SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996.
------------
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.
Common Stock, $.50 Par Value Outstanding at May 31, 1996
---------------------------
270,843,526 Shares
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen Weeks Ended
May 4, 1996 and April 29, 1995................................ 3
Consolidated Balance Sheets
May 4, 1996 and February 3, 1996.............................. 4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 4, 1996 and April 29, 1995................................ 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.............. 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders........... 17
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
-----------------------
May 4, April 29,
1996 1995
---------- ----------
NET SALES $1,787,943 $1,588,134
Cost of Goods Sold, Occupancy and
Buying Costs 1,318,402 1,185,468
---------- ----------
GROSS INCOME 469,541 402,666
General, Administrative and Store
Operating Expenses (415,705) (322,646)
---------- ----------
OPERATING INCOME 53,836 80,020
Interest Expense (16,547) (16,488)
Other Income, Net 17,142 2,679
Minority Interest (4,279) -
---------- ----------
INCOME BEFORE INCOME TAXES 50,152 66,211
Provision for Income Taxes 22,000 27,000
---------- ----------
NET INCOME $ 28,152 $ 39,211
========== ==========
NET INCOME PER SHARE $.09 $.11
========== ==========
DIVIDENDS PER SHARE $.10 $.10
========== ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING 310,491 357,975
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
May 4, 1996 February 3, 1996
----------- ----------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $ 24,504 $1,645,731
Accounts Receivable 69,355 77,516
Inventories 1,010,971 958,953
Other 130,410 117,832
----------- ----------
TOTAL CURRENT ASSETS 1,235,240 2,800,032
PROPERTY AND EQUIPMENT, NET 1,740,926 1,741,456
RESTRICTED CASH 351,600 351,600
OTHER ASSETS 388,341 373,475
----------- ----------
TOTAL ASSETS $ 3,716,107 $5,266,563
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 270,111 $ 280,659
Accrued Expenses 390,952 388,818
Commercial Paper 177,224 -
Income Taxes 5,681 47,098
----------- ----------
TOTAL CURRENT LIABILITIES 843,968 716,575
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 177,281 250,857
OTHER LONG-TERM LIABILITIES 55,255 50,791
MINORITY INTEREST 44,854 45,699
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 138,538 137,134
Retained Earnings 3,201,426 3,200,350
----------- ----------
3,520,316 3,517,836
Less Treasury Stock, at Average Cost (1,927,167) (316,795)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,593,149 3,201,041
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,716,107 $5,266,563
=========== ==========
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)
Thirteen Weeks Ended
------------------------------------
May 4, April 29,
1996 1995
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 28,152 $ 39,211
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 71,832 69,548
Minority Interest, Net of Dividends Paid (845) -
Changes in Assets and Liabilities:
Accounts Receivable 8,161 39,904
Inventories (52,018) (115,093)
Accounts Payable and Accrued Expenses (8,414) (39,981)
Income Taxes (41,417) (101,974)
Other Assets and Liabilities (89,972) (10,873)
----------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (84,521) (119,258)
----------- ---------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (77,886) (68,873)
----------- ---------
FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper Borrowings and Certificates of Deposit 177,224 44,889
Dividends Paid (27,076) (35,725)
Purchase of Treasury Stock (1,615,000) (8,981)
Stock Options and Other 6,032 5,135
----------- ---------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (1,458,820) 5,318
----------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (1,621,227) (182,813)
Cash and Equivalents, Beginning of Year 1,645,731 242,780
----------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 24,504 $ 59,967
=========== =========
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 May 4,
1996 and April 29, 1995 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 consolidated financial statements and notes thereto
contained in the Company's 1995 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 May 4, 1996 and for the thirteen
week periods ended May 4, 1996 and April 29, 1995 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
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, " Accounting for Stock-Based Compensation." The Company will make the
required disclosures in its 1996 annual report.
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. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
May 4, February 3,
1996 1996
----------- -----------
Property and equipment, at cost $ 3,079,518 $ 3,018,757
Accumulated depreciation and
amortization (1,338,592) (1,277,301)
----------- -----------
Property and equipment, net $ 1,740,926 $ 1,741,456
=========== ===========
5. INCOME TAXES
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Income taxes paid during the thirteen weeks ended
May 4, 1996 and April 29, 1995 approximated $127 million and $133 million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for years 1989 - 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.
