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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 29, 2000
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( ) TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-14987
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TOO, INC.
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(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)
3885 MORSE ROAD, COLUMBUS, OHIO 43219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 614-479-3500
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
- -------------------------------- -----------------------------------------
Common Shares, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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
---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 31, 2000 was $727,003,500. There were 30,734,019 shares of
the Registrant's common stock outstanding at March 31, 2000.
<PAGE> 3
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the our annual report to shareholders for the fiscal year ended
January 29, 2000 are incorporated by reference into Part I and Part II and
portions of our proxy statement for the Annual Meeting of Shareholders scheduled
for May 16, 2000 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, specialty retailer that sells apparel, underwear, sleepwear, swimwear,
lifestyle and personal care products for fashion-aware, trend-setting girls ages
seven to fourteen years. The Company designs, sources and markets products under
the proprietary "Limited Too" brand name. Prior to the Spin-off, the Company was
a wholly-owned subsidiary of The Limited, Inc. ("The Limited").
In 1987, The Limited established "Limited Too" brand stores adjacent to or as
departments within The Limited stores to provide similar apparel to young girls,
and also apparel for infants. 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. 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
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 cover
certain aspects of our ongoing relationship with The Limited.
DESCRIPTION OF OPERATIONS
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, girls ages seven to
fourteen, 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
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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 window displays, photographic sticker booths,
ear piercing stations, 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:
o casual clothing, such as jeans and other jeanswear and bottoms, knit tops
and T-shirts containing our brand name and other graphics, dresses and
outerwear
o accessories, such as costume jewelry, hair ornaments, slippers, key chains,
wallets, backpacks, purses and watches
o lifestyle products, such as inflatable furniture, lamps, writing
instruments, folders and posters
o personal care products under our "Girl Care" line, such as glitter
cosmetics, toiletries and anti-bacterial gel
o add-ons, such as underwear, sleepwear and swimwear
We develop substantially all of our merchandise assortment through our own
design group, which allows us to create a vast array of exclusive merchandise
under our proprietary brand while bringing our products to market faster.
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.
We use a variety of sourcing arrangements. We purchased merchandise from
approximately 220 suppliers during fiscal 1999. Historically, our largest
apparel supplier has been Mast Industries, Inc., a wholly owned subsidiary of
The Limited. Mast Industries supplied approximately 33% of the apparel that we
purchased in 1999. We believe that all transactions that we have entered into
with Mast Industries have been on terms that would have been obtained on an
arm's length basis since we treat them as if they were a third party. We were
not, and will not be, obligated to source products through Mast Industries.
We source a significant amount of our merchandise from foreign factories located
primarily in Southeast Asia. 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.
In connection with the Spin-off, we entered into a services agreement with
Limited Distribution Services, a wholly-owned subsidiary of The Limited, to
provide distribution services to us covering flow of merchandise from factory to
our stores for up to three years after the date of Spin-off. Most of the
merchandise and related materials for the Company's stores are shipped to a
distribution center owned by The Limited in Columbus, Ohio, where the
merchandise is received, inspected, allocated and packed for shipment to stores.
Under the service agreement, The Limited distributes merchandise and related
materials using common and contract
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carriers to the Company's stores. Inbound freight is charged to Too based upon
actual receipts and related charges, while outbound freight is charged based on
a percentage of cartons shipped.
The Company's policy is to maintain sufficient quantities of inventory on hand
in its retail stores and distribution center so that it can offer customers a
full selection of current merchandise. The Company emphasizes rapid turnover and
takes markdowns where required to keep merchandise fresh and current with
fashion trends.
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 1999, the highest
inventory level approximated $54 million at the November 1999 month-end and the
lowest inventory level approximated $24 million at the May 1999 month-end.
Merchandise sales are paid for by cash, personal check or credit cards issued by
third parties.
At the end of fiscal 1999, the Company operated 352 stores in 44 states. The
following table shows the number of retail stores operated by the Company over
the past five fiscal years.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
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JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
2000 1999 1998 1997 1996
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<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning of year 319 312 308 288 212
Opened 42 10 7 27 78
Closed (9) (3) (3) (7) (2)
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352 319 312 308 288
============== =============== =============== ============== ==============
Stores remodeled 18 15 -- -- --
Store with Girl Power format 89 29 4 -- --
Total square feet at period end
(thousands) 1,441 1,281 1,244 1,224 1,143
Average store size at period end
(square feet) 4,094 4,015 3,987 3,974 3,969
Annual sales per average square
foot $ 330 $ 300 $ 259 $ 214 $ 207
</TABLE>
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" in ITEM 7.
TRADEMARKS AND SERVICE MARKS
We are the owner in the United States of trademarks and service marks used to
identify our merchandise and services, other than our brand name. Many of these
merchandise marks are registered in the United States Patent and Trademark
Office. These merchandise marks are important to us, and we intend to, directly
or indirectly, maintain 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.
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We also conduct business in foreign countries, principally because a substantial
portion of our merchandise is manufactured outside the United States. We own
registrations of our merchandise marks in foreign countries to the degree
necessary to protect these marks, although there may be restrictions on the use
of our marks in a limited number of foreign jurisdictions.
Limco, Inc., a wholly owned subsidiary of The Limited owns the brand name
"Limited Too", which is registered in the United States and in numerous foreign
countries. Limco, Inc. licenses the brand name to LimToo, Inc., our wholly owned
subsidiary. In connection with the Spin-off, Limco, Inc. and LimToo, Inc.
entered into a trademark and service mark licensing agreement that allows us to
operate under the "Limited Too" brand name in connection with our business. The
agreement is for an initial term of five years after the Spin-off, renewable
annually at our option.
COMPETITION
The sale of apparel and personal care products through retail stores is a highly
competitive business with numerous competitors, including individual and chain
fashion specialty stores and department stores. 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.
The Company is unable to estimate the number of competitors or its relative
competitive position due to the large number of companies selling apparel and
personal care products at retail, through stores, catalogs and electronic
commerce ("e-commerce").
ASSOCIATE RELATIONS
On January 29, 2000, the Company employed approximately 6,500 associates (none
of whom were parties to a collective bargaining agreement), approximately 5,000
of whom were part-time. In addition, temporary associates are hired during peak
periods, such as "back to school" and the Holiday seasons.
SAFE HARBOR STATEMENT AND BUSINESS RISKS
This Form 10-K and the information incorporated herein by reference contain
certain forward-looking statements which reflect the Company's current view with
respect to future events and financial performance. Whenever used, the words
"expect," "plan," "anticipate," "believe" and similar expressions identify
forward-looking statements.
Any such forward-looking statements are subject to risks and uncertainties and
the Company's future results of operations could differ materially from
historical results or current expectations. Some of these risks are discussed in
Item 1 of this report and include, without limitation, ongoing competitive
pressures in the retail industry, changes in the level of consumer spending or
preferences, trade restrictions and political or financial
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instability in countries where the Company's goods are manufactured and/or other
factors that may be described in the Risks Factors section of the Company's Form
10 filed on August 18, 1999 as well as other filings with the Securities and
Exchange Commission. Future economic and industry trends that could potentially
impact revenue and profitability are difficult to predict.
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.
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ITEM 2. PROPERTIES
Our main offices are located in Columbus, Ohio. These headquarters are owned by
Distribution Land Corp., a wholly owned subsidiary of The Limited, and leased to
us with the lease term expiring in August 2002 with an option to renew for an
additional year at the expiration of the initial lease term. We believe that our
facilities are well maintained and in good operating condition.
As of January 29, 2000, we operated 352 stores, which are located primarily in
shopping malls throughout the United States. Of these stores, 230 were leased
directly from third parties -- principally shopping mall developers -- and 122
are governed by leases where the primary tenant is The Limited or an affiliate
of The Limited. The leases expire at various dates between 2000 and 2012.
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 between 10 and 15
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 The Limited or an affiliate of The Limited 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.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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". At March 31, 2000, the Company had approximately 23,338
shareholders of record. The Company has not paid any dividends.
Information concerning the market price of the Company's common stock for fiscal
1999 is set forth in Note 12 to the Consolidated Financial Statements on page 42
of the Annual Report and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is set forth under the caption "Financial Summary" on
page 24 of the 1999 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is set forth under the caption "Management's Discussion and Analysis"
on pages 25 through 31 of the 1999 Annual Report and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and Subsidiaries, the Notes
to Consolidated Financial Statements and the Report of Independent Accountants
are set forth on pages 32 through 42 of the 1999 Annual Report and are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the Company is set
forth under the captions "ELECTION OF DIRECTORS - Nominees and directors", "-
Executive Officers", "- Committees of the Board of Directors" and "- Security
ownership of directors and management" on pages 4 through 7 of the Company's
proxy statement for the Annual Meeting of Shareholders to be held May 16, 2000
(the "Proxy Statement") and is incorporated herein by reference. Information
regarding compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended is set forth under the caption "SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE" on pages 17 and 18 of the Proxy Statement and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is set forth under the caption
"EXECUTIVE COMPENSATION" on pages 8 through 12 of the Proxy Statement and is
incorporated herein by reference. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "ELECTION OF DIRECTORS - Security
ownership of directors and management" on page 7 of the Proxy Statement and
"SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS" on page 17 the Proxy Statement and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the captions "ELECTION OF DIRECTORS - Nominees and directors" on
pages 4 and 5 of the Proxy Statement and is incorporated herein by reference.
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PART IV
ITEM 14. 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:
o Consolidated Statements of Income for the fiscal years ended January
29, 2000, January 30, 1999 and January 31, 1998.
o Consolidated Statements of Changes in Shareholders' Equity for the
fiscal years ended January 29, 2000, January 30, 1999 and January
31, 1998.
o Consolidated Balance Sheets as of January 29, 2000 and January 30,
1999.
o Consolidated Statements of Cash Flows for the fiscal years ended
January 29, 2000, January 30, 1999 and January 31, 1998.
o Notes to Consolidated Financial Statements.
o Report of Independent Accountants.
