January
31, 2004 follows (in thousands):
2004 $ 56,891
2005 52,062
2006 45,613
2007 38,378
2008 32,847
Thereafter 87,813
6. ACCRUED EXPENSES
Accrued expenses consisted of (in thousands):
JANUARY 31, FEBRUARY 1,
2004 2003
----------- -----------
Compensation, payroll taxes and benefits $ 6,750 $12,373
Rent and store expenses 11,378 12,738
Deferred revenue 8,329 8,063
Taxes, other than income and payroll 5,346 4,747
Point of sale operating lease buy out 3,068 -
mishmash store closing and impairment charges 1,192 -
Other 5,662 6,679
------- -------
Total $41,725 $44,600
======= =======
7. CREDIT FACILITY
In August 1999, we entered into a five-year, $100 million collateralized credit
facility ("Old Credit Facility"). The Old Credit Facility consisted of a $50
million five-year term loan and a $50 million, five-year annual revolving credit
commitment. The Old Credit Facility's interest rates, which reflected matrix
pricing, were 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 Old Credit Facility contained customary
representations and warranties as well as certain affirmative, negative and
financial covenants. In November 2001, the Company amended the Old Credit
Facility. The amendment allowed 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. Concurrently, the Company paid off
the entire $50 million term loan due under the Old Credit Facility, and the
remaining proceeds from the sale of common stock were used for general corporate
purposes. The $50 million revolving loan commitment under the Old Credit
Facility remained in effect and was available to the Company for future business
purposes.
46
On April 29, 2003, the Company terminated the aforementioned Old Credit Facility
and entered into a new unsecured credit facility ("New Credit Facility") with a
syndicate of banks. The New Credit Facility consists of a $100 million unsecured
revolving loan commitment. Interest expense on borrowings under the New Credit
Facility is based on, at the borrower's option, either (1) the higher of the
Prime rate or 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 New
Credit Facility, the Company is required to comply with certain covenants,
including financial ratios such as leverage, coverage and tangible net worth.
The New Credit Facility limits the Company from incurring certain additional
indebtedness, restricts substantial asset sales and provides for a springing
lien against certain assets in the event of default. On September 16, 2003, the
New Credit Facility was amended, and the amendment became retroactively
effective as of July 31, 2003. In exchange for the modification of certain
financial covenants the Company agreed to maintain a pledged investment account
equal to 110% of any outstanding letters of credit or any revolving commitment
usage. As of January 31, 2004, the Company had outstanding letters of credit
under the New Credit Facility amounting to $18.2 million. The Company is in
compliance with all applicable terms of the amended New Credit Facility.
Interest (income) expense, net, consisted of the following (in thousands):
2003 2002 2001
------- ------- -------
Interest expense $ 1,482 $ 2,347 $ 3,787
Interest income (1,610) (1,830) (3,204)
------- ------- -------
Interest (income) expense, net $ (128) $ 517 $ 583
======= ======= =======
Interest paid amounted to $2.1 million, $1.6 million and $3.3 million for fiscal
2003, 2002 and 2001, respectively.
8. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
2003 2002 2001
-------- -------- --------
CURRENT:
Federal $ 8,936 $ 24,358 $ 22,121
State 1,948 3,847 5,129
-------- -------- --------
Total current 10,884 28,205 27,250
DEFERRED:
Federal 5,791 1,781 (626)
State 325 214 76
-------- -------- --------
Total deferred 6,116 1,995 (550)
-------- -------- --------
Income tax expense
for continuing operations 17,000 30,200 26,700
Income tax benefit for discontinued
operations (3,800) (800) (300)
-------- -------- --------
Total income tax provision $ 13,200 $ 29,400 $ 26,400
======== ======== ========
47
A reconciliation between the statutory federal income tax rate and the effective
income tax rate follows:
2003 2002 2001
---- ---- ----
Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 3.2 3.5 4.5
Other items, net (0.9) (0.2) 0.5
---- ---- ----
Total effective income tax rate
for continuing operations 37.3% 38.3% 40.0%
==== ==== ====
The effect of temporary differences, which give rise to net deferred tax
balances, was as follows (in thousands):
JANUARY 31, 2004 FEBRUARY 1, 2003
----------------------------------------- -----------------------------------------
Assets Liabilities Total Assets Liabilities Total
-------- ----------- -------- -------- ----------- --------
Book depreciation in excess of tax $ - $ - $ - $ 2,842 $ - $ 2,842
Tax depreciation in excess of book - (4,455) (4,455) - - -
Rent 2,233 - 2,233 995 - 995
Inventory 1,362 - 1,362 2,035 - 2,035
Accrued expenses 7,599 - 7,599 6,160 - 6,160
Store supplies - basis differential - (4,703) (4,703) - (3,752) (3,752)
Other, net 3,622 - 3,622 3,494 - 3,494
-------- -------- -------- -------- -------- --------
Total deferred income taxes $ 14,816 $ (9,158) $ 5,658 $ 15,526 $ (3,752) $ 11,774
======== ======== ======== ======== ======== ========
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 $1.1
million and $3.2 million as of January 31, 2004 and February 1, 2003,
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 in fiscal year 2001. Subsequent to the Spin-off, the Company made
income tax payments directly to taxing authorities amounting to $8.6 million,
$29.9 million, and $21.4 in fiscal 2003, 2002 and 2001, respectively.
9. RELATED PARTY TRANSACTIONS
Prior to the Spin-off, the Company and The Limited entered into service
agreements for generally terms of one to three years with a number 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%,
excluding any markup on third-party costs. Both agreements were terminated in
the first quarter of 2002.
48
Significant merchandise purchases were made from Mast, a wholly-owned subsidiary
of Limited Brands. Prices are negotiated on a competitive basis by merchants of
Too with Mast and other manufacturers.
The following table summarizes amounts incurred related to transactions between
the Company and Limited Brands (in thousands):
2003 2002 2001
-------- -------- --------
Merchandise purchases $ 36,020 $ 56,920 $ 67,441
Capital expenditures - 1,554 -
Inbound and outbound shipping - 3,929 8,359
Store leasing, construction and management 17,395 17,758 19,144
Distribution center, MIS and home office expenses - 1,804 8,571
-------- -------- --------
$ 53,415 $ 81,965 $103,515
======== ======== ========
Amounts payable to Limited Brands, including merchandise payables to Mast
Industries, were $4.6 million at January 31, 2004 and $6.8 million at February
1, 2003.
During fiscal year 2002, the Company formed a 50% owned joint venture, Goldmark,
which was accounted for under the equity method of accounting. On May 28, 2003,
the Company announced it was ending its involvement in the joint venture and, in
accordance with Accounting Principles Board Opinion No. 18, "The Equity Method
of Accounting for Investments in Common Stock," recorded an impairment charge of
$0.6 million. The impairment charge reflected the difference between the
carrying value and the fair value of the Company's investment in the joint
venture. The Company continues to provide certain services on behalf of the
joint venture, for which the Company is reimbursed. The receivable, net of
allowances, due to the Company for these services was $292,000 and $840,000 as
of January 31, 2004 and February 1, 2003, respectively.
10. 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 January 31, 2004 and
February 1, 2003, the Company had accrued $14.0 million and $10.4 million,
respectively, for its obligations under these plans. Beginning in 2002, the
Company purchased corporate-owned life insurance policies in connection with the
nonqualified plans. The cash value of these policies included in other long-term
assets was $13.5 million and $9.4 million at January 31, 2004 and February 1,
2003, respectively.
The cost of all three plans was $4.0 million, $5.4 million, and $4.9 million in
fiscal years 2003, 2002 and 2001, respectively.
49
11. STOCK OPTIONS AND RESTRICTED SHARES
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. Shares reserved under the various plans
amounted to 5.4 million as of January 31, 2004, February 1, 2003 and February 2,
2002, respectively. The weighted average fair value of options granted was
$7.36, $12.35 and $6.99 for fiscal 2003, 2002 and 2001, respectively.