6. FINANCING ARRANGEMENTS
Unsecured long-term debt consisted of (thousands):
May 4, February 3,
1996 1996
-------- -----------
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
======== ========
The Company maintains a $1 billion unsecured revolving credit agreement
("the Agreement"). Borrowings outstanding under the Agreement are due
December 14, 2000. However, the revolving term of the Agreement may be
extended an additional two years upon notification by the Company on the
second and fourth anniversaries of the effective date (December 15, 1995),
subject to the approval of the lending banks. The Agreement has several
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. Facilities fees payable under the
Agreement are based on the Company's long-term credit ratings, and currently
approximate 1/8% of the committed amount per annum. The Agreement contains
covenants relating to the Company's working capital, debt and net worth. No
amounts were outstanding under the Agreement at May 4, 1996.
7
The Agreement supports the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. Commercial paper outstanding at May 4, 1996 approximated $177
million.
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 thirteen weeks ended May 4, 1996 and April 29, 1995
approximated $16.6 million and $24.4 million.
7. SELF-TENDER OFFER
On March 17, 1996, the Company completed the repurchase for $1.615 billion
or $19 per share of 85 million shares of its common stock under a self-
tender offer.
8
[LETTERHEAD OF COOPERS & LYBRAND]
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 May 4, 1996, and the related condensed consolidated
statements of income and cash flows for the thirteen-week periods ended May 4,
1996 and April 29, 1995. 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 February 3, 1996 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 26,
1996, except for paragraph 11 in Note 1 and Note 9, as to which the date is
March 18, 1996, 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 February 3, 1996 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
June 7, 1996
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the fourth quarter of 1995 and the first quarter of 1996, the Company
entered into a series of transactions that affected the comparability of the
quarterly financial statements: 1) the initial public offering of a 16.9%
interest in Intimate Brands, Inc. ("IBI"); 2) the sale of a 60% interest in the
Company's previously wholly-owned credit card bank, World Financial Network
National Bank ("WFNNB"); and 3) a reduction in outstanding shares reflecting the
Company's 85 million share repurchase via a self-tender consummated effective
March 17, 1996. Accordingly, to aid in the analysis of first quarter 1996
financial information as compared to first quarter 1995, certain pro-forma
adjustments, including the tax impact, have been made to the 1996 and 1995
results as follows: 1) the 1995 general, administrative and store operating
expenses have been adjusted for the fourth quarter 1995 sale of a 60% interest
in WFNNB as if the sale had been consummated at the beginning of the period; 2)
the 1995 income statement has been adjusted to reflect the minority interest
arising from the IBI transaction as if it had occurred as of the beginning of
the period; 3) weighted average shares outstanding have been reduced to reflect
the 85 million share repurchase as if it occurred at the beginning of 1995; and
4) the 1996 income statement has been adjusted to remove $10.5 million in
interest income derived from the temporary investment of the proceeds from the
IBI and WFNNB transactions that were used to consummate the self-tender
effective March 17, 1996.
The adjusted pro-forma summary income information is presented below.
First Quarter,
First Quarter, 1995 1996
------------------------------------------------------------- --------------
Adjusted Adjusted
As Reported, Pro-Forma Pro-Forma Pro-Forma
April 29, 1995 Adjustments April 29, 1995 May 4, 1996
-------------- -------------- -------------- -----------
Net sales $1,588,134 $ - $1,588,134 $1,787,943
Gross income 402,666 - 402,666 469,541
General, administrative
and store operating
expenses (322,646) (28,810) (a) (351,456) (415,705)
-------------- -------------- -------------- -----------
Operating income 80,020 (28,810) 51,210 53,836
Interest expense (16,488) - (16,488) (16,547)
Other income, net 2,679 - 2,679 6,642 (c)
Minority interest - (4,148) (b) (4,148) (4,279)
-------------- -------------- -------------- -----------
Income before taxes 66,211 (32,958) 33,253 39,652
Provision for income taxes 27,000 (14,000) (d) 13,000 18,000 (d)
-------------- -------------- -------------- -----------
Net income $ 39,211 $(18,958) $ 20,253 $ 21,652
============== ============== ============== ===========
Net income per share $0.11 $0.07 (e) $0.08 (e)
============== ============== ===========
Weighted average shares
outstanding 357,975 272,975 (e) 271,260 (e)
============== ============== ===========
(a) Sale of a 60% interest in WFNNB as if it were consummated at the beginning
of the period.