(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).
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)
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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. 1999 Stock Option and Performance Incentive Plan.
(incorporated by reference to Exhibit 10.9 to the Current Report on
Form 8-K filed October 1, 1999)
10.10 Too, Inc. 1999 Stock Plan for Non-Associate Directors (incorporated
by reference to Exhibit 10.10 to the Current Report on Form 8-K
filed October 1, 1999)
10.11 Employment Agreement with Michael W. Rayden dated August 23, 1999
(incorporated by reference to Exhibit 10.11 to the Current Report on
Form 8-K filed October 1, 1999)
10.12 Confidentiality and Non-Competition Agreement with Sally A. Boyer
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10.13 Confidentiality and Non-Competition Agreement with Kent A.
Kleeberger
10.14 Confidentiality and Non-Competition Agreement with Kathleen C.
Maurer
10.15 Confidentiality and Non-Competition Agreement with James C. Petty
13 Excerpts from the 1999 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis",
"Consolidated Financial Statements and Notes to Consolidated
Financial Statements" and "Report of Independent Accountants" on
pages 24 through 42.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
24 Powers of Attorney
27 Financial Data Schedule
(b) Reports on Form 8-K.
An 8-K was filed on April 7, 2000 which noted under Item 5 that the
Company had changed it accounting for gift certificates. The Company has
given retroactive effect to this change in accounting by restating its
previously issued financial statements as of January 30, 1999 and January
31, 1998 and for each of the three years in the period ended January 30,
1999 as filed on August 18, 1999 on Form 10. This 8-K included the
restated financial statements for the periods as referred to above.
An 8-K/A was filed on March 20, 2000 for the Too, Inc. 1999 Incentive
Compensation and Performance Plan.
(c) Exhibits.
The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedule
None
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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 27, 2000 TOO, INC.
(registrant)
By /s/ Kent A. Kleeberger
-------------------------------
Kent A. Kleeberger
Vice President - Chief Financial Officer,
Secretary and Treasurer
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 27, 2000:
Signature Title
--------- -----
/s/ MICHAEL W. RAYDEN* Chairman of the Board of Directors,
- ----------------------------------- President and Chief Executive Officer
Michael W. Rayden
/s/ KENT A. KLEEBERGER* Director, Vice President - Chief Financial
- ------------------------------------ Chief Financial Officer, Secretary and
Kent A. Kleeberger Treasurer
/s/ NANCY J. KRAMER* Director
- -----------------------------------
Nancy J. Kramer
/s/ DAVID A. KRINSKY* Director
- -----------------------------------
David A. Krinsky
/s/ PHILIP E. MALLOTT* Director
- -----------------------------------
Philip E. Mallott
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/s/ JAMES U. MCNEAL* Director
- ------------------------------------
James U. McNeal, Ph.D.
/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
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EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
- ----------- --------------------------------------------------------------
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).
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)
10.3 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)
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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. 1999 Stock Option and Performance Incentive Plan.
(incorporated by reference to Exhibit 10.9 to the Current
Report on Form 8-K filed October 1, 1999)
10.10 Too, Inc. 1999 Stock Plan for Non-Associate Directors
(incorporated by reference to Exhibit 10.10 to the Current
Report on Form 8-K filed October 1, 1999)
10.11 Employment Agreement with Michael W. Rayden dated August 23,
1999 (incorporated by reference to Exhibit 10.11 to the
Current Report on Form 8-K filed October 1, 1999)
10.12 Confidentiality and Non-Competition Agreement with Sally A.
Boyer
10.13 Confidentiality and Non-Competition Agreement with Kent A.
Kleeberger
10.14 Confidentiality and Non-Competition Agreement with Kathleen C.
Maurer
10.15 Confidentiality and Non-Competition Agreement with James C.
Petty
13 Excerpts from the 1999 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis",
"Consolidated Financial Statements and Notes to Consolidated
Financial Statements" and "Report of Independent Accountants"
on pages 24 through 42.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
24 Powers of Attorney
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.12
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
As an executive associate of Limited Too, Inc. (the "Company"), I have access to
trade secrets and other confidential or proprietary information ("Confidential
Information") of the Company. I may also originate or develop Confidential
Information in connection with the performance of my duties with the Company. I
understand that all of such Confidential Information as well as any inventions,
designs or innovations that I conceive or devise from my use of the Company's
time, equipment, facilities and support services belong exclusively to the
Company, and that it may not be used for my personal benefit, the benefit of a
competitor, or for the benefit of any person or entity other than the Company.
THEREFORE, in consideration of special compensation, in the form of the 1999
Too, Inc. stock option award to receive options to acquire 24,000 shares of the
common stock of Too, Inc. pursuant to the terms of the agreement to be delivered
on or about the date that Limited Too becomes an independent company, and in
recognition of the highly competitive nature of the business conduct by the
Company, I agree as follows:
1. I will at all times during my employment with the Company and
thereafter faithfully hold the Company's Confidential Information in the
strictest confidence, and I will use my best efforts and highest diligence to
guard against its disclosure to anyone other than as expressly required in the
performance of my duties to the Company. I understand that Confidential
Information includes, among other things, any information and materials
pertaining to products, designs, formulas, packaging or processes, and
developments or improvements relating to them; licensing, sourcing,
manufacturing, merchandising, packaging plans and techniques; advertising,
marketing and promotional plans and policies; distribution or sales plans and
methods; technical and business procedures or strategies; sales, profit or other
financial information; relationships between the Company and any of its
customers, suppliers or employees; stores and real estate; and the salaries,
compensation, performance history or any other personnel information relating to
employees of the Company. "Confidential Information" does not include
information that, now or in the future, is generally available to the public
(other than through improper disclosure by me) or information acquired from a
third party who had authority to disclose it.
2. Upon my separation from the Company, regardless of the reason for my
separation, I will return to the Company all documents and other materials of
any kind that contain Confidential Information.
3. If I leave the Company for any reason whatsoever, then for a period
of twelve (12) months after my separation from the Company, I will not directly
or indirectly solicit, induce or attempt to influence any associate to leave the
employment of the Company, nor will I in any way assist anyone else in doing so.
<PAGE> 2
4. I understand that my employment with the Company is and at all times
shall be "at will," which means that either the Company or I may terminate my
employment at any time, for any reason or for no reason. However, if my
employment with the Company is terminated by the Company for reasons other than
for cause as defined below, I understand that the Company will continue to pay
me my weekly base salary for a period of fifty-two (52) weeks, minus the
deductions required by law and subject to a deduction for any salary or
compensation that I earn from other employment or self-employment during the
time period in question, regardless of when such amount is payable. Cause for
termination of my employment shall exist in the event I: (1) willfully fail to
perform my duties with the Company (other than a failure resulting from my
incapacity due to physical or mental illness); or (2) plead "guilty" or "no
contest" to or am convicted of an act which is defined as a felony under federal
or state law; or (3) engage in willful misconduct in bad faith which could
reasonably be expected to materially harm the Company's business or its
reputation.
5. If I decide to resign my employment with the Company, I understand
the company requests that I provide a thirty (30) day prior written notice.
6. If I leave the Company for any reason, I will not, for a period of
twelve (12) months after my separation from the Company, directly or indirectly,
work for or contribute to the efforts of any business organization that
competes, or plans to compete, with the Company or its products.
7. This Agreement will be governed by and interpreted in accordance
with Ohio law.
Date:
------------------------------ -------------------------------
Sally Boyer
LIMITED TOO, INC.
Date: By:
------------------------------ ----------------------------
Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.13
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
As an executive associate of Limited Too, Inc. (the "Company"), I have access to
trade secrets and other confidential or proprietary information ("Confidential
Information") of the Company. I may also originate or develop Confidential
Information in connection with the performance of my duties with the Company. I
understand that all of such Confidential Information as well as any inventions,
designs or innovations that I conceive or devise from my use of the Company's
time, equipment, facilities and support services belong exclusively to the
Company, and that it may not be used for my personal benefit, the benefit of a
competitor, or for the benefit of any person or entity other than the Company.
THEREFORE, in consideration of special compensation, in the form of the 1999
Too, Inc. stock option award to receive options to acquire 24,000 shares of the
common stock of Too, Inc. pursuant to the terms of the agreement to be delivered
on or about the date that Limited Too becomes an independent company, and in
recognition of the highly competitive nature of the business conduct by the
Company, I agree as follows:
1. I will at all times during my employment with the Company and
thereafter faithfully hold the Company's Confidential Information in the
strictest confidence, and I will use my best efforts and highest diligence to
guard against its disclosure to anyone other than as expressly required in the
performance of my duties to the Company. I understand that Confidential
Information includes, among other things, any information and materials
pertaining to products, designs, formulas, packaging or processes, and
developments or improvements relating to them; licensing, sourcing,
manufacturing, merchandising, packaging plans and techniques; advertising,
marketing and promotional plans and policies; distribution or sales plans and
methods; technical and business procedures or strategies; sales, profit or other
financial information; relationships between the Company and any of its
customers, suppliers or employees; stores and real estate; and the salaries,
compensation, performance history or any other personnel information relating to
employees of the Company. "Confidential Information" does not include
information that, now or in the future, is generally available to the public
(other than through improper disclosure by me) or information acquired from a
third party who had authority to disclose it.
2. Upon my separation from the Company, regardless of the reason for my
separation, I will return to the Company all documents and other materials of
any kind that contain Confidential Information.
3. If I leave the Company for any reason whatsoever, then for a period
of twelve (12) months after my separation from the Company, I will not directly
or indirectly solicit, induce or attempt to influence any associate to leave the
employment of the Company, nor will I in any way assist anyone else in doing so.