In fiscal 2003, 100,000 restricted shares were granted with a total market value
of $1.6 million. The performance requirement for the fiscal 2003 grant has not
been met and, accordingly, the market value of this grant may change until the
performance requirement has been met. The fiscal 2003 grant is subject to a
four-year cliff vesting period. In fiscal 2002, 100,000 restricted shares were
granted with a total market value at the grant date of $2.6 million. This grant
was subject to a performance requirement which has been met, and the shares are
to be issued ratably over a five-year vesting period. No restricted shares were
granted in fiscal 2001. Compensation expense related to restricted shares
amounted to $1.0 million, $2.5 million and $2.7 million for fiscal years 2003,
2002 and 2001, respectively.
A summary of changes in the Company's stock option plans for fiscal 2003, 2002
and 2001 is presented below:
2003 2002 2001
-------------------------- ------------------------- --------------------------
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 2,948,800 $ 19 2,407,400 $ 16 2,408,600 $ 15
Granted and converted 446,000 $ 15 797,600 $ 26 503,000 $ 17
Exercised (61,100) $ 12 (191,800) $ 12 (393,800) $ 10
Canceled (47,000) $ 22 (64,400) $ 24 (110,400) $ 17
--------- ---------- --------- ---------- --------- ----------
Outstanding at end of year 3,286,700 $ 18 2,948,800 $ 19 2,407,400 $ 16
========= ========== ========= ========== ========= ==========
Options exercisable at end of year 1,686,900 $ 16 961,500 $ 16 662,000 $ 15
========= ========== ========= ========== ========= ==========
50
The following table summarizes information about stock options outstanding at
January 31, 2004:
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 - $10 522,600 3.3 $ 7 522,600 $ 7
$10 - $15 354,000 4.5 $ 11 250,900 $ 11
$15 - $20 1,117,700 7.4 $ 16 361,500 $ 17
$20 - $25 69,700 7.2 $ 23 39,700 $ 23
$25 - $32 1,222,700 7.5 $ 27 512,200 $ 27
========= === ============ ========= ==========
3,286,700 6.5 $ 18 1,686,900 $ 16
========= === ============ ========= ==========
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 SFAS No. 123, the Company would have
recorded net income of $19.4 million, $44.6 million and $37.8 million, and
diluted earnings per share of $0.56, $1.30 and $1.18, for fiscal years 2003,
2002 and 2001, respectively.
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. Concurrently, the Company paid off
the entire $50 million term loan due under the Old Credit Facility and the
remaining proceeds from the sale of common stock were used for general corporate
purposes. The $50 million revolving loan commitment under the Old Credit
Facility remained in effect until the Company entered into the New Credit
Facility in fiscal 2003.
13. ADVERTISING BARTER TRANSACTIONS
Beginning in 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 promotions. 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 fiscal 2003 and
2002.
14. 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.