(b) Minority interest in Intimate Brands, Inc. as if the transaction were
consummated at the beginning of the period.
(c) Reduce 1996 interest income by $10.5 million derived from the temporary
investment of the proceeds from the IBI and WFNNB transactions that were
used to consummate the self-tender.
10
(d) Tax affect of above pro-forma adjustments.
(e) Net income per share and weighted average shares outstanding have been
adjusted for the impact of the self-tender for 85 million shares effective
March 17, 1996 as if it were consummated at the beginning of 1995.
Net sales for the first quarter of 1996 grew to $1.788 billion, an increase of
13% from $1.588 billion a year ago. Operating income increased 5% to $53.8
million compared to pro-forma operating income of $51.2 million for 1995. Pro-
forma 1996 net income increased 7% to $21.7 million compared to pro-forma net
income of $20.3 million for 1995.
Divisional highlights include the following:
The Intimate Brands businesses began 1996 with a solid first quarter
performance. Victoria's Secret Stores regained sales momentum, recording an 8%
comparable store sales increase and a 28% operating income increase. Bath & Body
Works had a comparable store sales increase of 14% while operating income was up
45%.
While the Women's Businesses continued to underperform, particularly the Express
division, momentum at Limited Stores and Lane Bryant was encouraging. Limited
Stores saw a consistent improvement in sales throughout the quarter; and Lane
Bryant's first quarter results have begun to return it to historic levels of
operating income.
Abercrombie & Fitch Co. experienced a significant improvement in operating
income in the first quarter.
Financial Summary
- -----------------
The following summarized financial data compares the thirteen week period ended
May 4, 1996 to the comparable period for 1995:
First Quarter First Quarter % Change
1996 1995 From Prior Year
------------- ------------- ---------------
Net Sales (millions):
Victoria's Secret Stores $ 286 $ 241 19%
Victoria's Secret Catalogue 167 155 8%
Bath & Body Works 111 66 68%
Cacique 19 15 27%
Other 3 3 -
------------- ------------- ---------------
Total Intimate Brands, Inc. $ 586 $ 480 22%
------------- ------------- ---------------
Express 315 304 4%
Lerner New York 222 219 1%
Lane Bryant 219 204 7%
Limited Stores 187 179 4%
Henri Bendel 22 21 5%
------------- ------------- ---------------
Total Women's Businesses $ 965 $ 927 4%
------------- ------------- ---------------
Structure 123 104 18%
Abercrombie & Fitch Co. 51 33 55%
The Limited Too 46 44 5%
Galyan's 17 - -
------------- ------------- ---------------
Total Emerging Businesses $ 237 $ 181 31%
------------- ------------- ---------------
Total Net Sales $1,788 $ 1,588 13%
============= ============= ===============
11
First Quarter First Quarter % Change
1996 1995 From Prior Year
------------- ------------- ---------------
Operating income (millions):
Intimate Brands, Inc. $ 49 $ 40 23%
Women's Businesses 4 12 (67%)
Emerging Businesses 1 (1) * N/M
------------- -------------
Total Operating Income $ 54 $ 51 * 6%
============= =============
* Reflects adjusted Pro-forma results. Historical operating income for the
Emerging Businesses (including WFNNB) was $28 million and total operating
income was $80 million for 1995.
