SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ______________________
Commission file number 1-8344
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THE LIMITED, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-7000
-----------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Common Outstanding at September 1, 1995
------------------------ --------------------------------------
Stock, $.50 Par Value 358,122,358 Shares
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
July 29, 1995 and July 30, 1994.............................. 3
Consolidated Balance Sheets
July 29, 1995 and January 28, 1995........................... 4
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
July 29, 1995 and July 30, 1994.............................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition............. 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 18
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- ---------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
----------- ----------- ----------- ----------
NET SALES $1,718,643 $1,585,392 $3,306,777 $3,067,020
Cost of Goods Sold, Occupancy
and Buying Costs 1,294,947 1,182,726 2,480,415 2,279,423
----------- ----------- ----------- ----------
GROSS INCOME 423,696 402,666 826,362 787,597
General, Administrative and
Store Operating Expenses 326,943 300,400 649,589 594,161
----------- ----------- ----------- ----------
OPERATING INCOME 96,753 102,266 176,773 193,436
Interest Expense (20,200) (14,750) (36,688) (29,420)
Other Income, net 4,209 1,316 6,888 4,092
----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAXES 80,762 88,832 146,973 168,108
Provision for Income Taxes 32,000 35,000 59,000 67,000
----------- ----------- ----------- ----------
NET INCOME $ 48,762 $ 53,832 $ 87,973 $ 101,108
=========== =========== =========== ==========
NET INCOME PER SHARE $ .14 $ .15 $ .25 $ .28
=========== =========== =========== ==========
DIVIDENDS PER SHARE $ .10 $ .09 $ .20 $ .18
=========== =========== =========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 358,961 358,634 358,468 358,599
=========== =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
July 29, January 28,
ASSETS 1995 1995
------ -------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash and Equivalents $ 262,591 $ 242,780
Accounts Receivable 1,262,229 1,292,399
Inventories 1,081,628 870,440
Other 153,084 142,047
-------------- --------------
TOTAL CURRENT ASSETS 2,759,532 2,547,666
PROPERTY AND EQUIPMENT, NET 1,735,833 1,692,145
OTHER ASSETS 362,369 330,266
-------------- --------------
TOTAL ASSETS $4,857,734 $4,570,077
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 352,760 $ 275,303
Accrued Expenses 383,735 372,676
Certificates of Deposit 61,000 25,200
Notes Payable 250,000 -
Income Taxes 11,232 124,376
-------------- --------------
TOTAL CURRENT LIABILITIES 1,058,727 797,555
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 300,244 306,139
OTHER LONG-TERM LIABILITIES 56,649 55,427
SHAREHOLDERS' EQUITY:
Common Stock 189,727 189,727
Paid-in Capital 142,914 132,938
Retained Earnings 2,733,228 2,716,516
-------------- --------------
3,065,869 3,039,181
Less Treasury Stock, at average cost (273,755) (278,225)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 2,792,114 2,760,956
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $4,857,734 $4,570,077
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Twenty-six Weeks Ended
-----------------------------
July 29, July 30,
1995 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 87,973 $ 101,108
Impact of other operating activities on cash flows:
Depreciation and amortization 141,410 127,928
Changes in assets and liabilities:
Accounts receivable 30,822 (63,127)
Inventories (193,488) (133,616)
Accounts payable and accrued expenses 79,090 86,411
Income taxes (113,144) (63,691)
Other assets and liabilities (37,492) (73,656)
------------- -------------
NET CASH USED FOR OPERATING ACTIVITIES (4,829) (18,643)
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures (170,345) (142,588)
Businesses acquired (18,000) -
------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (188,345) (142,588)
------------- -------------
FINANCING ACTIVITIES:
Net proceeds from commercial paper borrowings and certificates of deposit 35,800 7,300
Proceeds from short-term borrowings 250,000 -
Dividends paid (71,261) (64,433)
Purchase of treasury stock (8,981) -
Stock options and other 7,427 6,056
------------- -------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 212,985 (51,077)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 19,811 (212,308)
Cash and equivalents, beginning of year 242,780 320,558
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 262,591 $ 108,250
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE LIMITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Limited,
Inc. (the "Company") and all significant subsidiaries which are more than
50 percent owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
Investments in other entities (including joint ventures) which are more
than 20 percent owned are accounted for on the equity method.
