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 October 28, 1995
----------------
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
------
THE LIMITED, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- -------------------------- -------------------------------
(I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43230
---------------------------------------------------------
(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 A Outstanding at December 1, 1995
- ------------------------------- -----------------------------------
Common Stock, $.50 Par Value Shares 358,179,527
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks Ended
October 28, 1995 and October 29,1994........................ 3
Consolidated Balance Sheets
October 28, 1995 and January 28, 1995....................... 4
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended
October 28, 1995 and October 29, 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 Thirty-nine Weeks Ended
---------------------------- ----------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------ ------------
NET SALES $1,803,295 $1,715,176 $5,110,072 $4,782,196
Cost of Goods Sold, Occupancy
and Buying Costs 1,350,337 1,219,881 3,830,752 3,499,304
------------ ------------ ------------ ------------
GROSS INCOME 452,958 495,295 1,279,320 1,282,892
General, Administrative and Store
Operating Expenses (361,597) (329,753) (1,011,186) (923,914)
------------ ------------ ------------ ------------
OPERATING INCOME 91,361 165,542 268,134 358,978
Interest Expense (22,573) (16,425) (59,261) (45,845)
Other Income, net 3,025 1,373 9,913 5,465
Gain on Sale of Subsidiary Stock 613,500 - 613,500 -
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 685,313 150,490 832,286 318,598
Provision for Income Taxes 28,000 60,000 87,000 127,000
------------ ------------ ------------ ------------
NET INCOME $657,313 $90,490 $745,286 $191,598
============ ============ ============ ============
NET INCOME PER SHARE $1.83 $.25 $2.08 $.53
============ ============ ============ ============
DIVIDENDS PER SHARE $ .10 $.09 $.30 $.27
============ =========== ============ ============
WEIGHTED AVERAGE
SHARES OUTSTANDING 358,920 358,881 358,619 358,693
============ =========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
October 28, January 28,
1995 1995
--------------- ---------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $274,886 $242,780
Accounts Receivable 1,312,856 1,292,399
Inventories 1,287,969 870,440
Other 141,182 117,352
--------------- ---------------
TOTAL CURRENT ASSETS 3,016,893 2,522,971
PROPERTY AND EQUIPMENT, NET 1,770,134 1,692,145
OTHER ASSETS 329,916 354,961
--------------- ---------------
TOTAL ASSETS $5,116,943 $4,570,077
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $353,972 $275,303
Accrued Expenses 377,433 372,676
Certificates of Deposit 54,200 25,200
Income Taxes 14,570 124,376
--------------- ---------------
TOTAL CURRENT LIABILITIES 800,175 797,555
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 174,499 306,139
OTHER LONG-TERM LIABILITIES 53,810 55,427
MINORITY INTEREST 21,500 -
SHAREHOLDERS' EQUITY:
Common Stock 189,727 189,727
Paid-in Capital 144,242 132,938
Retained Earnings 3,354,529 2,716,516
--------------- ---------------
3,688,498 3,039,181
Less Treasury Stock, at average cost (271,539) (278,225)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 3,416,959 2,760,956
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $5,116,943 $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)
Thirty-nine Weeks Ended
----------------------------------------
October 28, October 29,
1995 1994
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $745,286 $191,598
Gain on sale of subsidiary stock (613,500) -
Impact of other operating activities on cash flows:
Depreciation and amortization 214,893 197,364
Changes in assets and liabilities:
Accounts receivable (19,805) (162,461)
Inventories (399,829) (358,494)
Accounts payable and accrued expenses 68,027 158,589
Income taxes (109,806) (64,818)
Other assets and liabilities (108,301) (97,089)
--------------- ---------------
NET CASH USED FOR OPERATING ACTIVITIES (223,035) (135,311)
--------------- ---------------
INVESTING ACTIVITIES:
Capital expenditures (285,576) (261,468)
Business acquired (18,000) -
--------------- ---------------
CASH USED FOR INVESTING ACTIVITIES (303,576) (261,468)
--------------- ---------------
FINANCING ACTIVITIES:
Net proceeds from commercial paper borrowings and certificates of deposit 29,000 228,622
Proceeds from short-term borrowings 250,000 -
Repayment of short-term borrowings (250,000) -
Net proceeds from sale of subsidiary stock 635,000 -
Dividends paid (107,273) (96,746)
Purchase of Treasury Stock (8,981) (9,514)
Stock options and other 10,971 12,403
--------------- ---------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 558,717 134,765
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 32,106 (262,014)
Cash and equivalents, beginning of year 242,780 320,558
--------------- ---------------
CASH AND EQUIVALENTS, END OF PERIOD $274,886 $58,544
=============== ===============
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
October 28, 1995 and October 29, 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 October 28, 1995 and for the
thirteen and thirty-nine week periods ended October 28, 1995 and October
29, 1994 included herein have been reviewed by the independent public
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 thirty-nine weeks
ended October 28, 1995 and October 29, 1994 approximated $191.4 million
and $177.5 million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for 1989, 1990, 1991 and 1992. 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
Long-term debt consisted of (thousands):
October 28, January 28,
1995 1995
------------- --------------
7 1/2% Debentures due March 2023 $250,000 $250,000
7 4/5% 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 October 28, 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 October 28, 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. There was no commercial paper outstanding at October 28,
1995.