<PAGE> 2
4. I understand that my employment with the Company is and at all times
shall be "at will," which means that either the Company or I may terminate my
employment at any time, for any reason or for no reason. However, if my
employment with the Company is terminated by the Company for reasons other than
for cause as defined below, I understand that the Company will continue to pay
me my weekly base salary for a period of fifty-two (52) weeks, minus the
deductions required by law and subject to a deduction for any salary or
compensation that I earn from other employment or self-employment during the
time period in question, regardless of when such amount is payable. Cause for
termination of my employment shall exist in the event I: (1) willfully fail to
perform my duties with the Company (other than a failure resulting from my
incapacity due to physical or mental illness); or (2) plead "guilty" or "no
contest" to or am convicted of an act which is defined as a felony under federal
or state law; or (3) engage in willful misconduct in bad faith which could
reasonably be expected to materially harm the Company's business or its
reputation.
5. If I decide to resign my employment with the Company, I understand
the company requests that I provide a thirty (30) day prior written notice.
6. If I leave the Company for any reason, I will not, for a period of
twelve (12) months after my separation from the Company, directly or indirectly,
work for or contribute to the efforts of any business organization that
competes, or plans to compete, with the Company or its products.
7. This Agreement will be governed by and interpreted in accordance
with Ohio law.
Date:
------------------------------ ----------------------------------
Kent Kleeberger
LIMITED TOO, INC.
Date: By:
------------------------------ -------------------------------
Vice President, Human Resources
<PAGE> 1
EXHIBIT 10.14
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
As an executive associate of Limited Too, Inc. (the "Company"), I have access to
trade secrets and other confidential or proprietary information ("Confidential
Information") of the Company. I may also originate or develop Confidential
Information in connection with the performance of my duties with the Company. I
understand that all of such Confidential Information as well as any inventions,
designs or innovations that I conceive or devise from my use of the Company's
time, equipment, facilities and support services belong exclusively to the
Company, and that it may not be used for my personal benefit, the benefit of a
competitor, or for the benefit of any person or entity other than the Company.
THEREFORE, in consideration of special compensation, in the form of the 1999
Too, Inc. stock option award to receive options to acquire 24,000 shares of the
common stock of Too, Inc. pursuant to the terms of the agreement to be delivered
on or about the date that Limited Too becomes an independent company, and in
recognition of the highly competitive nature of the business conduct by the
Company, I agree as follows:
1. I will at all times during my employment with the Company and
thereafter faithfully hold the Company's Confidential Information in the
strictest confidence, and I will use my best efforts and highest diligence to
guard against its disclosure to anyone other than as expressly required in the
performance of my duties to the Company. I understand that Confidential
Information includes, among other things, any information and materials
pertaining to products, designs, formulas, packaging or processes, and
developments or improvements relating to them; licensing, sourcing,
manufacturing, merchandising, packaging plans and techniques; advertising,
marketing and promotional plans and policies; distribution or sales plans and
methods; technical and business procedures or strategies; sales, profit or other
financial information; relationships between the Company and any of its
customers, suppliers or employees; stores and real estate; and the salaries,
compensation, performance history or any other personnel information relating to
employees of the Company. "Confidential Information" does not include
information that, now or in the future, is generally available to the public
(other than through improper disclosure by me) or information acquired from a
third party who had authority to disclose it.
2. Upon my separation from the Company, regardless of the reason for my
separation, I will return to the Company all documents and other materials of
any kind that contain Confidential Information.
3. If I leave the Company for any reason whatsoever, then for a period
of twelve (12) months after my separation from the Company, I will not directly
or indirectly solicit, induce or attempt to influence any associate to leave the
employment of the Company, nor will I in any way assist anyone else in doing so.
<PAGE> 2
4. I understand that my employment with the Company is and at all times
shall be "at will," which means that either the Company or I may terminate my
employment at any time, for any reason or for no reason. However, if my
employment with the Company is terminated by the Company for reasons other than
for cause as defined below, I understand that the Company will continue to pay
me my weekly base salary for a period of fifty-two (52) weeks, minus the
deductions required by law and subject to a deduction for any salary or
compensation that I earn from other employment or self-employment during the
time period in question, regardless of when such amount is payable. Cause for
termination of my employment shall exist in the event I: (1) willfully fail to
perform my duties with the Company (other than a failure resulting from my
incapacity due to physical or mental illness); or (2) plead "guilty" or "no
contest" to or am convicted of an act which is defined as a felony under federal
or state law; or (3) engage in willful misconduct in bad faith which could
reasonably be expected to materially harm the Company's business or its
reputation.
5. If I decide to resign my employment with the Company, I understand
the company requests that I provide a thirty (30) day prior written notice.
6. If I leave the Company for any reason, I will not, for a period of
twelve (12) months after my separation from the Company, directly or indirectly,
work for or contribute to the efforts of any business organization that
competes, or plans to compete, with the Company or its products.
7. This Agreement will be governed by and interpreted in accordance
with Ohio law.
Date:
------------------------------ ------------------------------------
Katie Maurer
LIMITED TOO, INC.
Date: By:
------------------------------ ---------------------------------
President and CEO
<PAGE> 1
EXHIBIT 10.15
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
As an executive associate of Limited Too, Inc. (the "Company"), I have access to
trade secrets and other confidential or proprietary information ("Confidential
Information") of the Company. I may also originate or develop Confidential
Information in connection with the performance of my duties with the Company. I
understand that all of such Confidential Information as well as any inventions,
designs or innovations that I conceive or devise from my use of the Company's
time, equipment, facilities and support services belong exclusively to the
Company, and that it may not be used for my personal benefit, the benefit of a
competitor, or for the benefit of any person or entity other than the Company.
THEREFORE, in consideration of special compensation, in the form of the 1999
Too, Inc. stock option award to receive options to acquire 24,000 shares of the
common stock of Too, Inc. pursuant to the terms of the agreement to be delivered
on or about the date that Limited Too becomes an independent company, and in
recognition of the highly competitive nature of the business conduct by the
Company, I agree as follows:
1. I will at all times during my employment with the Company and
thereafter faithfully hold the Company's Confidential Information in the
strictest confidence, and I will use my best efforts and highest diligence to
guard against its disclosure to anyone other than as expressly required in the
performance of my duties to the Company. I understand that Confidential
Information includes, among other things, any information and materials
pertaining to products, designs, formulas, packaging or processes, and
developments or improvements relating to them; licensing, sourcing,
manufacturing, merchandising, packaging plans and techniques; advertising,
marketing and promotional plans and policies; distribution or sales plans and
methods; technical and business procedures or strategies; sales, profit or other
financial information; relationships between the Company and any of its
customers, suppliers or employees; stores and real estate; and the salaries,
compensation, performance history or any other personnel information relating to
employees of the Company. "Confidential Information" does not include
information that, now or in the future, is generally available to the public
(other than through improper disclosure by me) or information acquired from a
third party who had authority to disclose it.
2. Upon my separation from the Company, regardless of the reason for my
separation, I will return to the Company all documents and other materials of
any kind that contain Confidential Information.
3. If I leave the Company for any reason whatsoever, then for a period
of twelve (12) months after my separation from the Company, I will not directly
or indirectly solicit, induce or attempt to influence any associate to leave the
employment of the Company, nor will I in any way assist anyone else in doing so.
<PAGE> 2
4. I understand that my employment with the Company is and at all times
shall be "at will," which means that either the Company or I may terminate my
employment at any time, for any reason or for no reason. However, if my
employment with the Company is terminated by the Company for reasons other than
for cause as defined below, I understand that the Company will continue to pay
me my weekly base salary for a period of fifty-two (52) weeks, minus the
deductions required by law and subject to a deduction for any salary or
compensation that I earn from other employment or self-employment during the
time period in question, regardless of when such amount is payable. Cause for
termination of my employment shall exist in the event I: (1) willfully fail to
perform my duties with the Company (other than a failure resulting from my
incapacity due to physical or mental illness); or (2) plead "guilty" or "no
contest" to or am convicted of an act which is defined as a felony under federal
or state law; or (3) engage in willful misconduct in bad faith which could
reasonably be expected to materially harm the Company's business or its
reputation.
5. If I decide to resign my employment with the Company, I understand
the company requests that I provide a thirty (30) day prior written notice.
6. If I leave the Company for any reason, I will not, for a period of
twelve (12) months after my separation from the Company, directly or indirectly,
work for or contribute to the efforts of any business organization that
competes, or plans to compete, with the Company or its products.
7. This Agreement will be governed by and interpreted in accordance
with Ohio law.
Date:
------------------------------ ----------------------------------
Jim Petty
LIMITED TOO, INC.
Date: By:
------------------------------ -------------------------------
Vice President, Human Resources
<PAGE> 1
EXHIBIT 13
FINANCIAL STATEMENT INFORMATION
FINANCIAL SUMMARY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA, NUMBER OF STORES AND ANNUAL SALES
PER AVERAGE SQUARE FOOT)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
2000 1999 1998 1997 1996 (1)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 452,355 $ 376,943 $ 322,150 $ 258,818 $ 214,302
Gross income (2) 160,333 125,214 95,247 60,844 38,237
General, administrative and store
operating expenses 117,878 97,333 83,381 69,802 57,631
Operating income (loss) 42,455 27,881 11,866 (8,958) (19,394)
Net income (loss) 24,576 16,681 7,166 (5,458) (11,594)
Earnings (loss) per share - basic $ 0.80 $ 0.54 $ 0.23 $ (0.18) $ (0.38)
Earnings (loss) per share - diluted (3) $ 0.79 $ 0.54 $ 0.23 $ (0.18) $ (0.38)
BALANCE SHEET DATA:
Inventories $ 34,656 $ 27,565 $ 18,661 $ 20,437 $ 16,046
Total assets 178,593 90,769 73,574 75,193 73,372
Total debt 50,000 -- -- -- --
Total shareholders' equity 45,467 50,017 37,065 53,923 64,594
SELECTED OPERATING DATA:
Comparable store sales increase
(decrease) (4) 9% 15% 20% 8% (4)%
Total net sales growth 20.0% 17.0% 24.5% 20.8% 23.3%
Gross income rate (5) 35.4% 33.2% 29.6% 23.5% 17.8%
Operating income (loss) rate (5) 9.4% 7.4% 3.7% (3.5)% (9.0)%
Total number of stores open at
year end 352 319 312 308 288
Total square feet at year end 1,441 1,281 1,244 1,224 1,143
Annual sales per average square
foot (6) $ 330 $ 300 $ 259 $ 214 $ 207
Cash flow from operations $ 69,547 $ 17,361 $ 30,294 $ 13,764 $ (3,114)
Capital expenditures $ 31,424 $ 14,294 $ 4,780 $ 8,504 $ 25,341
</TABLE>
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less costs of goods sold, buying and
occupancy costs.