51
15. QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 FIRST SECOND THIRD FOURTH
- ----------------------------------- --------- --------- --------- ---------
Net sales (1) $ 137,971 $ 131,704 $ 146,020 $ 182,986
Gross income (1) 42,627 39,808 48,326 68,917
General, administrative and
store operating expenses (1) 35,555 38,835 39,797 40,088
Income from continuing operations 4,596 638 5,204 18,093
Net income (loss) 4,159 (3,830) 4,521 17,701
Earnings (loss) per share - basic $ 0.12 $ (0.11) $ 0.13 $ 0.52
Earnings (loss) per share - diluted $ 0.12 $ (0.11) $ 0.13 $ 0.51
2002 FIRST SECOND THIRD FOURTH
- ----------------------------------- -------- -------- -------- --------
Net sales (1) $ 157,407 $ 139,651 $ 162,906 $ 180,356
Gross income (1) 53,669 49,391 59,030 75,142
General, administrative and
store operating expenses (1) 43,133 39,354 41,054 34,450
Income from continuing operations 6,183 5,821 11,197 25,323
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
(1) Amounts have been reclassified to reflect mishmash's operating results
as discontinued operations. Net sales previously reported for the first
three quarters in 2003 were $140.1 million, $134.8 million and $148.9
million. Net sales reported for the quarters ended May 4, 2002, August
3, 2002, November 2, 2002 and February 2, 2003 were $158.6 million,
$141.2 million, $164.6 million and $183.0 million, respectively. Gross
income previously reported for the first three quarters of 2003 was
$42.7 million, $40.0 million and $48.1 million. Gross income reported
for the quarters ended May 4, 2002, August 3, 2002, November 2, 2002
and February 2, 2003 was $53.5 million, $49.4 million, $59.0 million
and $75.5 million, respectively. General, administrative and store
operating expenses previously reported for the first three quarters in
2003 were $36.2 million, $39.0 million and $40.5 million. General,
administrative and store operating expenses reported for the quarters
ended May 4, 2002, August 3, 2002, November 2, 2002 and February 2,
2003 were $43.5 million, $39.9 million, $41.6 million and $35.2
million, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
52
ITEM 9A. CONTROLS AND PROCEDURES
Based on an evaluation carried out, as of the end of the period covered by this
report, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
the Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective as of the
end of the period covered by this report. There were no changes in the Company's
internal control over financial reporting that occurred during the Company's
most recent fiscal quarter that have materially affected, or are reasonably
likely to affect, the Company's internal control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth under the captions "ELECTION
OF DIRECTORS" and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in
the Company's proxy statement for the Annual Meeting of Stockholders to be held
May 13, 2004 (the "Proxy Statement") and is incorporated herein by reference.
The Company has adopted a Code of Ethics for Senior Financial Officers that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, and persons performing similar
functions. The Code of Ethics for Senior Financial Officers may be obtained free
of charge by writing to Too, Inc., Attn: Investor Relations, 8323 Walton
Parkway, New Albany, Ohio 43054.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the caption "EXECUTIVE
COMPENSATION" in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth under the captions "ELECTION
OF DIRECTORS - Security Ownership of Directors and Management," "SHARE OWNERSHIP
OF PRINCIPAL STOCKHOLDERS" and "EQUITY COMPENSATION PLAN INFORMATION in the
Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the caption "ELECTION
OF DIRECTORS - Nominees and Directors" in the Proxy Statement and is
incorporated herein by reference.
53
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is set forth under the caption "FEES OF
THE INDEPENDENT ACCOUNTANTS" in the Proxy Statement and is incorporated herein
by reference.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) List of Financial Statements.
The following consolidated financial statements of Too, Inc. and Subsidiaries
and the related notes are filed as a part of this report pursuant to ITEM 8:
- Consolidated Statements of Income for the fiscal years ended January
31, 2004, February 1, 2003 and February 2, 2002.
- Consolidated Balance Sheets as of January 31, 2004 and February 1,
2003.
- Consolidated Statements of Changes in Shareholders' Equity for the
fiscal years ended January 31, 2004, February 1, 2003 and February 2,
2002.
- Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 2004, February 1, 2003, February 2, 2002.
- Notes to Consolidated Financial Statements.
- Report of Management.
- Report of Independent Auditors.
(a) (2) List of Financial Statement Schedules.
All schedules required to be filed as part of this report pursuant to ITEM 14(d)
are omitted because the required information is either presented in the
financial statements or notes thereto, or is not applicable, required or
material.
(a) (3) List of Exhibits.
2.1 Distribution Agreement dated as of August 23, 1999 between The
Limited, Inc. and Too, Inc. (incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed October 1,
1999).
54
3.1 Amended and Restated Certificate of Incorporation of Too, Inc.
(incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed October 1, 1999).
3.2 Amended and Restated Bylaws of Too, Inc. (incorporated by
reference to Exhibit 3.2 to the Current Report on Form 8-K
filed October 1, 1999).