In connection with the initial public offering of Intimate Brands, Inc.
(see Note 8), two wholly-owned subsidiaries of the Company borrowed $250
million under an unsecured bank credit agreement in May 1995. All
borrowings under the credit agreement were repaid in connection with the
initial public offering of Intimate Brands, Inc. in October 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 thirty-nine weeks ended October 28, 1995 and
October 29, 1994 approximated $66.9 million and $53.2 million.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
October 28, January 28,
1995 1995
-------------- --------------
Property and equipment, at cost $3,027,268 $2,798,415
Accumulated depreciation and
amortization (1,257,134) (1,106,270)
-------------- --------------
Property and equipment, net $1,770,134 $ 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
October 28, 1995 include the results of operations and financial condition
of Galyan's since the acquisition date.
8
8. ISSUANCE OF SUBSIDIARY STOCK
Gains or losses resulting from stock issued by a subsidiary of the Company
are recognized in current year's income. In October 1995, the Company
recognized a $613.5 million gain which resulted from the initial public
offering of 16% of the stock (40 million shares) of Intimate Brands, Inc.
Intimate Brands, Inc. consists of Victoria's Secret Stores, Victoria's
Secret Catalogue, Bath & Body Works, Penhaligon's and Gryphon. The gain
recorded by the Company was not subject to tax.
Minority interest of $21.5 million at October 28, 1995 represents a 16%
interest in the net equity of Intimate Brands, Inc. after recognition of
the net proceeds from the offering. An additional 2.7 million shares of
Intimate Brands, Inc. were issued on November 21, 1995 which resulted in
net proceeds of approximately $43 million and gain of approximately $36
million, which was not subject to tax.
9. RECENT DEVELOPMENT
On October 26, 1995, the Company announced the signing of a definitive
agreement with the New York investment firm of Welsh, Carson, Anderson &
Stowe ("WCAS") to establish a joint venture company that will focus on
providing private label and bank card transaction processing and database
management services to retailers. The new company, to be 60% owned by an
investment partnership affiliated with WCAS and 40% by the Company, will
initially process the private label credit card operations of the Company's
retail divisions and will acquire the operations of WFNNB, the Company's
wholly-owned credit card bank. WCAS will purchase its interest for $165
million. Additionally, WFNNB's outstanding debt payable to the Company of
approximately $1.1 billion which supports the accounts receivable is
expected to be refinanced so that the overall proceeds received by the
Company from the transaction will approximate $1.3 billion. The WCAS
transaction is anticipated to close in early 1996, subject to regulatory
approval.
The Company intends to distribute the proceeds from the WCAS transaction
and the Intimate Brands, Inc. initial public offering to its shareholders
in the first quarter of fiscal 1996, the most appropriate form of which is
yet to be determined.