(3) If historical diluted earnings per share were adjusted to reflect
additional interest expense, net of interest income and related income
taxes, which would have been incurred given retroactive effect to the
Company's current capital structure, adjusted diluted earnings per
share would have been $.75, $.47, $.16, $(.24) and $(.44) for each of
the five years ended January 29, 2000.
(4) A store is included in our comparable store sales calculation once it
has completed 52 weeks of operation. Further, stores that are expanded
more than 20% in square feet are treated as new stores for purposes of
this calculation.
(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.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our consolidated financial
statements and the related notes to those consolidated financial statements. For
the purposes of the following discussion, unless the context otherwise requires,
"Too, Inc.", "Limited Too", "Too", the "Company," "we", "our" and "us" refer to
Too, Inc. and our subsidiaries.
GENERAL
Too, Inc. is a rapidly growing, specialty retailer that sells apparel,
underwear, sleepwear, swimwear, lifestyle and personal care products for
fashion-aware, trend-setting young girls ages seven to fourteen years.
Established in 1987 by The Limited, Inc., Too grew moderately from inception
through 1995. During this period, the Company suffered from inconsistent
operational and financial performance. Starting in March 1996, several key
management changes were made beginning with the addition of our current
Chairman, President and Chief Executive Officer, Michael W. Rayden. The results
since these changes were made have been dramatic.
Since fiscal 1996, we have:
o increased net sales approximately 75% to $452 million from $259 million
through increases in comparable store sales and, more recently, new
store growth,
o improved our gross income rate to 35.4% from 23.5% as a result of
better merchandise assortments, higher merchandise margins and improved
inventory control,
o increased our operating income rate to 9.4% from a loss of (3.5%) due
to improved per store productivity and slowing the growth in certain
components of selling, general and administrative expense,
o embarked on several strategic initiatives designed to further enhance
our financial and operational performance and to build Limited Too into
a 360-degree brand including greater focus on our target market,
introducing the "Girl Power" store format, mailing the first "catazine"
and the introduction of our Web site with e-commerce to follow.
In August 1999, we were completely spun-off from The Limited and we became an
independent, separately traded public company listed on the New York Stock
Exchange.
Effective August 23, 1999, The Limited distributed to its shareholders of record
as of August 11, 1999, all of its ownership 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. Additionally, in connection with the
Spin-off, Too and The Limited entered into certain transitional service
agreements, which are described in Note 8 to the Consolidated Financial
Statements.
<PAGE> 3
RESULTS OF OPERATIONS (AS A PERCENT OF SALES)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
--------------- -------------- --------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Costs of goods sold, buying and
occupancy costs 64.6 66.8 70.4
-------------- ------------- -------------
Gross income 35.4 33.2 29.6
General, administrative and store
operating expenses 26.1 25.8 25.9
-------------- ------------- -------------
Operating income 9.4 7.4 3.7
Interest expense, net 0.3 -- --
-------------- ------------- -------------
Income before income taxes 9.1 7.4 3.7
Provision for income taxes 3.6 3.0 1.5
-------------- ------------- -------------
Net income 5.4% 4.4% 2.2%
============== ============= =============
</TABLE>
On a historical basis, net income increased 47% in fiscal 1999 to $24.6 million
or $.79 per diluted share versus net income of $16.7 million or $.54 per diluted
share in fiscal 1998. Adjusted net income increased 60% to $23.4 million or $.75
per diluted share compared to adjusted net income of $14.6 million, or $.47 per
diluted share for fiscal 1998.
In connection with the Spin-off, the Company entered into a five-year, $100
million credit agreement (the "Credit Facility") with a syndicate of banks. The
Credit Facility is comprised of a $50 million term loan and a $50 million
revolving credit commitment. The Company borrowed funds under the term portion
of the Credit Facility to pay a one-time $50 million dividend to The Limited and
borrowed approximately $14 million from the revolving portion of the Credit
Facility principally to repay a portion of the working capital advances made by
The Limited in 1999 prior to the Spin-off. Adjusted net income and adjusted
earnings per share are presented as if these borrowings were outstanding for all
periods presented.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Earnings per diluted share on a historical basis $ 0.79 $ 0.54 $ 0.23
============= ============= =============
Adjusted earnings per diluted share:
Net income as reported $ 24,576 $ 16,681 $ 7,166
Adjusted interest expense, net of tax (1) 1,208 2,087 2,087
------------- ------------- -------------
Net income as adjusted $ 23,368 $ 14,594 $ 5,079
============= ============= =============
Adjusted earnings per diluted share (2) $ 0.75 $ 0.47 $ 0.16
============= ============= =============
</TABLE>
<PAGE> 4
(1) Adjusted interest expense includes interest expense and financing fees,
net of interest income and the related tax benefit, on approximately
$52 million of average indebtedness.
(2) Adjusted earnings per diluted share is calculated by dividing adjusted
net income for each period by fiscal 1999 weighted average diluted
shares.
FINANCIAL SUMMARY
Summarized annual financial data for the last three fiscal years is presented
below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED % CHANGE
---------------------------------------------- --------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, 1999- 1998-
2000 1999 1998 1998 1997
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales (millions) $ 452 $ 377 $ 322 20% 17%
Comparable store sales increase (1) 9% 15% 20%
Annual sales per average square foot (2) $ 330 $ 300 $ 259 10% 16%
Sales per average store (thousands) $ 1,349 $ 1,204 $ 1,039 12% 16%
Average store size at year end (square feet) 4,094 4,015 3,987 2% 1%
Total square feet at year end (thousands) 1,441 1,281 1,244 12% 3%
Number of stores:
Beginning of year 319 312 308
Opened 42 10 7
Closed (9) (3) (3)
------------- ------------- -------------
End of year 352 319 312
============= ============= =============
Stores remodeled 18 15 --
Stores with "Girl Power" format 89 29 4
Percentage of stores in "Girl Power" format 25% 9% 1%
</TABLE>
(1) A store is included in our comparable store sales calculation once it
has completed 52 weeks of operation. Further, stores that are expanded
more than 20% in square feet are treated as new stores for the purpose
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.
FISCAL YEAR ENDED JANUARY 29, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 30,
1999
NET SALES - Net sales for 1999 increased 20% to $452.4 million from $376.9
million for 1998. The increase was primarily a result of a 9% increase in
comparable store sales, with the balance attributable to the net addition of 33
stores. Net sales productivity increased 10% to $330 per average square foot due
in part to the increase in the number of stores operating under the Girl Power
format. Average sales per store are substantially higher under the Girl Power
format compared to the stores for the balance of the Company. Within merchandise
categories, knit tops showed a significant sales increase, led by cut-and-sewn
tops and graphic and active T-shirts. The add-on category (principally
underwear, sleepwear and swimwear) and accessories also increased significantly.
<PAGE> 5
GROSS INCOME - The gross income rate expressed as a percentage of net sales,
increased to 35.4% from 33.2% for 1998. The increase in rate was primarily
attributable to higher initial markups and lower markdowns. These gains were
partially offset by an increase in buying and occupancy costs, expressed as a
percentage of net sales, due to an increase in buying payroll and incremental
catalog costs which were not incurred in 1998.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES - General, administrative
and store operating expenses, expressed as a percentage of net sales, increased
to 26.1% from 25.8% for 1998. This increase was attributable to various expenses
associated with the Spin-off, incremental catalog costs net of shipping and
handling revenue and increased distribution center costs. These increases were
partially offset by a decrease in expense allocations from The Limited.
OPERATING INCOME - Operating income, expressed as a percentage of net sales,
increased to 9.4% for 1999 from 7.4% for 1998. The increase was attributable to
higher merchandise margins partially offset by higher general, administrative
and store operating expenses.
INTEREST EXPENSE - Interest expense, net of interest income, amounted to $1.5
million in fiscal 1999 and related to borrowings under the Company's $100
million Credit Facility entered into in August, 1999. No interest expense was
incurred in fiscal 1998 or 1997. Interest expense also includes the amortization
of financing fees and related costs incurred in connection with the Credit
Facility.
FISCAL YEAR ENDED JANUARY 30, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998
NET SALES - Net sales for 1998 increased 17% to $376.9 million from $322.2
million in 1997. The increase was primarily attributable to a 15% increase in
comparable store sales and the net addition of seven stores. During the third
quarter of fiscal 1997, we exited the infant merchandise category because it was
inconsistent with a store environment that appeals to our target customer.
Therefore, excluding infant sales in 1997, we experienced a 24% increase in
comparable store sales over the prior year. While sales increased across
virtually all merchandise categories, add-on, lifestyles, personal care products
under our "GirlCare" product line and tops experienced significant increases.
Net sales productivity increased 16% to $300 per average square foot.