First Quarter First Quarter % Change
1996 1995 From Prior Year
------------- ------------- ---------------
Increase (decrease) in comparable
store sales:
Victoria's Secret Stores 8% 2%
Bath & Body Works 14% 28%
Cacique 19% (29%)
------------- ---------------
Total Intimate Brands, Inc. 9% 3%
------------- ---------------
Express (1%) 8%
Lerner New York 2% 0%
Lane Bryant 5% (9%)
Limited Stores 6% (13%)
Henri Bendel 8% 11%
------------- ---------------
Total Women's Businesses 3% (3%)
------------- ---------------
Structure 8% (4%)
Abercrombie & Fitch Co. 17% 7%
The Limited Too (17%) 6%
------------- ---------------
Total Emerging Businesses 3% 0%
------------- ---------------
Total comparable store sales
increase (decrease) 4% (1%)
============= ===============
Retail sales increase
attributable to new and
remodeled stores 9% 6%
Retail sales per average selling
square foot $58.94 $55.63 6%
Retail sales per average store
(thousands) $ 304 $ 292 4%
Average store size at end
of quarter (square feet) 5,143 5,226 (2%)
Retail selling square feet
(thousands) 27,528 25,892 6%
Number of stores:
Beginning of year 5,298 4,867
Opened 80 97
Closed (26) (10)
------------- ---------------
End of first quarter 5,352 4,954
============= ===============
12
Number of Stores Selling Sq. Ft. (thousands)
-------------------------------------- -----------------------------------------------------
Change Change
May 4, April 29, From Prior May 4, April 29, From Prior
1996 1995 Period 1996 1995 Period
------- ----------- ------------ -------- ----------- ------------
Victoria's Secret Stores 683 609 74 3,074 2,646 428
Bath & Body Works 528 347 181 906 549 357
Cacique 121 117 4 369 352 17
Penhaligon's 4 4 - 2 2 -
------- ----------- ------------ -------- ----------- ------------
Total Intimate Brands,
Inc. 1,336 1,077 259 4,351 3,549 802
------- ----------- ------------ -------- ----------- ------------
Express 744 720 24 4,633 4,401 232
Lerner New York 820 843 (23) 6,281 6,536 (255)
Lane Bryant 833 814 19 3,985 3,866 119
Limited Stores 684 711 (27) 4,183 4,328 (145)
Henri Bendel 4 4 - 88 88 -
------- ----------- ------------ -------- ----------- ------------
Total Women's Businesses 3,085 3,092 (7) 19,170 19,219 (49)
------- ----------- ------------ -------- ----------- ------------
Structure 524 473 51 2,016 1,784 232
Abercrombie & Fitch Co. 102 72 30 804 580 224
The Limited Too 299 240 59 937 760 177
Galyan's 6 - 6 250 - 250
------- ----------- ------------ -------- ----------- ------------
Total Emerging Businesses 931 785 146 4,007 3,124 883
------- ----------- ------------ -------- ----------- ------------
Total stores and selling
square feet 5,352 4,954 398 27,528 25,892 1,636
======= =========== ============ ======== =========== ============
Net Sales
- ---------
Net sales for the first quarter of 1996 increased 13% over the first quarter of
1995, primarily as a result of the 4% increase in comparable store sales and the
net addition of new and expanded stores. During the first quarter of 1996, the
Company opened 80 new stores, remodeled 48 stores and closed 26 stores.
Sales at the Intimate Brand's businesses for the first quarter of 1996 increased
22% over the same period last year and accounted for over half of the total
Limited, Inc. sales increase. This increase was attributable to the net addition
of 259 new stores, a 9% increase in comparable store sales and a 8% increase in
catalogue net sales.
Sales at the Women's Businesses for the first quarter of 1996 increased 4% over
the first quarter of 1995, primarily due to the 3% increase in comparable store
sales, and accounted for 18% of the total Limited, Inc. increase.
Significant improvement in sales at Structure and Abercrombie & Fitch Co.
bolstered by comparable store sales increases of 8% and 17%, respectively,
accounted for most of the balance of the Limited, Inc. increase.
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 26.3% for the
first quarter of 1996 from 25.4% for the first quarter of 1995. The increase was
attributable to a decrease in buying and occupancy costs of 1.1%, expressed as a
percentage of sales, due to improved sales leveraging. Merchandise margins
decreased .2% as a percentage of sales due to slightly higher markdowns in 1996.