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 OCTOBER 28, 1995, AND THE RELATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE THIRTEEN-WEEK AND THIRTY-NINE-WEEK
PERIODS ENDED OCTOBER 28, 1995 AND OCTOBER 29, 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
DECEMBER 5, 1995
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the third quarter of 1995, net sales increased 5% to $1.803 billion
compared to $1.715 billion a year ago. Net income for the quarter, exclusive of
a gain on the sale of subsidiary stock, of $43.8 million decreased 52% from last
year's $90.5 million. The Company also recorded a gain on the sale of a 16%
interest in Intimate Brands, Inc. stock of $613.5 million, or $1.71 per share
(see note 8). Earnings per share (excluding the gain on sale of subsidiary
stock) declined to $.12 for the quarter compared to $.25 in 1994.
Divisional highlights include the following:
Although comparable store sales at Express were down 3%, its operating
income was up over last year.
Limited Stores' same store sales were up 4% but, more importantly, improved
to 9% for the last nine weeks of the quarter.
Though Lane Bryant and Lerner New York experienced declines in same store
sales and took significant markdowns in the quarter, they ended the period
with clean inventories and are receiving deliveries of fresh holiday
merchandise.
Although Victoria's Secret Stores experienced a decline in same store
sales, it had a strong third quarter in terms of operating income, second
only to last year's record performance, and has positioned its sleepwear
and fragrance deliveries to take full advantage of the holiday selling
season.
Victoria's Secret Catalogue delivered its best-ever third quarter sales.
Bath & Body Works delivered record operating income on a store-for-store
sales increase of 26%.
Abercrombie & Fitch Co. more than doubled last year's earnings for the
quarter on a 9% increase in store-for-store sales.
Structure had significant fashion problems and accordingly took substantial
markdowns for the quarter.
Limited Too suffered a decline in store-for-store sales due in part to a
very weak back-to-school selling period.
Net sales for the thirty-nine weeks ended October 28, 1995 of $5.110 billion
increased 7% from sales of $4.782 billion for the same period last year.
Operating income decreased 25% to $268.1 million, while net income (excluding
the gain on sale of subsidiary stock) decreased 31% to $131.8 million. Earnings
per share (excluding the gain on sale of subsidiary stock) for the thirty-nine
weeks ended October 28, 1995 decreased 30% to $.37 per share compared to $.53
for the same period last year.
11
Financial Summary
- -----------------
The following summarized financial data compares the thirteen and thirty-nine
week periods ended October 28, 1995 to the comparable periods for 1994:
THIRD QUARTER YEAR - TO - DATE
------------------------------- ---------------------------------
CHANGE CHANGE
FROM FROM
PRIOR PRIOR
1995 1994 YEAR 1995 1994 YEAR
-------- -------- -------- -------- -------- --------
NET SALES (MILLIONS):
Victoria's Secret Stores $264 $256 3% $ 786 $ 733 7%
Victoria's Secret Catalogue 132 121 9% 455 384 18%
Bath & Body Works 87 47 85% 237 123 93%
Cacique 19 21 (10%) 52 62 (16%)
Other 4 2 100% 9 4 125%
-------- -------- -------- -------- -------- --------
Total Intimate Brands, Inc. $506 $447 13% $1,539 $1,306 18%
-------- -------- -------- -------- -------- --------
Express 360 352 2% 977 903 8%
Lerner New York 223 238 (6%) 666 684 (3%)
Lane Bryant 219 239 (8%) 629 681 (8%)
The Limited 214 204 5% 584 615 (5%)
Henri Bendel 24 24 - 65 60 8%
-------- -------- -------- -------- -------- --------
Total women's businesses $1,040 $1,057 (2%) $2,921 $2,943 (1%)
-------- -------- -------- -------- -------- --------
Structure 128 123 4% 356 328 9%
Abercrombie & Fitch Co. 57 38 50% 129 91 42%
The Limited Too 58 50 16% 145 114 27%
Galyan's (since 7/2/95) 14 - - 20 - -
-------- -------- -------- -------- -------- --------
Total net sales $1,803 $1,715 5% $5,110 $4,782 7%
======== ======== ======== ======== ======== ========
OPERATING INCOME