The consolidated financial statements as of and for the periods ended July
29, 1995 and July 30, 1994 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements should be read in
conjunction with the financial statement disclosures contained in the
Company's 1994 Annual Report. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(which are of a normal recurring nature) necessary to present fairly the
financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations
for a full fiscal year.
The consolidated financial statements as of July 29, 1995 and for the
thirteen and twenty-six week periods ended July 29, 1995 and July 30, 1994
included herein have been reviewed by the independent accounting firm of
Coopers & Lybrand L.L.P. and the report of such firm follows the notes to
consolidated financial statements.
2. ADOPTION OF ACCOUNTING STANDARD
Management evaluates the recoverability of goodwill and other long-lived
assets and several factors are used in the valuation including, but not
limited to, management's plans for future operations, recent operating
results and projected cash flows. During March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." The Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. The Company adopted SFAS 121 in the first
quarter of 1995, the adoption of which did not have a material effect on
the results of operations or financial condition.
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories is
based principally upon the lower of average cost or market determined on a
first-in, first-out basis utilizing the retail method. Inventory valuation
at the end of the first and third quarters reflects adjustments for
inventory markdowns and shrinkage estimates for the total selling season.
6
4. INCOME TAXES
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Income taxes paid during the twenty-six weeks
ended July 29, 1995 and July 30, 1994 approximated $156.5 million and
$130.4 million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for 1989 and 1990. The assessment was based primarily on the
treatment of transactions involving the Company's foreign operations and
construction allowances. The Company strongly disagrees with the
assessment and is vigorously contesting the matter. Management believes
resolution of this matter will not have a material adverse effect on the
Company's results of operations or financial condition.
5. FINANCING ARRANGEMENTS
In connection with the implementation of a plan to create two new public
companies out of existing operations (see Note 8), two wholly-owned
subsidiaries of the Company borrowed $250 million under a bank credit
agreement in May 1995. The agreement has interest rates which are based on
either the lenders' "Base Rate," as defined, or a LIBOR-related rate. The
interest rate at July 29, 1995 was 6.58%. The scheduled final maturity of
the borrowings under the credit agreement is May 19, 2000 although such
amounts must be paid in full in the event that the subsidiaries cease to be
wholly-owned by the Company. It is anticipated that all borrowings under
the credit agreement will be prepaid in connection with the proposed public
offering and therefore such amounts are classified as short-term
borrowings. The Company may prepay the outstanding borrowings at any time.
Long-term debt consisted of (thousands):
July 29, January 28,
1995 1995
----------- ------------
7 1/2% Debentures due March 2023 $250,000 $250,000
7.80% Notes due May 2002 150,000 150,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
----------- ------------
$650,000 $650,000
=========== ============
All long-term debt outstanding at July 29, 1995 and January 28, 1995 is
unsecured.
7
The Company maintains two revolving credit agreements (the "Agreements")
totaling $840 million. One Agreement provides the Company available
borrowings of up to $490 million. The other Agreement provides World
Financial Network National Bank (WFNNB), a wholly-owned consolidated
subsidiary, available borrowings of up to $350 million. Borrowings
outstanding under the Agreements are due December 4, 1999. However, the
revolving terms of each of the Agreements may be extended an additional two
years upon notification by the Company at least 60 days prior to December
4, 1996, subject to the approval of the lending banks. Both Agreements
have similar borrowing options, including interest rates which are based on
either the lender's "Base Rate", as defined, LIBOR, CD based options or at
a rate submitted under a bidding process. Aggregate commitment and facility
fees for the Agreements approximate 0.16% of the total commitment. Both
Agreements place restrictions on the amount of the Company's working
capital, debt and net worth. No amounts were outstanding under the
Agreements at July 29, 1995.