4.1 Specimen Certificate of Common Stock of Too, Inc.
(incorporated by reference to Exhibit 4.1 to the Current
Report on Form 8-K filed October 1, 1999).
10.1 Credit Agreement among Too, Inc., various lending
institutions, Citicorp USA, Inc., as Syndication Agent and
Morgan Guaranty Trust Company of New York, as Administrative
Agent (incorporated by reference to Exhibit 10.1 to the
Amended Registration Statement on Form 10 filed August 18,
1999).
10.2 Store Leases Agreement dated as of August 23, 1999 by and
among The Limited Stores, Inc., Victoria's Secret Stores,
Inc., Lerner New York, Inc., Express, LLC, Structure, Inc.,
The Limited, Inc. and Too, Inc. (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed October
1, 1999).
10.3 Trademark and Service Mark Licensing Agreement dated as of
August 23, 1999 between Limco, Inc. and LimToo, Inc.
(incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K filed October 1, 1999).
10.4 Services Agreement dated as of August 23, 1999 by and between
The Limited, Inc. and Too, Inc. (incorporated by reference to
Exhibit 10.4 to the Current Report on Form 8-K filed October
1, 1999).
10.5 Tax Separation Agreement dated August 23, 1999 between The
Limited, Inc., on behalf of itself and the members of The
Limited Group, and Too, Inc., on behalf of itself and the
members of the Too Group. (incorporated by reference to
Exhibit 10.5 to the Current Report on Form 8-K filed October
1, 1999).
10.6 Building Lease Agreement dated July 1, 1995 by and between
Distribution Land Corp. and Limited Too, Inc., the predecessor
company of Too, Inc. (incorporated by reference to Exhibit
10.6 to the Amended Registration Statement on Form 10 filed
August 18, 1999).
10.7 Amendment to Building Lease Agreement between Distribution
Land Corp. and Too, Inc. (incorporated by reference to Exhibit
10.7 to the Current Report on Form 8-K filed October 1, 1999).
10.8 Too, Inc. 1999 Incentive Compensation and Performance Plan.
(incorporated by reference to Exhibit 10.8 to the Current
Report on Form 8-K/A filed March 20, 2000).
10.9 Too, Inc. Second Amended and Restated 1999 Stock Option and
Performance Incentive Plan (incorporated by reference to
Exhibit 10.23 to the Quarterly Report on Form 10-Q filed on
June 14, 2001).
55
10.10 Too, Inc. Third Amended and Restated 1999 Stock Option Plan
for Non-Associate Directors (incorporated by reference to
Exhibit 10.24 to the Quarterly Report on Form 10-Q filed on
June 14, 2001).
10.11 Too, Inc. First Amended and Restated Savings and Retirement
Plan. (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed on September 11, 2000).
10.12 Too, Inc. First Amended and Restated Supplemental Retirement
and Deferred Compensation Plan. (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on
September 11, 2000).
10.13 Employment Agreement, dated as of September 15, 2003, between
the Company and Michael W. Rayden.*
10.14 Executive Agreement, dated as of September 15, 2000, between
the Company and Michael W. Rayden (incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on
December 14, 2000).
10.15 Employment Agreement, dated as of September 15, 2003, between
the Company and Kent A. Kleeberger.*
10.16 Executive Agreement, dated as of September 15, 2000, between
the Company and Kent A. Kleeberger (incorporated by reference
to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed on
December 14, 2000).
10.17 Employment Agreement, dated as of September 15, 2003, between
the Company and James C. Petty.*
10.18 Executive Agreement, dated as of September 15, 2000, between
the Company and James C. Petty (incorporated by reference to
Exhibit 10.6 to the Quarterly Report on Form 10-Q filed on
December 14, 2000).
10.19 Employment Agreement, dated as of September 15, 2003, between
the Company and Ronald Sykes.*
10.20 Executive Agreement, dated as of October 30, 2000, between the
Company and Ronald Sykes (incorporated by reference to Exhibit
10.20 to the Annual Report on Form 10-K filed on May 2, 2001).