(MILLIONS):
Intimate Brands, Inc. $ 45 $ 42 7% $ 159 $ 139 14%
Women's businesses 21 76 (72%) 29 104 (72%)
Other 25 48 (48%) 80 116 (31%)
-------- -------- -------- -------- -------- --------
Total operating income $ 91 $ 166 (45%) $ 268 $ 359 (25%)
======== ======== ======== ======== ======== ========
12
THIRD 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 (6%) 11% (1%) 12%
Bath & Body Works 26% 39% 26% 41%
Cacique (18%) (13%) (23%) (6%)
----------- ----------- ----------- -----------
Total Intimate Brands, Inc. (2%) 11% 2% 13%
----------- ----------- ----------- -----------
Express (3%) (6%) 2% (12%)
Lerner New York (4%) (11%) (1%) (7%)
Lane Bryant (9%) 9% (8%) 3%
The Limited 4% (18%) (6%) (19%)
Henri Bendel 3% 6% 7% 4%
----------- ----------- ----------- -----------
Total women's businesses (3%) (6%) (2%) (9%)
----------- ----------- ----------- -----------
Structure (7%) 4% (5%) 10%
Abercrombie & Fitch Co. 9% 18% 6% 16%
The Limited Too (10%) 11% 1% 20%
----------- ----------- ----------- -----------
Total comparable store sales
increase (decrease) (3%) (2%) (2%) (3%)
=========== =========== =========== ===========
Retail sales increase
attributable to new and
remodeled stores 5% 6% 6% 6%
Retail sales per average
selling square foot $62.25 $63.47 (2%) $176.91 $176.53 -
Retail sales per average
store (thousands) $325 $335 (3%) $926 $931 (1%)
Average store size at end
of quarter (square feet) 5,201 5,265 (1%)
Retail selling square feet
(thousands) 27,116 25,406 7%
Number of stores:
Beginning of period 5,048 4,696 4,867 4,623
Opened 187 141 385 262
Acquired - - 6 -
Closed (21) (12) (44) (60)
----------- ----------- ----------- -----------
End of period 5,214 4,825 5,214 4,825
=========== =========== =========== ===========
13
Number of Stores Selling Sq. Ft. (thousands)
---------------------------------------- --------------------------------------
Change Change
October October From October October From
28, 1995 29, 1994 Prior Year 28, 1995 29, 1994 Prior Year
----------- ---------- ----------- ---------- ---------- -----------
Victoria's Secret Stores 659 594 65 2,941 2,531 410
Bath & Body Works 450 286 164 748 424 324
Cacique 119 115 4 363 344 19
Penhaligon's 4 6 (2) 2 3 (1)
----------- ---------- ----------- ---------- --------- -----------
Total Intimate Brands, Inc. 1,232 1,001 231 4,054 3,302 752
----------- ---------- ----------- ---------- --------- -----------
Express 734 703 31 4,552 4,219 333
Lerner New York 843 861 (18) 6,489 6,687 (198)
Lane Bryant 824 818 6 3,933 3,877 56
The Limited 702 730 (28) 4,269 4,447 (178)
Henri Bendel 4 4 - 88 93 (5)
----------- ---------- ----------- ---------- --------- -----------
Total women's businesses 3,107 3,116 (9) 19,331 19,323 8
----------- ---------- ----------- ---------- --------- -----------
Structure 499 441 58 1,916 1,636 280
Abercrombie & Fitch Co. 86 61 25 689 499 190
The Limited Too 284 206 78 887 646 241
Galyan's 6 - 6 239 - 239
Total stores and selling
----------- ---------- ----------- ---------- --------- -----------
square feet 5,214 4,825 389 27,116 25,406 1,710
=========== ========== =========== ========== ========= ===========
Net Sales
- ---------
Net sales for the third quarter of 1995 increased 5% over third quarter 1994
primarily as a result of the net addition of new and remodeled stores partially
offset by a 3% decline in comparable store sales. During the third quarter of
this year, the Company opened 187 new stores, remodeled 112 stores and closed 21
stores. The year-to-date 1995 sales increase of 7% was a result of the net
addition of 389 stores partially offset by a 2% decline in comparable store
sales.
Sales at the Intimate Brands, Inc. businesses for the third quarter of 1995
increased 13% over the same period last year. This increase was attributable to
the net addition of 231 new stores, a 2% decrease in comparable store sales
and a 9% increase in catalogue net sales. Year-to-date Intimate Brands, Inc.
sales increased 18% over the same period in 1994, due to the net addition of new
and remodeled stores, a 2% increase in comparable store sales and an 18%
increase in catalogue net sales.