The Agreements support the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. No commercial paper was outstanding at July 29, 1995.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
Interest paid during the twenty-six weeks ended July 29, 1995 and July 30,
1994 approximated $34.5 million and $24.1 million.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
July 29, January 28,
1995 1995
--------------- --------------
Property and equipment, at cost $2,943,399 $2,798,415
Accumulated depreciation and
amortization (1,207,566) (1,106,270)
--------------- --------------
Property and equipment, net $1,735,833 $1,692,145
=============== ==============
7. BUSINESS ACQUISITION
Effective July 2, 1995, the Company acquired all of the outstanding common
stock of Galyan's Trading Company, Inc. (Galyan's) for $18 million in cash
and stock. Galyan's is a full-line sporting goods retailer operating six
stores. The Company's financial statements as of and for the period ended
July 29, 1995 include the results of operations and financial condition of
Galyan's since the acquisition date.
8
8. RECENT DEVELOPMENT
On May 15, 1995, the Company announced that the Board of Directors approved
a plan which includes the creation of two new public companies out of
existing operations and a special distribution of cash to shareholders:
. The two new companies will be approximately 85% owned by The Limited,
Inc., with the balance owned by public shareholders. The companies
will be grouped based on complementary operations and opportunities:
the first, Intimate Brands, Inc. will consist of Victoria's Secret
Stores, Victoria's Secret Catalogue, Bath & Body Works, Cacique,
Penhaligon's and Gryphon. The second company, still to be named, will
consist of Express, Limited Stores, Lerner New York, Lane Bryant and
Henri Bendel (referred to herein as the Women's businesses);
. The Company plans to sell a significant or majority interest in the
Company's credit card bank, World Financial Network/Limited Credit
Services, to one or more strategic financial and/or marketing
partners;
. The Company also plans to distribute the proceeds, which will become
available as a result of these transactions, to shareholders. The
size of this special distribution will depend upon the outcome of
these transactions.
9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
The Limited, Inc.
We have reviewed the condensed consolidated balance sheet of The Limited, Inc.
and Subsidiaries at July 29, 1995, and the related condensed consolidated
statements of income and cash flows for the thirteen-week and twenty-six-week
periods ended July 29, 1995 and July 30, 1994. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 28, 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
13, 1995 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 28, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 5, 1995
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the second quarter of 1995, net sales increased 8% to $1.719 billion
compared to $1.585 billion a year ago. Net income for the quarter was $48.8
million compared to $53.8 million last year and earnings per share were $.14
compared to $.15 per share in 1994.
Divisional highlights include the following:
Victoria's Secret Catalogue delivered a 19% increase in net sales and
record earnings.
Victoria's Secret Stores produced increases in net sales and store-for-
store gains against record numbers from last year.
Bath & Body Works continued to be the Company's fastest growing business,
with Spring sales almost double last year and the highest merchandise
margin rate in the Company.
In July 1995, the Company acquired Galyan's for $18 million in cash and
stock. Galyan's is a branded full-line sporting goods retailer, operating
six stores.
Consistent with specialty store industry trends, the Company experienced a
weakening in the women's and men's apparel businesses during the second
quarter. A notable exception was Express, which delivered increases in
store-for-store sales and a significant increase in operating income for
the season.
Inventories are up on a per-store basis to last year with the overall
percentage mix of Fall and Spring merchandise comparable to last year. Most
of this increase was planned; however, the exceptions were Lane Bryant and
Structure, due principally to sales shortfalls.
Sales for the twenty-six weeks ended July 29, 1995 increased 8% over the same
period in 1994. Net income decreased 13% to $88.0 million. Earnings per share
decreased 11% to $.25 per share.