GROSS INCOME - The gross income rate, expressed as a percentage of net sales,
increased to 33.2% in 1998 from 29.6% in 1997. The increase in rate was
attributable to an increase in initial markup on merchandise and a decrease in
buying and occupancy costs, expressed as a percentage of net sales, due to the
leverage achieved through higher comparable store sales. The improvement in
these margin components was slightly offset by an increase in markdowns
experienced during the fall season as a result of underperformance in the
ready-to-wear category and overassortment in the bottoms categories.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES - General, administrative
and store operating expenses, expressed as a percentage of net sales, improved
slightly to 25.8% in 1998 from 25.9% in 1997. The favorable leveraging of these
expenses associated with improved sales productivity was partially offset by an
increase in overhead allocations from The Limited. The increase in the allocated
expenses included information technology costs, including Year 2000 costs, and
central distribution center costs, driven by unit growth.
OPERATING INCOME - Operating income, expressed as a percentage of net sales, was
7.4% and 3.7% in fiscal 1998 and 1997, respectively. The improvement in 1998
over 1997 was due principally to the improvement in
<PAGE> 6
merchandise margins and the positive leveraging of buying and occupancy expenses
arising from increases in comparable store sales.
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)
<TABLE>
<CAPTION>
1999 QUARTERS FIRST SECOND THIRD FOURTH
- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 95,048 $ 86,864 $114,802 $155,641
% of full year 21.0% 19.2% 25.4% 34.4%
Gross income $ 31,724 $ 28,606 $ 38,346 $ 61,657
% of full year 19.8% 17.8% 23.9% 38.5%
Net income $ 1,622 $ 1,004 $ 4,740 $ 17,210
% of full year 6.6% 4.1% 19.3% 70.0%
1998 QUARTERS
- -------------
Net sales $ 82,257 $ 74,746 $ 96,720 $123,220
% of full year 21.8% 19.8% 25.7% 32.7%
Gross income $ 24,888 $ 24,016 $ 29,870 $ 46,440
% of full year 19.9% 19.2% 23.8% 37.1%
Net income $ 736 $ 240 $ 4,248 $ 11,457
% of full year 4.4% 1.4% 25.5% 68.7%
</TABLE>
FINANCIAL CONDITION
Our balance sheet reflects not only the effects of the Spin-off but increased
financial strength as a result of a substantial increase in operating income and
cash flow from operations. A more detailed discussion of liquidity, capital
resources and capital requirements follows.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities provided the resources to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures. Additionally, the Company entered into a $100 million
Credit Facility used to finance a $50 million dividend to The Limited as well as
the repayment of a portion of working capital advances made by The Limited in
1999 prior to the Spin-off. At January 29, 2000, only the $50 million five-year
term portion of the Credit Facility was outstanding.
<PAGE> 7
A summary of the Company's working capital position and capitalization follows
(thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Net cash provided by operating activities $ 69,547 $ 17,361 $ 30,294
Working capital (deficit) $ 26,098 $ 311 $ (8,945)
Capitalization:
Long-term debt 50,000 -- --
Shareholders' equity (1) 45,467 50,017 37,065
-------------- -------------- ---------------
Total capitalization $ 95,467 $ 50,017 $ 37,065
============== ============== ===============
Additional amounts available under the revolving
portion of the Credit Facility $ 50,000 -- --
</TABLE>
(1) Prior to the Spin-off, shareholders' equity was comprised solely of the
net investment by The Limited.
OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $69.5 million for fiscal
1999 versus $17.4 million for fiscal 1998. The increase was primarily driven by
an increase in net income, plus depreciation and amortization expense and an
increase in accounts payable and accrued expenses in fiscal 1999 versus 1998.
Cash flow from operations decreased in 1998 versus 1997 as higher net income was
more than offset by an increase in inventories and higher income tax payments.
INVESTING ACTIVITIES
Capital expenditures increased substantially in 1999 to $31.4 million from $14.3
million in 1998 and $4.8 million in 1997. Capital expenditures were used
primarily to construct new stores and remodel existing stores.
FINANCING ACTIVITIES
Financing activities in 1999 included an increase of $20.9 million in the net
investment by The Limited representing $32.9 million of working capital advances
through the date of the Spin-off, of which $12 million was repaid on August 13,
1999 with proceeds from the $100 million Credit Facility. Additionally, the
Company paid a $50 million cash dividend to The Limited with proceeds from the
Credit Facility on August 13, 1999. In connection with the Spin-off, the balance
of the net investment by The Limited was converted to common stock and paid in
capital based on the 30.7 million shares issued with a par value of $.01 per
share. The Company also paid off borrowings under the revolving portion of the
$100 million Credit Facility during the third quarter.
<PAGE> 8
CAPITAL EXPENDITURES
Capital expenditures amounted to $31.4 million, $14.3 million and $4.8 million
for fiscal 1999, 1998 and 1997, respectively. Approximately $28 million of
capital expenditures made in 1999 were for the construction of new stores and
the remodeling of existing stores with a substantial portion of the remaining
expenditures related to information technology initiatives. Substantially all
capital expenditures in 1998 and 1997 were for constructing new and remodeled
stores.
We anticipate spending between $40 and $45 million in 2000 for capital
expenditures, of which $30 to $35 million will be for new stores, remodeling or
expansion of existing stores and related fixtures and equipment. We intend to
add 210,000 to 230,000 square feet in 2000, which will represent a 15% to 16%
increase over year-end 1999. We anticipate that the increase will result from
opening approximately 50 to 55 new stores and expanding a portion of the 10
stores identified for remodeling.
We estimate that the average cost for leasehold improvements, furniture and
fixtures for stores to be opened in 2000 will be approximately $390,000 per
store, after giving effect to landlord 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 approximately $75,000 per
store. We also anticipate approximately $10 million in capital expenditures in
fiscal 2000 principally related to the construction of a new distribution center
and home office scheduled for completion in the first half of 2002.
We expect that substantially all capital expenditures in 2000 will be funded by
net cash provided by operating activities.
TRANSITIONAL SERVICES AND SEPARATION AGREEMENTS
In connection with the Spin-off, the Company entered into several Transitional
Services and Separation Agreements (the "Transitional Services Agreements") with
The Limited that govern certain aspects of our ongoing relationship. We believe
that the terms of these agreements are similar to terms achievable through arm's
length negotiations with third parties.
A summary of some of the more significant Transitional Services Agreements
follows:
TRADEMARK AND SERVICE MARK LICENSING AGREEMENT
We have entered into an exclusive trademark and service mark licensing agreement
(the "Trademark Agreement") with The Limited that will allow us to operate under
the "Limited Too" brand name. The agreement will have 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 will be
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 will only be 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.
<PAGE> 9
SERVICES AGREEMENT
The Services Agreement relates to transitional services that The Limited or its
subsidiaries or affiliates will provide to us subsequent to the Spin-off. Under
this agreement, The Limited will provide services in exchange for fees which we
believe are similar in material respects to what a third-party provider would
charge, and will be based on several billing methodologies. Under one of these
billing methodologies, which is the most prevalent, The Limited will provide us
with services at costs comparable to those charged to other businesses operated
by The Limited from time to time. We will generally be 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 costs are not subject to the 5%
mark-on. Subsequent to fiscal 1999, the services that The Limited will provide
to us principally relate to management information systems through the first
anniversary of the Spin-off and merchandise distribution covering flow of goods
from factory to store through the third anniversary of the Spin-off.
STORE LEASES AGREEMENT
At January 29, 2000, 126 of our stores were adjacent to The Limited's stores. Of
these, 122 stores are subject to sublease agreements (the "Store Leases
Agreement") with The Limited for stores where we occupy space that The Limited
leases from third party landlords (the "Direct Limited Leases"). Under the terms
of the Store Leases Agreement, we are responsible for our proportionate share,
based on the size of our selling space, of all costs (principally rent, excess
rent, if applicable, maintenance and utilities).
All termination rights and other remedies under the Direct Limited Leases will
remain with The Limited. If The Limited decides to terminate any of the Direct
Limited Leases early, The Limited must first offer to assign such lease to us.
If, as a result of such early termination by The Limited, we are forced to
remodel our store or relocate within the mall, The Limited will compensate us
with a combination of cash payments and loans which will vary depending on the
remaining term of the affected store lease at the time the Limited closes its
adjacent store as follows:
<TABLE>
<CAPTION>
CASH LOAN
REMAINING LEASE TERM PAYMENT AMOUNT
- ----------------------------- ------------ ------------
<S> <C> <C>
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
</TABLE>
Approximately 100 of the Direct Limited Leases of which we are a part are
scheduled to expire during 2005 or later. We may not assign or sublet our
interest in those premises, except to an affiliate, without The Limited's
consent. If The Limited intends to sublet or assign its portion of the leased
premises under any of the Direct Limited Leases to any non-affiliate, it will be
required to give us 60 days notice, and we will be allowed to terminate our
interest.
Approximately 73 of our direct leases are guaranteed by The Limited. Pursuant to
the Store Leases Agreement, we are required to make additional payments to The
Limited as consideration for the guarantees that The
<PAGE> 10
Limited provides under such leases along with amounts for adjacent stores based
on those locations achieving certain performance targets.
CREDIT FACILITY
In August 1999, we entered into a five-year, $100 million collateralized Credit
Facility. The Credit Facility consists of a $50 million five-year term loan and
a $50 million, five-year revolving credit commitment. The Credit Facility's
interest rates, which reflect matrix pricing, are based on the London Interbank
Offered Rate or Prime plus a spread as defined in the agreement. The term loan
is interest only until the end of the third year at which time the amortization
of the outstanding principle balance will begin. The Credit Facility contains
customary representations and warranties as well as certain affirmative,
negative and financial covenants.
At year-end, the entire amount of the $50 million revolving credit commitment
was available to fund working capital requirements and for general corporate
purposes.
IMPACT OF INFLATION
Our results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, we believe that
the effects of inflation, if any, on our results of operations and financial
condition have been minor.