Sales at the women's businesses for the third quarter and year-to-date period of
1995 decreased slightly compared to the same periods in 1994, primarily due to
the 6% third quarter and 9% year-to-date declines in comparable store sales.
Gross Income
- ------------
Gross income decreased as a percentage of sales to 25.1% for the third quarter
from 28.9% for the same period in 1994. Merchandise margins, expressed as a
percentage of sales, decreased 2.3% due principally to higher markdowns in 1995
which were used to both clear slow moving inventories and to stimulate sales in
a slow retail environment. Buying and occupancy costs increased 1.4% as a
percentage of sales, primarily due to the lower sales productivity associated
with the 3% decrease in comparable store sales. Gross income was also impacted
by expenses related to national television advertising for Limited Stores, which
were negligible in prior periods.
14
The 1995 year-to-date gross income rate decreased 1.8% to 25.0% from 1994.
Merchandise margins, expressed as a percentage of sales, decreased 1% due to
increased markdowns in 1995. Buying and occupancy costs increased .8% as a
percentage of sales, primarily due to lower sales productivity associated with
the 2% decline in comparable store sales.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses increased as a percentage
of sales to 20.1% in the third quarter of 1995 from 19.2% for the same period in
1994. Sales productivity which is initially lower in new and remodeled stores
was also lower in existing stores.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 19.8% in 1995 from 19.3% in 1994. This increase was due
to lower sales productivity at both existing stores and new and remodeled
stores.
Operating Income
- ----------------
Third quarter and year-to-date operating income, as a percentage of sales, was
5.1% and 5.2% respectively, versus 9.7% and 7.5% for 1994. The decrease was due
to lower merchandise margins resulting from higher markdowns and the inability
to leverage both buying and occupancy costs and higher general, administrative
and store operating expenses through increased sales productivity.
Gain on Sale of Subsidiary Stock
- --------------------------------
The 1995 third quarter results include a $613.5 million gain which resulted from
the October 1995 initial public offering of a 16% interest in Intimate Brands,
Inc., which consists of Victoria's Secret Stores, Victoria's Secret Catalogue,
Bath & Body Works, Cacique, Penhaligon's and Gryphon. Intimate Brands, Inc. sold
40 million shares of common stock resulting in net proceeds of approximately
$635 million. The gain recorded by the Company was not subject to tax. An
additional 2.7 million shares of Intimate Brands, Inc. were issued on November
21, 1995 as a result of underwriters exercising options to purchase additional
shares at the initial public offering price to cover over-allotments. The
transaction resulted in net proceeds of approximately $43 million and a gain of
approximately $36 million, which was not subject to tax (see Note 8).
Interest Expense
- ----------------
Third Quarter Year-to-Date
----------------------- ------------------------
1995 1994 1995 1994
----------- ---------- ----------- ----------
Average Borrowings
(in millions) $1,051.4 $783.6 $914.5 $714.4
Average Effective Interest Rate 8.59% 8.38% 8.64% 8.56%
Interest expense increased in the third 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 interest on $250 million in additional short-term
borrowings associated with the Intimate Brands initial public offering (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 ($000):
October 28, January 28,
1995 1995
-------------- --------------
Working Capital $2,216,718 $1,725,416
============== ==============
Capitalization:
Long-term debt $650,000 $650,000
Deferred income taxes 174,499 306,139
Shareholders' equity 3,416,959 2,760,956
-------------- --------------
Total Capitalization $4,241,458 $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 totaled $223 million for the thirty-nine
weeks ended October 28, 1995 versus $135.3 million in the same period of 1994.
Cash requirements for accounts receivable were greater in the thirty-nine weeks
of 1994 due to a higher growth rate in the number of new proprietary credit card
holders. Additionally, cash requirements for inventories were primarily due to
planned inventory increases associated with the holiday selling period and an
increase in the number of stores.