11
Financial Summary
-----------------
The following summarized financial data compares the thirteen and twenty-six
week periods ended July 29, 1995 to the comparable periods for 1994:
SECOND QUARTER YEAR - TO - DATE
---------------------------------- ----------------------------------
CHANGE CHANGE
FROM FROM
PRIOR PRIOR
1995 1994 YEAR 1995 1994 YEAR
---------- ---------- ---------- ---------- ---------- ----------
NET SALES (MILLIONS):
Victoria's Secret Stores $ 281 $ 255 10% $ 522 $ 477 9%
Victoria's Secret Catalogue 168 140 19% 323 263 23%
Bath & Body Works 84 44 91% 151 77 96%
Cacique 18 21 (14%) 33 40 (18%)
Other 2 1 100% 4 2 100%
---------- ---------- ---------- ---------- ---------- ----------
Total Intimate Brands, Inc. $ 553 $ 461 20% $ 1,033 $ 859 20%
---------- ---------- ---------- ---------- ---------- ----------
Express 313 286 9% 617 551 12%
Lerner New York 224 224 - 443 446 (1%)
Lane Bryant 207 218 (5%) 411 442 (7%)
The Limited 191 207 (8%) 370 411 (10%)
Henri Bendel 19 18 6% 40 36 11%
---------- ---------- ---------- ---------- ---------- ----------
Total women's businesses $ 954 $ 953 - $ 1,881 $ 1,886 -
---------- ---------- ---------- ---------- ---------- ----------
Structure 124 113 10% 228 206 11%
Abercrombie & Fitch Co. 39 29 34% 72 52 38%
The Limited Too 44 29 52% 88 64 38%
Galyan's (since 7/2/95) 5 - - 5 - -
---------- ---------- ---------- ---------- ---------- ----------
Total net sales $ 1,719 $ 1,585 8% $ 3,307 $ 3,067 8%
========== ========== ========== ========== ========== ==========
OPERATING INCOME (MILLIONS):
Intimate Brands, Inc. $ 73 $ 70 4% $ 113 $ 97 16%
Women's businesses (5) (5) - 7 28 (75%)
Other 29 37 (22%) 57 68 (16%)
---------- ---------- ---------- ---------- ---------- ----------
Total operating income $ 97 $ 102 (5%) $ 177 $ 193 (9%)
========== ========== ========== ========== ========== ==========
12
SECOND QUARTER YEAR - TO - DATE
---------------------------------- ----------------------------------
CHANGE CHANGE
FROM FROM
PRIOR PRIOR
1995 1994 YEAR 1995 1994 YEAR
---------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN COMPARABLE STORE SALES:
Victoria's Secret Stores 2% 11% 2% 12%
Bath & Body Works 26% 44% 27% 43%
Cacique (22%) (3%) (25%) (1%)
---------- ---------- ---------- ----------
Total Intimate Brands, Inc. 4% 12% 3% 13%
---------- ---------- ---------- ----------
Express 3% (19%) 5% (15%)
Lerner New York 2% (5%) 1% (4%)
Lane Bryant (5%) (5%) (7%) 0%
The Limited (9%) (21%) (11%) (19%)
Henri Bendel 7% (1%) 9% 3%
---------- ---------- ---------- ----------
Total women's businesses (2%) (13%) (2%) (10%)
---------- ---------- ---------- ----------
Structure (4%) 9% (4%) 14%
Abercrombie & Fitch Co. 0% 14% 3% 15%
The Limited Too 14% 20% 10% 28%
---------- ---------- ---------- ----------
Total comparable store
sales increase (decrease) 0% (7%) (1%) (4%)
========== ========== ========== ==========
Retail sales increase
attributable to new and
remodeled stores 7% 6% 7% 6%
Retail sales per average
selling square foot $59.17 $58.52 1% $114.42 $113.86 -
Retail sales per average
store (thousands) $ 310 $ 310 - $ 601 $ 602 -
Average store size at end
of quarter (square feet) 5,246 5,287 (1%)
Retail selling square feet
(thousands) 26,480 24,829 7%
Number of stores:
Beginning of period 4,954 4,641 4,867 4,623
Opened 101 71 198 121
Acquired 6 - 6 -
Closed (13) (16) (23) (48)
---------- ---------- ---------- ----------
End of period 5,048 4,696 5,048 4,696
========== ========== ========== ==========
13
Number of Stores Selling Sq. Ft. (thousands)
---------------------------------- ----------------------------------
Change Change
From From
July 29, July 30, Prior July 29, July 30, Prior
1995 1994 Year 1995 1994 Year
---------- ---------- ---------- ---------- ---------- ----------
Victoria's Secret Stores 629 578 51 2,763 2,430 333
Bath & Body Works 383 244 139 622 338 284
Cacique 116 109 7 350 324 26
Penhaligon's 4 7 (3) 2 3 (1)
---------- ---------- ---------- ---------- ---------- ----------
Total Intibrands, Inc. 1,132 938 194 3,737 3,095 642