YEAR 2000
The Company's information systems are primarily operated by The Limited using
Limited hardware in their facilities pursuant to the Transition Services
Agreement. Additionally, we use a variety of proprietary and third party
computer technologies -- hardware and software -- directly in our business. We
participated in the Year 2000 readiness efforts undertaken by The Limited both
prior to and subsequent to the Spin-off. We are not aware of any Year 2000
related incident or activity that occurred which resulted in any major
disruption to our business. Additionally, we are not aware of any Year 2000
related event or situation either within the Company or at a major vendor which
would materially affect the Company's financial position or results of
operations.
Total expenditures, exclusive of internal payroll costs, incurred from 1997
through January 29, 2000 related to remediation, testing, conversion,
replacement and upgrading system applications were approximately $6.7 million,
of which approximately $2.3 million represent capital assets which are being
amortized principally over a period of three or five years beginning in May
1999.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Any forward-looking statements contained in this Management Discussion and
Analysis or elsewhere involve risks and uncertainties and may change based on
various important factors, many of which may be beyond our control. Thus, our
future performance and financial results may differ materially from those
expressed or implied in any such forward-looking statements. 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.
Factors such as changes in consumer spending patterns and preferences,
competition, pricing, weather patterns, overall economic conditions, political
stability, currency and exchange risk, duties, tariffs or quotas, availability
<PAGE> 11
of suitable store locations at appropriate terms, ability to develop new
merchandise, and ability to hire and train associates, among others, in some
cases have affected and in the future could affect our financial performance and
actual results and could cause actual results for 2000 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements.
<PAGE> 12
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 452,355 $ 376,943 $ 322,150
Costs of goods sold, buying and
occupancy costs 292,022 251,729 226,903
------------- ------------- -------------
Gross income 160,333 125,214 95,247
General, administrative and store
operating expenses 117,878 97,333 83,381
------------- ------------- -------------
Operating income 42,455 27,881 11,866
Interest expense, net 1,479 -- --
------------- ------------- -------------
Income before income taxes 40,976 27,881 11,866
Provision for income taxes 16,400 11,200 4,700
------------- ------------- -------------
Net income $ 24,576 $ 16,681 $ 7,166
============= ============= =============
NET INCOME PER SHARE:
Basic $ 0.80 $ 0.54 $ 0.23
============= ============= =============
Diluted $ 0.79 $ 0.54 $ 0.23
============= ============= =============
WEIGHTED AVERAGE COMMON SHARES:
Basic 30,674 30,674 30,674
============= ============= =============
Diluted 30,974 30,674 30,674
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
<PAGE> 13
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 59,984 $ 987
Receivables 2,863 1,440
Inventories 34,656 27,565
Store supplies 6,171 5,237
Deferred income taxes 2,904 3,751
Other 504 582
------------- --------------
Total current assets 107,082 39,562
Property and equipment, net 61,874 44,894
Deferred income taxes 7,838 6,313
Other assets 1,799 --
------------- --------------
Total assets $ 178,593 $ 90,769
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,754 $ 3,108
Accrued expenses 46,689 24,260
Income taxes payable 13,541 11,883
------------- --------------
Total current liabilities 80,984 39,251
Long-term debt 50,000 --
Other long-term liabilities 2,142 1,501
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized -- --
Common stock, $.01 par value, 100 million shares authorized,
30.7 million issued and outstanding at January 29, 2000 307 --
Paid in capital 24,410 --
Retained earnings since effective date, August 23, 1999 20,750 --
Net investment by The Limited -- 50,017
------------- --------------
Total shareholders' equity 45,467 50,017
------------- --------------
Total liabilities and shareholders' equity $ 178,593 $ 90,769
============= ==============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
<PAGE> 14
TOO, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
INVESTMENT TOTAL
COMMON PAR PAID IN BY THE RETAINED SHAREHOLDERS'
SHARES VALUE CAPITAL LIMITED EARNINGS EQUITY
------------ ------------ ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, FEBRUARY 1, 1997 $ 53,923 $ 53,923
Net income 7,166 7,166
Transfers to The Limited, net (24,024) (24,024)
------------- ----------------
BALANCES, JANUARY 31, 1998 37,065 37,065
Net income 16,681 16,681
Transfers to The Limited, net (3,729) (3,729)
------------- ----------------
BALANCES, JANUARY 30, 1999 50,017 50,017
Net income prior to Spin-off 3,826 3,826
Cash dividend to The Limited (50,000) (50,000)
Distribution of Too, Inc. common stock
by The Limited 30,674 $ 307 $ 24,410 (24,717)
Transfers from The Limited, net 20,874 20,874
Net income after Spin-off $ 20,750 20,750
------------ ------------ ------------- ------------- ------------- ----------------
BALANCES, JANUARY 29, 2000 30,674 $ 307 $ 24,410 -- $ 20,750 $ 45,467
============ ============ ============= ============= ============= ================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
<PAGE> 15
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,576 $ 16,681 $ 7,166
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS:
Depreciation and amortization 13,804 10,563 10,626
CHANGES IN ASSETS AND LIABILITIES:
Inventories (7,091) (8,904) 1,776
Accounts payable and accrued expenses 40,075 2,215 666
Income taxes 980 (3,114) 9,248
Other assets and liabilities (2,797) (80) 812
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 69,547 17,361 30,294
------------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (31,424) (14,294) (4,780)
------------- ------------- -------------
CASH USED FOR INVESTING ACTIVITIES (31,424) (14,294) (4,780)
------------- ------------- -------------
FINANCING ACTIVITIES:
Net increase (decrease) in net investment by
The Limited 20,874 (3,729) (24,024)
Proceeds from borrowings under the Credit Facility 64,235 -- --
Payment of dividend to The Limited (50,000) -- --
Repayment of borrowings under the Credit Facility (14,235) -- --
------------- ------------- -------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 20,874 (3,729) (24,024)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 58,997 (662) 1,490
Cash and equivalents, beginning of year 987 1,649 159
------------- ------------- -------------
Cash and equivalents, end of year $ 59,984 $ 987 $ 1,649
============= ============= =============
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Too, Inc., (referred herein as "Too" or the "Company") is a specialty retailer
that sells apparel, underwear, sleepwear, swimwear, lifestyle and personal care
products for fashion-aware, trend-setting young girls ages seven to fourteen
years. The accompanying consolidated financial statements include the accounts
of Too, Inc. and its 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 Spin-off, was a wholly-owned subsidiary of
The Limited, Inc. ("The Limited").
Effective August 23, 1999, The Limited distributed to its shareholders of record
as of August 11, 1999, all of its interest in Too on the basis of one share of
Too common stock for each seven shares of The Limited common stock (the
"Spin-off"). The Spin-off resulted in 30.7 million shares of Too common stock
outstanding as of August 23, 1999. As a result of the Spin-off, the Company
became an independent, separately traded, public company. In connection with the
Spin-off, Too and The Limited entered into certain agreements which are more
fully described in Note 8. The Company's largest shareholder is also the largest
shareholder of The Limited, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Too and all
subsidiaries which are more than 50% owned. All significant intercompany
balances and transactions have been eliminated in consolidation. The Company has
one reportable segment which includes all of its products.
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 1999, 1998 and
1997 represent the 52-week periods ended January 29, 2000, January 30, 1999, and
January 31, 1998.
CASH EQUIVALENTS
The Company considers short-term investments with original maturities of three
months or less to be cash equivalents.
INVENTORIES
Inventories are principally valued at the lower of average cost or market, on a
first-in, first-out basis, utilizing the retail method.
<PAGE> 17
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 supplies are periodically
inventoried and adjusted as appropriate for changes in supply levels or costs.
CATALOG AND ADVERTISING COSTS
Catalog costs, principally catalog production and mailing costs, are amortized
over the expected revenue stream, which is generally three to six months from
the date that the catalogs are mailed. All other advertising costs, including
costs associated with in-store photographs and direct mail campaigns, are
expensed at the time the promotion first appears in media or in the store.
Advertising costs amounted to $1,658,000, $567,000 and $755,000 for fiscal years
1999, 1998 and 1997.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed on a straight-line basis, using service lives ranging principally from
7 to 10 years for building improvements and 3 to 10 years for other property and
equipment. 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. 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.
The 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. No impairment charges have
been taken based on management's review.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires the use of 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 in which those temporary differences
are expected to reverse. Under SFAS No. 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Prior to the Spin-off, the Company was included in The Limited's consolidated
federal and certain state income tax returns for income tax reporting purposes.
However, income taxes in the Company's consolidated financial statements were
calculated as if the Company had filed separate income tax returns for all
periods presented. In connection with the Spin-off, the Company entered into a
tax separation agreement with The Limited. The purpose of this agreement is to
reflect each party's rights and obligations relating to payment and refunds of
taxes attributable to periods up to and including the Spin-off.
<PAGE> 18
REVENUE RECOGNITION
Sales are recorded when the customer takes possession of merchandise -- that is,
the point of sale. Markdowns associated with the Frequent Buyer and "Too Bucks"
Programs are recognized upon redemption in conjunction with a qualifying
purchase. Catalog sales are recorded upon shipment to the customer.
STORE PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged to operations as
incurred.
FINANCIAL INSTRUMENTS
The recorded values of financial instruments, including cash and equivalents,
receivables and accounts payable, approximate fair value due to their short
maturity. The recorded value of long-term debt approximates fair value as the
interest rate on such debt was reset near the end of fiscal 1999.
STOCK-BASED COMPENSATION
The Company accounts for stock options using Accounting Principle Board Opinion
No. 25 (APB 25) and has provided pro forma disclosures in accordance with
Statement of Financial Accounting Standards No. 123 (SFAS 123).
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 options or restricted
stock were converted into common stock using the treasury stock method.
Earnings per share, as presented in the Consolidated Statements of Income, for
periods prior to the Spin-off was calculated by dividing net income by the 30.7
million common shares issued in connection with the Spin-off as if these shares
were outstanding for such periods. The dilutive effect of options and restricted
shares used to determine diluted weighted average shares outstanding was
approximately 300,000 shares for the year ended January 29, 2000.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles 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. Since actual results may differ from those estimates, the
Company revises its estimates and assumptions as new information becomes
available.