10.21 Employment Agreement, dated as of September 15, 2003, between
the Company and Sally A. Boyer.*
10.22 Executive Agreement, dated as of September 15, 2000, between
the Company and Sally A. Boyer (incorporated by reference to
Exhibit 10.22 to the Quarterly Report on Form 10-Q filed on
December 14, 2000).
56
10.23 Second Amendment to Credit Agreement among Too, Inc., various
lending institutions, Citicorp USA, Inc., as Syndication Agent
and Morgan Guaranty Trust Company of New York, as
Administrative Agent (incorporated by reference to Exhibit
10.23 to the Annual Report on Form 10-K filed on April 29,
2002).
10.24 Employment Agreement, dated as of September 15, 2003, between
the Company and Scott M. Bracale.*
10.25 Executive Agreement, dated as of September 15, 2000, between
the Company and Scott M. Bracale (incorporated by reference to
Exhibit 10.25 to the Annual Report on Form 10-K filed on April
9, 2003).
10.26 Employment Agreement, dated as of September 15, 2003, between
the Company and Joan E. Munnelly.*
10.27 Executive Agreement, dated as of September 15, 2000, between
the Company and Joan E. Munnelly (incorporated by reference to
Exhibit 10.27 to the Annual Report on Form 10-K filed on April
9, 2003).
10.28 Employment Agreement, dated as of February 23, 2004, between
the Company and William E. May, Jr.*
10.29 Executive Agreement, dated as of February 23, 2004, between
the Company and William E. May, Jr.*
21 Subsidiaries of the Registrant.*
23 Consent of Independent Accountants.*
24 Powers of Attorney.*
31.1 Certification of Periodic Report by the Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
31.2 Certification of Periodic Report by the Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
32.1 Certification of Periodic Report by the Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
32.2 Certification of Periodic Report by the Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.**
* Filed with this report.
** Furnished with this report.
57
(b) Reports on Form 8-K.
On November, 12, 2003, Too, Inc. filed a Current Report on Form 8-K
dated November 12, 2003, reporting pursuant to "Item 12. Results of
Operations and Financial Condition," that Too, Inc. had issued a press
release announcing its financial results for the third quarter ended
November 1, 2003, and certain expectations for the fourth quarter ended
January 31, 2004.
(c) Exhibits.
The exhibits to this report are listed in section (a) (3) of Item 15
above.
(d) Financial Statement Schedules.
None.
58
SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) 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.
Date: April 7, 2004 TOO, INC.
(registrant)
By /s/ Kent A. Kleeberger
-------------------------------
Kent A. Kleeberger
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 7, 2004:
Signature Title
--------- -----
/s/ MICHAEL W. RAYDEN* Chairman of the Board of Directors,
- ----------------------------------- President and Chief Executive Officer
Michael W. Rayden (Principal Executive Officer)
/s/ KENT A. KLEEBERGER* Executive Vice President and
- ----------------------------------- Chief Financial Officer
Kent A. Kleeberger (Principal Financial and Accounting Officer)
/s/ ELIZABETH M. EVEILLARD* Director
- -----------------------------------
Elizabeth M. Eveillard
/s/ NANCY J. KRAMER* Director
- -----------------------------------
Nancy J. Kramer
/s/ DAVID A. KRINSKY* Director
- -----------------------------------
David A. Krinsky
/s/ PHILIP E. MALLOTT* Director
- -----------------------------------
Philip E. Mallott
59
/s/ FREDRIC M. ROBERTS* Director
- -----------------------------------
Fredric M. Roberts
/s/ KENNETH JAMES STROTTMAN* Director
- -----------------------------------
Kenneth James Strottman
* The undersigned, by signing his name hereto, does hereby sign this
report on behalf of each of the above-indicated directors of the
registrant pursuant to powers of attorney executed by such directors.
By /s/ Kent A. Kleeberger
-------------------------
Kent A. Kleeberger
Attorney-in-fact
60