---------- ---------- ---------- ---------- ---------- ----------
Express 722 690 32 4,461 4,090 371
Lerner New York 838 864 (26) 6,495 6,694 (199)
Lane Bryant 815 815 - 3,880 3,858 22
The Limited 712 726 (14) 4,315 4,444 (129)
Henri Bendel 4 4 - 88 93 (5)
---------- ---------- ---------- ---------- ---------- ----------
Total women's businesses 3,091 3,099 (8) 19,239 19,179 60
---------- ---------- ---------- ---------- ---------- ----------
Structure 481 417 64 1,837 1,523 314
Abercrombie & Fitch Co. 77 56 21 617 462 155
The Limited Too 261 186 75 818 570 248
Galyan's 6 - 6 232 - 232
Total stores and selling
---------- ---------- ---------- ---------- ---------- ----------
square feet 5,048 4,696 352 26,480 24,829 1,651
========== ========== ========== ========== ========== ==========
Net Sales
---------
Net sales for the second quarter of 1995 increased 8% as compared to the second
quarter of 1994 primarily as a result of the net addition of new and remodeled
stores. During the second quarter of this year, the Company opened 101 new
stores, acquired 6 stores, remodeled 37 stores and closed 13 stores. Consistent
with the second quarter, the year-to-date 1995 sales increase of 8% was a result
of the net addition of 352 stores.
Sales at the Intimate Brands, Inc. businesses for the second quarter of 1995
increased 20% over the same period last year. This increase was attributable to
the net addition of 194 new stores, a 4% increase in comparable store sales and
a 19% increase in catalogue net sales. Year-to-date Intimate Brands, Inc. sales
increased 20% over the same period in 1994, due to the net addition of new and
remodeled stores, a 3% increase in comparable store sales and a 23% increase in
catalogue net sales.
Sales at the women's businesses for the second quarter and year-to-date period
of 1995 were flat compared to the same periods in 1994, primarily due to the 2%
decline in comparable store sales.
Gross Income
------------
Gross income decreased as a percentage of sales to 24.7% for the second quarter
of 1995 from 25.4% for the same period in 1994. This decrease was primarily due
to increased buying and occupancy costs, which increased .5% as a percentage of
sales.
The 1995 year-to-date gross income rate decreased .7% to 25.0% as compared to
1994. Merchandise margins, expressed as a percentage of sales, decreased .3% due
to slightly higher markdowns in 1995. Buying and occupancy costs also increased
.4% as a percentage of sales, primarily due to a decline in sales productivity.
14
General, Administrative and Store Operating Expenses
----------------------------------------------------
General, administrative and store operating expenses increased slightly as a
percentage of sales to 19.0% in the second quarter of 1995 from 18.9% for the
same period in 1994. This increase was primarily due to lower productivity in
new and remodeled stores.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 19.6% in 1995 compared to 19.4% in 1994. This increase
was due to lower sales productivity at both existing stores and new and
remodeled stores. The Company expects to continue its policy of maintaining a
high level of customer service.
Operating Income
----------------
Year-to-date operating income, as a percentage of sales, was 5.3% and 6.3% in
1995 and 1994. The decrease was due to lower merchandise margins resulting from
slightly higher markdowns, higher buying and occupancy costs and higher general,
administrative and store operating expenses, in each case expressed as a
percentage of sales.
Interest Expense
----------------
Second Quarter Year-to-Date
------------------ --------------------
1995 1994 1995 1994
------- --------- -------- -------
Average Borrowings $955.1 $678.3 $846.0 $679.8
(in millions)
Average Effective Interest Rate 8.46% 8.70% 8.67% 8.66%
Interest expense increased in the second quarter and year-to-date periods of
1995 as compared to the comparable periods of 1994. The increase in interest
expense was primarily due to increased borrowing levels associated with the $250
million in additional short-term borrowings (see note 5).