<PAGE> 19
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
---------------- ---------------
<S> <C> <C>
Furniture, fixtures and equipment $ 84,166 $ 69,523
Leaseholds and improvements 37,102 28,950
---------------- ---------------
Total 121,268 98,473
Less: accumulated depreciation and
amortization (59,394) (53,579)
---------------- ---------------
Property and equipment, net $ 61,874 $ 44,894
================ ===============
</TABLE>
4. LEASED FACILITIES AND COMMITMENTS
The Company operated stores under lease agreements expiring on various dates
through 2012. The initial terms of leases are generally between ten and fifteen
years. Annual store rent is generally comprised 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 29, 2000, the Company operated 122 stores under sublease agreements
with The Limited. These sublease agreements require the Company to pay a
proportionate share, based on selling space, of all costs, principally rent,
maintenance, taxes and utilities. Pursuant to the sublease agreements, the
Company is required to pay contingent rent to The Limited if stores sales exceed
a stipulated amount. The Limited also provides guarantees on 73 store leases and
assesses a fee based on stores sales exceeding defined levels. Total contingent
fees were approximately $284,000 in 1999.
A summary of rent expense for the years 1999, 1998, and 1997 follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Fixed minimum $ 32,515 $ 28,916 $ 28,198
Contingent 1,037 375 296
------------- ------------- -------------
Total store rent 33,552 29,291 28,494
Equipment and other 1,077 880 879
------------- ------------- -------------
Total rent expense $ 34,629 $ 30,171 $ 29,373
============= ============= =============
</TABLE>
<PAGE> 20
A summary of minimum rent commitments under noncancellable leases as of January
29, 2000 follows (in thousands):
<TABLE>
<S> <C>
2000 $ 32,674
2001 33,099
2002 31,568
2003 30,722
2004 28,919
Thereafter 63,928
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
------------- -------------
<S> <C> <C>
Compensation, payroll taxes and benefits $ 13,186 $ 5,907
Rent 12,482 7,187
Taxes, other than income 3,092 2,252
Other 17,929 8,914
------------- -------------
Total $ 46,689 $ 24,260
============= =============
</TABLE>
6. CREDIT FACILITY
During August 1999, the Company entered into a five-year $100 million credit
agreement (the "Credit Facility") with a syndicate of banks. The Credit Facility
is collateralized by virtually all assets of the Company and is comprised of a
$50 million five-year term loan and a $50 million revolving loan commitment. The
entire amount of the term portion was drawn in order to fund a $50 million
dividend to The Limited and $14 million was drawn million under the revolving
loan commitment principally to repay a portion of working capital advances made
by the Limited prior to the Spin-off.
The $50 million revolving loan commitment is available to fund working capital
requirements and for general corporate purposes. Interest on borrowings under
the Credit Facility is based on matrix pricing applied to either the London
Interbank Offered Rate or Prime, as defined in the agreement. Payments of
principal under the term loan are due at various dates from July 2002 to August
2004. A commitment fee based on matrix pricing is charged on the unused portion
of the revolving loan commitment. The commitment fee is up to 1/2 of 1% of the
unused revolving credit commitment per annum. Under the terms of the Credit
Facility, the Company is required to comply with certain financial ratios. The
Credit Facility limits the Company from incurring certain additional
indebtedness and restricts substantial asset sales, capital expenditures above
approved limits and cash dividends. The Company is in compliance with all
applicable terms of the Credit Facility. Interest paid in fiscal 1999 amounted
to $2.1 million. As of January 29, 2000, there were no amounts outstanding under
the revolving portion of the Credit Facility.
<PAGE> 21
The aggregate amount of future maturities for long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
2002 $17,500
2003 20,000
2004 12,500
-------------
$50,000
=============
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
CURRENT:
Federal $ 13,631 $ 12,326 $ 7,804
State 3,447 2,832 1,790
-------------- --------------- --------------
17,078 15,158 9,594
DEFERRED:
Federal (621) (3,068) (3,975)
State (57) (890) (919)
-------------- --------------- --------------
(678) (3,958) (4,894)
-------------- --------------- --------------
Total income tax provision $ 16,400 $ 11,200 $ 4,700
============== =============== ==============
</TABLE>
A reconciliation between the statutory federal income tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Federal income tax rate 35.0 % 35.0 % 35.0 %
State income taxes, net of federal benefit 4.5 4.5 4.5
Other items, net 0.5 0.7 0.1
------------- ------------- --------------
Total 40.0 % 40.2 % 39.6 %
============= ============= ==============
</TABLE>
The effect of temporary differences which give rise to net deferred tax asset
balances was as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
-------------- ---------------
<S> <C> <C>
Book depreciation in excess of tax $ 3,306 $ 3,204
Rent 2,526 2,476
Inventory 785 881
Accrued expenses 2,284 1,508
Other, net 1,841 1,995
-------------- ---------------
Total deferred income taxes $ 10,742 $ 10,064
============== ===============
</TABLE>
<PAGE> 22
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.
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 (received from)
The Limited totaled $12 million, $14.3 million and $(4.5) million for the years
1999, 1998 and 1997, respectively. Subsequent to the Spin-off, the Company made
income tax payments directly to taxing authorities amounting to $2.7 million in
fiscal 1999.
8. RELATED PARTY TRANSACTIONS
Prior to the Spin-off, transactions between the Company and The Limited and its
subsidiaries and affiliates primarily consisted of the following:
Merchandise purchases
Capital expenditures
Inbound and outbound shipping
Store leasing, construction and management
Distribution center, information systems and home office expenses
Corporate services and centrally managed benefits
Information with regard to these transactions is as follows:
Significant purchases were made from Mast, a wholly-owned subsidiary of The
Limited. Purchases were also made from Gryphon, an indirect subsidiary of The
Limited. Mast is a contract manufacturer and apparel importer while Gryphon is a
developer of fragrance and personal care products and also a contract
manufacturer. Prices were negotiated on a competitive basis by merchants of Too
with Mast, Gryphon and manufacturers.
The Company's inbound and outbound transportation expenses were managed
centrally by Limited Distribution Services, a wholly owned subsidiary of The
Limited. Inbound freight was charged to Too based on actual receipts and related
charges, while outbound freight was charged based on a percentage of cartons
shipped.
The Company's real estate operations, including all aspects of lease
negotiations and ongoing dealings with landlords and developers, were handled
centrally by the real estate division of The Limited ("Real Estate Division").
Real Estate Division expenses were allocated to Too based on a combination of
the Company's pro rata share of new and remodeled store construction projects
and open selling square feet. Additionally, Too was charged rent expense, common
area maintenance charges and utilities for stores shared with other consolidated
subsidiaries of The Limited. The charges were based on square footage and
represent the proportionate share of the underlying leases with third parties.
The Company was charged for usage of certain of The Limited's management
information systems (MIS) facilities. The Company was also charged rent expense
and utilities for certain distribution and home office space occupied.
<PAGE> 23
The Company's store design and construction operations were coordinated
centrally by the store planning division of The Limited ("Store Planning
Division"). The Store Planning Division facilitated the design and construction
of the stores and upon completion transferred the stores to Too at actual cost
net of construction allowances, if any. Store Planning Division expenses were
charged to Too based on a combination of Too's pro rata share of new and
remodeled store construction projects and open selling square feet.
The Limited provided certain services to the Company including, among other
things, certain tax, treasury, legal, corporate secretary, accounting, auditing,
corporate development, risk management, associate benefit plan administration,
human resource and compensation, government affairs and public relations
services. Identifiable costs were charged directly to the Company. All other
services-related costs not specifically attributable to an operating business
were allocated to Too based upon a percentage of sales.
The Company participated in The Limited's centralized cash management system.
Under this system, cash received from the Company's operations was transferred
to The Limited's centralized cash accounts and cash disbursements were funded
from the centralized cash accounts on a daily basis. Prior to the Spin-off, no
interest was charged or earned on the cash management account. Subsequent to the
Spin-off, Too earned interest on excess funds generated by the Company and
invested through The Limited's cash management system.
Management believes the charges and allocations described above were reasonable.
However, these charges and allocations were not necessarily indicative of the
amounts that would have been recorded by Too on a stand-alone basis.
The following table summarizes the related party transactions between Too and
The Limited (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Merchandise purchases $ 71,235 $ 58,456 $ 42,255
Capital expenditures 29,867 11,818 2,359
Inbound and outbound shipping 6,790 6,023 5,702
Store leasing, construction and management 58,471 50,044 23,044
Distribution center, MIS and home office expenses 12,508 9,140 6,675
Corporate services and centrally managed functions 8,723 13,920 9,153
------------- -------------- -------------
Total $ 187,594 $ 149,401 $ 89,188
============= ============== =============
</TABLE>
The following table summarizes activity in the net investment by The Limited
account (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Beginning balance $ 50,017 $ 37,065 $ 53,923
Transactions with related parties 107,197 149,401 89,188
Centralized cash management, dividends and transfers (173,040) (167,444) (108,664)
Settlement of income taxes 12,000 14,314 (4,548)
Net income 3,826 16,681 7,166
---------------- ----------------- -----------------
Ending balance $ -- $ 50,017 $ 37,065
================ ================= =================
</TABLE>
<PAGE> 24
In conjunction with the Spin-off, the Company and The Limited entered into
service agreements which include among other things tax, information technology
and store design and construction. These agreements are for a term of up to one
year. Service agreements were also entered into for the continued use by the
Company of its home office space and distribution services covering flow of
goods from factory to store. These agreements are for a term of up to three
years. Costs for these services are generally the costs and expenses incurred by
The Limited plus five percent of such amounts, excluding any markup on third
party costs. Amounts payable to the Limited were $2.8 million at January 29,
2000.