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 include proceeds from and the repayment of $250 million in
short-term debt borrowed in connection with the initial public offering of
Intimate Brands, Inc., and net proceeds of $635 million from that offering (see
Note 8). 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 $10.5 million year-to-date to $.10 per share in 1995 versus
$.09 per share in 1994.
16
Capital Expenditures
- --------------------
Capital expenditures totaled $285.6 million during the thirty-nine weeks ended
October 28, 1995, compared to $261.5 million for the comparable period of 1994.
The Company anticipates spending approximately $360 million for capital
expenditures in 1995 of which approximately $260 - $280 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
expenditures 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 in additional debt securities and warrants to purchase debt securities
under its shelf registration statement (see note 5).
Recent Development
- ------------------
On October 26, 1995, the Company announced the signing of a definitive agreement
with the New York investment firm of Welsh, Carson, Anderson & Stowe ("WCAS") to
establish a joint venture company that will focus on providing private label and
bank card transaction processing and database management services to retailers.
The new company, to be 60% owned by an investment partnership affiliated with
WCAS and 40% by the Company, will initially process the private label credit
card operations of the Company's retail divisions and will acquire the
operations of WFNNB, the Company's wholly-owned credit card bank. WCAS will
purchase its interest for $165 million. Additionally, WFNNB's outstanding debt
payable to the Company of approximately $1.1 billion which supports the accounts
receivable, is expected to be refinanced so that the overall proceeds received
by the Company from the transaction will approximate $1.3 billion. The WCAS
transaction is anticipated to close in early 1996, subject to regulatory
approval.
The Company intends to distribute the proceeds from the WCAS transaction and the
Intimate Brands, Inc. initial public offering to its shareholders in the first
quarter of fiscal 1996, the most appropriate form of which is yet to be
determined.
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, incorporated by reference to
Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q
for the quarter ended April 30, 1994.
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, incorporated by reference
to Exhibit 4.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994.
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 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: December 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 re:
Incorporation of Report of Independent Accountants
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
-------------------------------------------
October 28, October 29,
1995 1994
------------------ -----------------
Net income $657,313 $90,490
================== =================
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 787 729
Weighted average treasury shares (21,321) (21,302)
------------------ -----------------
Weighted average used to calculate
net income per share 358,920 358,881
================== =================
Net income per share $1.83 $.25
================== =================
Thirty-nine Weeks Ended
-------------------------------------------
October 28, October 29,
1995 1994
------------------ -----------------
Net income $745,286 $191,598
================== =================
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 961 651
Weighted average treasury shares (21,796) (21,412)
------------------ -----------------
Weighted average used to calculate
net income per share 358,619 358,693
================== =================
Net income per share $2.08 $.53
================== =================
22
EXHIBIT 12
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
Thirty-nine Weeks Ended
-------------------------------------------
October 28, October 29,
1995 1994
------------------- ----------------
Adjusted Earnings
- -----------------
Income before income taxes $832,286 $318,598
Portion of minimum rent ($503,679 in 1995
and $463,709 in 1994) representative
of interest 167,893 154,570
Interest on indebtedness 59,261 45,845
------------------- ----------------
Total Earnings as Adjusted $1,059,440 $519,013
=================== ================
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $167,893 $154,570
Interest on indebtedness 59,261 45,845
------------------- ----------------
Total Fixed Charges $227,154 $200,415
=================== ================
Ratio of Earnings to Fixed Charges 4.66x 2.59x
=================== ================
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 DECEMBER 5, 1995, ON OUR REVIEW OF THE
INTERIM CONSOLIDATED FINANCIAL INFORMATION OF THE LIMITED, INC. AND SUBSIDIARIES
FOR THE THIRTEEN-WEEK AND THIRTY-NINE-WEEK PERIODS ENDED OCTOBER 28, 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
DECEMBER 7, 1995
24
5
1,000
9-MOS
FEB-03-1996
JAN-29-1995
OCT-28-1995
274,886
0
1,357,473
44,617
1,287,969
3,016,893
3,027,268
1,257,134
5,116,943
800,175
650,000
189,727
0
0
3,227,232
5,116,943
5,110,072
5,110,072
3,830,752
3,830,752
1,011,186
0
59,261
832,286
87,000
745,286
0
0
0
745,286
2.08
2.08