15
FINANCIAL CONDITION
Liquidity and Capital Resources
-------------------------------
Cash provided from operating activities, commercial paper backed by funds
available under committed long-term credit agreements and the Company's capital
structure continue to provide the resources to support operations, including
projected growth, seasonal requirements and capital expenditures. A summary of
the Company's working capital position and capitalization follows (thousands):
July 29, January 28,
1995 1995
------------- -------------
Working Capital $1,700,805 $1,750,111
============= =============
Capitalization -
Long-term debt $ 650,000 $ 650,000
Deferred income taxes 300,244 306,139
Shareholders' equity 2,792,114 2,760,956
------------- -------------
Total Capitalization $3,742,358 $3,717,095
============= =============
Additional amounts available under committed
long-term credit agreements (see note 5) $ 840,000 $ 840,000
============= =============
Net cash used for operating activities was $4.8 million for the twenty-six weeks
ended July 29, 1995 versus $18.6 million for the same period of 1994. The 1995
decline in the accounts receivable balance was due to the payments by
proprietary credit card holders on fourth quarter 1994 credit balances. Cash
requirements for accounts receivable increased in the twenty-six weeks of 1994
due to the growth in the number of proprietary credit card holders, which
increased at a faster rate than cardholder payments. Additionally, cash
requirements for inventories increased primarily due to planned inventory
increases for Fall merchandise. Cash requirements for income taxes are due to
the timing of tax payments associated with fourth quarter earnings.
Investing activities included capital expenditures, primarily for new and
remodeled stores. In addition, 1995 included the acquisition of Galyan's for $18
million in cash and stock (see note 7).
Financing activities included proceeds from $250 million in short-term debt
borrowed in connection with the implementation of a plan to create two new
public companies out of existing operations (see note 5). Financing activities
also included the repurchase of $9.0 million of the Company's common stock,
which represented 0.5 million shares. Cash dividends paid increased by $6.8
million to $.10 per share in 1995 versus $.09 per share in 1994.
16
Capital Expenditures
--------------------
Capital expenditures totaled $170.3 million during the twenty-six weeks ended
July 29, 1995, compared to $142.6 million for the comparable period of 1994. The
Company anticipates spending approximately $325 - $350 million for capital
expenditures in 1995, of which approximately $230 - $270 million will be for new
stores, the remodeling of existing stores, and fixturing and related
improvements for the retail businesses.
The Company presently anticipates that substantially all 1995 capital will be
funded by net cash provided from operating activities. In addition, the Company
presently has available $840 million under committed, unsecured long-term credit
agreements and has the ability to offer up to $250 million of additional debt
securities and warrants to purchase debt securities under its shelf registration
statement (see note 5).
17
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
4. Instruments Defining the Rights of Security Holders.
4.1 Copy of the form of Global Security representing the Company's 7
1/2% Debentures due 2023, incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated March 4, 1993.
4.2. $900,000,000 Credit Agreement dated as of August 30, 1990 (the
"Credit Agreement") among the Company, Morgan Guaranty Trust
Company of New York and certain other banks (collectively, the
"Banks"), incorporated by reference to Exhibit 4.7 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 4, 1990, as amended by Amendment No. 1 dated as of December
4, 1992 (reducing the aggregate amount to $560,000,000),
incorporated by reference to Exhibit 4.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 31,
1992.
4.3. $280,000,000 Credit Agreement dated as of December 4, 1992 (the
"WFNNB Credit Agreement") among the World Financial Network
National Bank, the Company, the Banks and Morgan Guaranty Trust
Company of New York, incorporated by reference to Exhibit 4.9 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1992.
4.4. Conformed copy of the Indenture dated as of March 15, 1988 between
the Company and The Bank of New York, incorporated by reference to
Exhibit 4.1(a) to the Company's Current Report on Form 8-K dated
March 21, 1989.
4.5. Copy of the form of Global Security representing the Company's 8
7/8% Notes due August 15, 1999 incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
August 14, 1989.
4.6. Copy of the form of Global Security representing the Company's 9
1/8% Notes due February 1, 2001 incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
February 6, 1991.