The Company does not anticipate that costs associated with the remaining service
agreements provided by The Limited which expire in May 2002 or costs incurred to
replace the services currently provided by The Limited will have a material
adverse impact on its financial condition.
9. RETIREMENT BENEFITS
The Company sponsors a qualified defined contribution retirement plan and a
nonqualified supplemental retirement plan. 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.
Participation in the nonqualified plan is subject to service and compensation
requirements. The Company's contributions to these plans are based on a
percentage of the associates' eligible annual compensation. The cost of these
plans was $2.9 million, $1.2 million and $1.9 million in years 1999, 1998 and
1997, respectively.
10. STOCK-BASED COMPENSATION
The Company has various stock option and restricted stock plans which provide
incentive stock options, non-qualified stock options and restricted stock to
officers 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 ten-year
terms. The stock options and restricted stock grants generally vest over periods
from four to six years after grant date.
Prior to the Spin-off, certain associates of the Company participated in The
Limited's stock option and restricted stock plans. In connection with the
Spin-off, Too associates were allowed to exercise vested Limited options within
90 days of the Spin-off date. All unvested Limited stock options and restricted
shares held, including the intrinsic "in the money" value, by Too associates
were replaced with Too stock options and restricted shares (collectively, the
"awards"). The awards have the same ratio of the exercise price per option to
the market value per share and the same vesting provisions, option periods and
other terms as The Limited's awards that they replaced. The Company granted
additional awards on the date of Spin-off to certain associates and independent
directors with exercise prices equal to the market value of Too's common stock
at the date of Spin-off. Certain restricted stock awards contained performance
requirements which were attained in 1999.
<PAGE> 25
A summary of changes in the Company's stock option plans for 1999 is presented
below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE OPTION
SHARES PRICE PER SHARE
------------------ -------------------
<S> <C> <C>
Outstanding at beginning of year
Granted and converted 1,913,600 $11
Exercised -- --
Canceled (16,200) $ 9
------------------ -------------------
Outstanding at end of year 1,897,400 $11
================== ===================
Options exercisable at end of year 25,300 $10
================== ===================
</TABLE>
The following table summarizes information about stock options outstanding at
January, 29, 2000:
<TABLE>
<CAPTION>
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
- -------------- -------------- ------------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 5 - $10 817,000 7.2 $ 7 10,900 $ 9
$10 - $15 694,000 8.4 11 14,400 11
$15 - $20 386,400 9.4 16 -- --
-------------- ------------------ --------------- ---------------- ----------------
1,897,400 8.1 $11 25,300 $10
============== ================== =============== ================ ================
</TABLE>
The weighted average per share fair value of options granted is estimated using
the Black-Scholes option-pricing model and the following weighted average
assumptions for 1999: no expected dividends, price volatility of 35%, risk-free
interest rate of 7%, assumed forfeiture rate of 20% and expected life of 5.2
years.
Shares reserved under the various plans amounted to 3.8 million as of January
29, 2000. The weighted average per share fair value of options granted during
1999 was $4.82.
Under APB 25, no compensation expense is recognized in the financial statements
for stock options. Had compensation expense been recognized for stock-based
compensation plans in accordance with the Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company would
have recorded net income and diluted earnings per share of $24,027 and $.78,
respectively.
A total of 524,000 restricted shares were granted in 1999 (inclusive of The
Limited's restricted shares converted to Too restricted shares in connection
with the Spin-off) with total market value of $8.9 million. Of this amount,
399,000 were subject to performance criteria which was met during 1999.
Restricted shares generally vest over periods from four to six years. The market
value of restricted shares, as adjusted at the measurement date for shares with
performance requirements, is being amortized over the vesting period.
Compensation expense related to restricted shares amounted to $1.7 million for
1999.
<PAGE> 26
11. LEGAL MATTERS
There are various claims, lawsuits and pending actions 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 effect on Too's
results of operations, cash flows or financial position.
12. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<TABLE>
<CAPTION>
1999 - AS RESTATED (1) FIRST SECOND THIRD FOURTH
- ------------------------------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 95,048 $ 86,864 $ 114,802 $ 155,641
Gross income 31,724 28,606 38,346 61,657
Net income 1,622 1,004 4,740 17,210
Earnings per share - basic $ 0.05 $ 0.03 $ 0.15 $ 0.56
Earnings per share - diluted $ 0.05 $ 0.03 $ 0.15 $ 0.55
Market price per share:
- High -- -- $ 19.19 $ 19.00
- Low -- -- $ 14.38 $ 15.81
- Close -- -- $ 16.00 $ 17.13
1999 - AS PREVIOUSLY REPORTED
- ------------------------------------
Net income $ 812 $ 1,004 $ 4,740 $ 17,210
Earnings per share - basic $ 0.03 $ 0.03 $ 0.15 $ 0.56
Earnings per share - diluted $ 0.03 $ 0.03 $ 0.15 $ 0.55
1998 - AS RESTATED (1)
- ------------------------------------
Net sales $ 82,257 $ 74,746 $ 96,720 $ 123,220
Gross income 24,888 24,016 29,870 46,440
Net income 736 240 4,248 11,457
Earnings per share - basic $ 0.02 $ 0.01 $ 0.14 $ 0.37
Earnings per share - diluted $ 0.02 $ 0.01 $ 0.14 $ 0.37
1998 - AS PREVIOUSLY REPORTED
- ------------------------------------
Net income $ 189 $ 240 $ 4,248 $ 12,379
Earnings per share - basic $ 0.01 $ 0.01 $ 0.14 $ 0.40
Earnings per share - diluted $ 0.01 $ 0.01 $ 0.14 $ 0.40
</TABLE>
(1) During the fourth quarter of 1999, the Company changed its accounting
for gift certificates. The Company has given retroactive effect to this
change by restating its previously issued financial statements for the
years ended January 30, 1999 and January 31, 1998 and the quarterly
financial statements for fiscal 1999 and 1998.
Historically, the Company recognized net receipts (redemptions) from
gift certificates as a reduction (increase) to general, administrative
and store operating expenses. The Company now defers the recognition of
income on these transactions until the customer takes possession of the
merchandise.
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Too, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Too, Inc. and its
subsidiaries at January 29, 2000 and January 30, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 29, 2000, in conformity with accounting principles generally accepted in
the United States. 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, 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
February 17, 2000
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
SUBSIDIARY OF INCORPORATION
- --------------------------------------- ----------------
<S> <C>
LimToo, Inc Delaware
American Factoring, Inc. Nevada
Floret LLC Ohio
Limited Too Store Planning Inc. ** Ohio
Limited Too Purchasing, Inc. ** Ohio
Limited Too Catalog Production, Inc. ** Ohio
Limited Too Catalog, LLC ** Ohio
Limited Too Web, LLC ** Ohio
Limited Too Creative Design, Inc. ** Ohio
</TABLE>
** These subsidiaries were established on January 31, 2000.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-89529, 333-89533, 333-93717 and 333-93715) of
Too, Inc. of our report dated February 17, 2000 relating to the financial
statements, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
April 27, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned officers and/or directors of Too, Inc., a
Delaware corporation (the "Company"), hereby appoints Michael W. Rayden and Kent
A. Kleeberger as his or her true and lawful attorneys-in-fact, or any of them
individually with power to act without the other, as his or her true and lawful
attorney-in-fact, in his or her name and on his or her behalf, and in any and
all capacities stated below, to sign and to cause to be filed with the
Securities and Exchange Commission the Company's Annual Report on Form 10-K for
the fiscal year ended January 29, 2000, and any and all amendments thereto,
hereby granting unto said attorneys, and to each of them, full power and
authority to do and perform in the name and on behalf of the undersigned, in any
and all such capacities, every act and thing whatsoever necessary to be done in
and about the premises as fully as each of the undersigned could or might do in
person, hereby granting to each such attorney full power of substitution and
revocation, and hereby ratifying all that any such attorney or his substitute
may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this Power of
Attorney in counterparts if necessary, effective as of April 18, 2000.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/S/ MICHAEL W. RAYDEN Chairman, President, Chief Executive Officer
- ------------------------------------------------- and a Director
Michael W. Rayden (Principal Executive Officer)
/S/ KENT A. KLEEBERGER Vice President, Chief Financial Officer,
- ------------------------------------------------- Secretary, and Treasurer
Kent A. Kleeberger (Principal Accounting and Financial Officer)
/S/ NANCY J. KRAMER Director
- -------------------------------------------------
Nancy J. Kramer
/S/ DAVID A. KRINSKY Director
- -------------------------------------------------
David A. Krinsky
/S/ JAMES U. MCNEAL Director
- -------------------------------------------------
James U. McNeal
/S/ PHILIP A. MALLOTT Director
- -------------------------------------------------
Philip A. Mallott
/S/ KENNETH JAMES STROTTMAN Director
- -------------------------------------------------
Kenneth James Strottman
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TOO, INC. AND SUBSIDIARIES FOR THE YEAR
ENDED JANUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<EXCHANGE-RATE> 1
<CASH> 59,984
<SECURITIES> 0
<RECEIVABLES> 2,863
<ALLOWANCES> 0
<INVENTORY> 34,656
<CURRENT-ASSETS> 107,082
<PP&E> 121,268
<DEPRECIATION> 59,394
<TOTAL-ASSETS> 178,593
<CURRENT-LIABILITIES> 80,984
<BONDS> 50,000
0
0
<COMMON> 307
<OTHER-SE> 45,160
<TOTAL-LIABILITY-AND-EQUITY> 178,593
<SALES> 452,355
<TOTAL-REVENUES> 452,355
<CGS> 292,022
<TOTAL-COSTS> 292,022
<OTHER-EXPENSES> 117,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,479
<INCOME-PRETAX> 40,976
<INCOME-TAX> 16,400
<INCOME-CONTINUING> 24,576
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,576
<EPS-BASIC> .80
<EPS-DILUTED> .79
</TABLE>