13
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of sales, increased to 23.3% for the first quarter of 1996 as compared to 22.1%
on an adjusted pro-forma basis for the first quarter of 1995. This increase was
attributable to a combination of factors. Intimate Brands rate increased 1.2%,
resulting primarily from Bath & Body Works' higher portion of the mix in the
overall business. Although Bath & Body Works has higher gross margins, it also
has higher general, administrative and store operating expenses as a percent of
sales. In addition, lower per store sales productivity at the Women's Businesses
and Limited Too also contributed to the rate increase. The Company anticipates a
similar rate increase for the second quarter with a deceleration in the rate of
increase for the Fall season aided by peak seasonal sales.
Operating Income
- ----------------
Operating income, as a percentage of sales, was 3.0% for the first quarter of
1996 and 3.2% for adjusted pro-forma 1995. The decrease was due to lower
merchandise margins resulting from increased markdowns which was more than
offset by lower buying and occupancy costs and higher general, administrative
and store operating expenses, expressed as a percentage of sales.
Interest Expense
- ----------------
First Quarter
---------------
1996 1995
------ ------
Average Borrowings $790.9 $736.9
(millions)
Average Effective Interest Rate 8.37% 8.95%
Interest expense was essentially flat in the first quarter of 1996 as compared
to the first quarter of 1995. Lower interest rates, primarily on commercial
paper, decreased interest costs by approximately $1.1 million, which was offset
by increased interest expense on additional funds borrowed.
Other Income
- ------------
The increase in other income to $6,642 for the adjusted pro-forma first quarter
of 1996 from $2,679 in the first quarter of 1995 was principally due to interest
income earned on the restricted cash balance related to the contingent stock
redemption agreement.
14
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities, commercial paper backed by funds
available under the committed long-term credit agreement and the Company's
capital structure continue to provide the capital 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):
Adjusted
May 4, February 3, February 3,
1996 1996 1996 *
---------- ----------- -----------
Working Capital $ 391,272 $2,083,457 $ 468,457
========== ========== ==========
Capitalization:
Long-term debt $ 650,000 $ 650,000 $ 650,000
Deferred income taxes 177,281 250,857 250,857
Shareholders' equity 1,593,149 3,201,041 1,586,041
---------- ---------- ----------
Total Capitalization $2,420,430 $4,101,898 $2,486,898
========== ========== ==========
Additional amounts available under
long-term credit agreements $1,000,000 $1,000,000 $1,000,000
========== ========== ==========
* Adjusted February 3, 1996 reflects the impact of the March 17, 1996
repurchase of 85 million shares of the Company's common stock for $1.615
billion.
Net cash used for operating activities was $84.5 million in the first quarter of
1996 versus $119.3 million in the first quarter last year. Cash provided from
the payment of accounts receivable was lower in 1996 due to a lower receivables
balance at the beginning of the year caused by the sale of a 60% interest in
WFNNB in the fourth quarter of 1995. Cash requirements for inventories were
lower in 1996 due to a planned decrease in inventories on both a per store and
per square foot basis.
Investing activities included capital expenditures, primarily for new and
remodeled stores. Financing activities included $1.615 billion used to
repurchase 85 million shares of the Company's common stock. (see note 7).
15
Capital Expenditures
- --------------------
Capital expenditures totaled $77.9 million for the first quarter of 1996,
compared to $68.9 million for the first quarter of 1995. The Company anticipates
spending $350 - $400 million for capital expenditures in 1996, of which $220 -
$260 million will be for new stores, the remodeling of existing stores and
related improvements for the retail businesses.
The Company expects that 1996 capital expenditures will be funded by net cash
provided by operating activities. In addition, the Company presently has
available $1 billion under its long-term credit agreement and has the ability to
offer up to $250 million of debt securities and warrants to purchase debt
securities under its shelf registration statement.
16
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 20, 1996. The matters
voted upon and the results of the voting were as follows:
(a) Leonard A. Schlesinger, Donald B. Shackelford, Martin Trust and Raymond
Zimmerman were elected to the Board of Directors for a term of three years.
Of the 227,881,389 shares present in person or represented by proxy at the
meeting, the number of shares voted for and the number of shares as to which
authority to vote in the election was withheld were as follows with respect
to each of the nominees:
Shares Shares as to Which
Voted for Voting Authority
Name Election Withheld
----------------------- ------------- --------------------
Leonard A. Schlesinger 223,966,687 3,914,702
Donald B. Shackelford 225,258,801 2,622,588
Martin Trust 225,258,650 2,622,739
Raymond Zimmerman 225,245,978 2,635,411
In addition, directors whose term of office continued after the Annual
Meeting were: Leslie H. Wexner, Kenneth B. Gilman, Eugene M. Freedman, E.