4.7. Proposed form of Debt Warrant Agreement for Warrants attached to
Debt Securities, with proposed form of Debt Warrant Certificate
incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (File no. 33-53366) originally
filed with the Securities and Exchange Commission (the
"Commission") on October 16, 1992 as amended by Amendment No. 1
thereto, filed with the Commission on February 23, 1993 (the "1993
Form S-3").
18
4.8. Proposed form of Debt Warrant Agreement for Warrants not attached
to Debt Securities, with proposed form of Debt Warrant
Certificate incorporated by reference to Exhibit 4.3 to the 1993
Form S-3.
4.9. Amendment No. 2 dated as of April 28, 1994 to the Credit
Agreement among the Company, Morgan Guaranty Trust Company of New
York and the Banks.
4.10. Amendment No. 1 dated as of April 28, 1994 to the WFNNB Credit
Agreement among the Company, Morgan Guaranty Trust Company of New
York and the Banks.
11. Statement re: Computation of Per Share Earnings.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Independent Accountants'
Report.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None.
19
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LIMITED, INC.
(Registrant)
By /s/ Kenneth B. Gilman
---------------------------
Kenneth B. Gilman,
Vice Chairman and Chief
Financial Officer*
Date: September 8, 1995
________________________________
* Mr. Gilman is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
20
EXHIBIT INDEX
-------------
Exhibit No. Document
----------- ----------------------------------
11 Statement re: Computation of
Per Share Earnings.
12 Statement re: Ratio of
Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Independent
Accountants' Report
27 Financial Data Schedule
21
EXHIBIT 11
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
Thirteen Weeks Ended
-------------------------
July 29, July 30,
1995 1994
----------- ------------
Net income $ 48,762 $ 53,832
=========== ============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,446 553
Weighted average treasury shares (21,939) (21,373)
----------- ------------
Weighted average used to calculate
net income per share 358,961 358,634
=========== ============
Net income per share $ .14 $ .15
=========== ============
Twenty-six Weeks Ended
------------------------
July 29, July 30,
1995 1994
------------- ---------
Net income $ 87,973 $101,108
=========== ============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,048 612
Weighted average treasury shares (22,034) (21,467)
----------- ------------
Weighted average used to calculate
net income per share 358,468 358,599
=========== ============
Net income per share $ .25 $ .28
=========== ============
22
EXHIBIT 12
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
Twenty-six Weeks Ended
--------------------------
July 29, July 30,
1995 1994
----------- ------------
Adjusted Earnings
-----------------
Income before income taxes $146,973 $168,108
Portion of minimum rent ($332,248 in 1995
and $303,864 in 1994) representative
of interest 110,749 101,288
Interest on indebtedness 36,688 29,420
----------- ------------
Total Earnings as Adjusted $294,410 $298,816
=========== ============
Fixed Charges
-------------
Portion of minimum rent representative
of interest $110,749 $101,288
Interest on indebtedness 36,688 29,420
----------- ------------
Total Fixed Charges $147,437 $130,708
=========== ============
Ratio of Earnings to Fixed Charges 2.00x 2.29x
=========== ============
23
EXHIBIT 15
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated September 5, 1995, on our review of the
interim consolidated financial information of The Limited, Inc. and Subsidiaries
for the thirteen-week and twenty-six-week periods ended July 29, 1995 and
included in this Form 10-Q is incorporated by reference in the Company's
registration statements on Form S-8, Registration Nos. 33-18533, 33-25005,
2-92277, 33-24829, 33-24507, 33-24828, 2-95788, 2-88919, 33-24518, 33-6965,
33-14049, 33-22844, 33-44041, 33-49871, and the registration statements on Form
S-3, Registration Nos. 33-20788, 33-31540, 33-43832, and 33-53366. Pursuant to
Rule 436(c) under the Securities Act of 1933, this report should not be
considered a part of the registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 7, 1995
5
1,000
6-MOS
FEB-03-1996
JAN-29-1995
JUL-29-1995
262,591
0
1,304,805
42,576
1,081,628
2,759,532
2,943,399
1,207,566
4,857,734
1,058,727
650,000
189,727
0
0
2,876,142
4,857,734
3,306,777
3,306,777
2,480,415
2,480,415
649,589
0
36,688
146,973
59,000
87,973
0
0
0
87,973
.25
.25