Gordon Gee, David T. Kollat, Claudine B. Malone, Allan R. Tessler, Michael
A. Weiss, and Bella Wexner.
(b) The 1996 Restatement of The Limited, Inc. 1993 Stock Option and Performance
Incentive Plan was approved with 172,002,462 shares voted for election and
54,338,294 against and 1,540,633 abstained.
(c) The Limited, Inc. 1996 Stock Plan for Non-Associate Directors was approved
with 219,190,443 shares voted for election and 7,042,140 against and
1,648,806 abstained.
17
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. 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.
4.3. 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.
4.4. 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.
4.5. Copy of the form of Global Security representing the Company's
7.80% Notes due May 15, 2002, incorporated by reference to the
Company's Current Report on Form 8-K dated February 27, 1992.
4.6. 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").
4.7. 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.
4.8. Credit Agreement dated as of December 15, 1995 among the Company,
Morgan Guaranty Trust Company of New York and the banks listed
therein, incorporated by reference to Exhibit 4.8 to the
Company's 1995 Annual Report on Form 10-K.
10. Material Contracts
10.1 Supplemental Schedule of Director who became a party to an
Indemnification Agreement.
10.2 The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan (1996 Restatement) incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (File No.
333-04941).
10.3 The Limited, Inc. 1996 Stock Plan for Non-Associate Directors
incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-04927).
18
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: June 12, 1996
- -----------------------------------
* 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
- ----------- ----------------------------------------------------------------
10.1 Supplemental Schedule of Director who became a party to an
Indemnification Agreement.
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 Accountants' Report
27 Financial Data Schedule
21
EXHIBIT 10.1
------------
SUPPLEMENTAL SCHEDULE OF DIRECTOR WHO BECAME
A PARTY TO AN INDEMNIFICATION AGREEMENT
EFFECTIVE MAY 20, 1996
Signatory Capacity
- --------- --------
Leonard A. Schlesinger Director
22
EXHIBIT 11
----------
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
Thirteen Weeks Ended
--------------------
May 4, April 29,
1996 1995
-------- ---------
Net income $ 28,152 $ 39,211
======== ========
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 550 650
Weighted average treasury shares (69,513) (22,129)
-------- --------
Weighted average used to calculate
net income per share 310,491 357,975
======== ========
Net income per share $.09 $.11
======== ========
Note: Exercise of the Wexner Agreement (which cannot occur prior to February 1,
1998) was determined not to dilute reported earnings per share.
23
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
Thirteen Weeks Ended
--------------------
May 4, April 29,
1996 1995
-------- ---------
Adjusted Earnings
- -----------------
Income before income taxes $ 50,152 $ 66,211
Portion of minimum rent ($178,472 in 1996
and $165,512 in 1995) representative
of interest 59,491 55,171
Interest on indebtedness 16,547 16,488
Minority interest 4,279 -
-------- --------
Total earnings as adjusted $130,469 $137,870
======== ========
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $ 59,491 $ 55,171
Interest on indebtedness 16,547 16,488
-------- --------
Total fixed charges $ 76,038 $ 71,659
======== ========
Ratio of earnings to fixed charges 1.72x 1.92x
======== ========
24
EXHIBIT 15
----------
[LETTERHEAD OF COOPERS & LYBRAND]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated June 7, 1996, on our review of the interim
consolidated financial information of The Limited, Inc. and Subsidiaries for the
thirteen-week period ended May 4, 1996 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,
333-04927, 333-04941 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
June 11, 1996
25
5
1,000
3-MOS
FEB-01-1997
FEB-04-1996
MAY-04-1996
24,504
0
69,355
0
1,010,971
1,235,240
3,079,518
1,338,592
3,716,107
843,968
650,000
0
0
180,352
1,412,797
3,716,107
1,787,943
1,787,943
1,318,402
1,318,402
415,705
0
16,547
50,152
22,000
28,152
0
0
0
28,152
.09
.09
