SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 3, 1997
-----------
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.
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(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
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(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 30, 1997
---------------------------- ---------------------------
271,538,695 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 3, 1997 and May 4, 1996.......................................... 3
Consolidated Balance Sheets
May 3, 1997 and February 1, 1997..................................... 4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 3, 1997 and May 4, 1996.......................................... 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 1. Legal Proceedings.......................................................... 17
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 3, 1997 May 4, 1996
--------------- ----------------
NET SALES $1,829,780 $1,787,943
Cost of Goods Sold, Occupancy and Buying Costs 1,328,309 1,318,402
--------------- ----------------
GROSS INCOME 501,471 469,541
General, Administrative and Store Operating Expenses (451,847) (415,705)
--------------- ----------------
OPERATING INCOME 49,624 53,836
Interest Expense (16,547) (16,547)
Other Income 8,837 17,142
Minority Interest (5,647) (4,279)
Gain in Connection with Initial Public Offering of Equity Investee 8,606 -
--------------- ----------------
INCOME BEFORE INCOME TAXES 44,873 50,152
Provision for Income Taxes 20,000 22,000
--------------- ----------------
NET INCOME $24,873 $28,152
=============== ================
NET INCOME PER SHARE $.09 $.09
=============== ================
DIVIDENDS PER SHARE $.12 $.10
=============== ================
WEIGHTED AVERAGE SHARES OUTSTANDING 272,478 310,491
=============== ================
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
May 3, 1997 February 1, 1997
---------------------- ---------------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $57,454 $312,796
Accounts Receivable 80,126 69,337
Inventories 1,091,056 1,007,303
Store Supplies 91,161 90,400
Other 66,949 65,261
---------------------- ---------------------
TOTAL CURRENT ASSETS 1,386,746 1,545,097
PROPERTY AND EQUIPMENT, NET 1,835,810 1,828,869
RESTRICTED CASH 351,600 351,600
OTHER ASSETS 408,008 394,436
---------------------- ---------------------
TOTAL ASSETS $3,982,164 $4,120,002
====================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $309,207 $307,841
Accrued Expenses 420,074 481,744
Commercial Paper 65,990 -
Income Taxes Payable 14,118 117,308
---------------------- ---------------------
TOTAL CURRENT LIABILITIES 809,389 906,893
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 132,722 169,932
OTHER LONG-TERM LIABILITIES 53,208 51,659
MINORITY INTEREST 66,824 67,336
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 143,813 142,860
Retained Earnings 3,518,600 3,526,256
---------------------- ---------------------
3,842,765 3,849,468
Less Treasury Stock, at Average Cost (1,924,344) (1,926,886)
---------------------- ---------------------
TOTAL SHAREHOLDERS' EQUITY 1,918,421 1,922,582
---------------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,982,164 $4,120,002
====================== =====================
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 3, May 4,
1997 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $24,873 $28,152
Impact of Other Operating Activities on Cash Flows:
Net Gain in Connection with Initial Public Offering of Equity
Investee (5,606) -
Depreciation and Amortization 75,380 71,832
Minority Interest, Net of Dividends Paid (512) (845)
Changes in Assets and Liabilities:
Accounts Receivable (10,789) 8,161
Inventories (83,753) (52,018)
Accounts Payable and Accrued Expenses (60,304) (8,414)
Income Taxes (143,400) (114,993)
Other Assets and Liabilities (4,306) (16,396)
-------------- --------------
NET CASH USED FOR OPERATING ACTIVITIES (208,417) (84,521)
-------------- --------------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (83,881) (77,886)
-------------- --------------
FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper Borrowings 65,990 177,224
Dividends Paid (32,529) (27,076)
Purchase of Treasury Stock - (1,615,000)
Stock Options and Other 3,495 6,032
-------------- --------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 36,956 (1,458,820)
-------------- --------------
NET DECREASE IN CASH AND EQUIVALENTS (255,342) (1,621,227)
Cash and Equivalents, Beginning of Year 312,796 1,645,731
-------------- --------------
CASH AND EQUIVALENTS, END OF PERIOD $57,454 $ 24,504
============== ==============
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
3, 1997 and May 4, 1996 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 1996 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 3, 1997 and for the
thirteen week periods ended May 3, 1997 and May 4, 1996 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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
------------
Share." The Company will adopt the computation, presentation and
-----
disclosure requirements for earnings per share in the fourth quarter of
1997, the effect of which will not be material to the Company's consol-
idated financial statements.
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 3, February 1,
1997 1997
------------- -------------
Property and equipment, at cost $3,347,511 $3,290,244
Accumulated depreciation and
amortization (1,511,701) (1,461,375)
------------- -------------
Property and equipment, net $1,835,810 $1,828,869
============= =============
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 3, 1997 and May 4, 1996 approximated $160.4 million and $127.0
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.
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 3, February 1,
1997 1997
------------- -------------
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
============= =============
7
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 3, 1997.
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 3, 1997 approximated $66
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 3, 1997 and May 4, 1996
approximated $24.4 million and $16.6 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. GAIN IN CONNECTION WITH INITIAL PUBLIC OFFERING OF EQUITY INVESTEE
During first quarter of 1997, the Company recognized a pre-tax gain of
$8.6 million in connection with of the initial public offering ("IPO") of
Brylane, Inc., a 26% owned (post IPO) specialty catalogue retailer.
8
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
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 3, 1997, and the related condensed consolidated
statements of income and cash flows for the thirteen-week periods ended May 3,
1997 and May 4, 1996. 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 1, 1997, 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
24, 1997, 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 1, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 10, 1997
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the first quarter of 1996, the Company repurchased 85 million of its
common shares via a self-tender consummated effective March 17, 1996.
Accordingly, to aid in the analysis of first quarter 1997 financial information
as compared to first quarter 1996, certain pro forma adjustments, including the
tax impact, have been made to the 1996 results as follows: 1) weighted average
shares outstanding have been reduced to reflect the 85 million share repurchase
as if it occurred at the beginning of 1996; and 2) 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 Intimate Brands, Inc. ("IBI") and
WFNNB Fall 1995 transactions that were used to consummate the self-tender
effective March 17, 1996. The adjusted pro forma summary income information is
presented below.
1996 1997
----------------------------------------------------- ---------------
Adjusted
(In thousands, except per share data) As Reported Pro Forma Pro Forma As Reported
May 4, 1996 Adjustments May 4, 1996 May 3, 1997
--------------- ------------- ---------------- ---------------
Net sales $1,787,943 $ - $1,787,943 $1,829,780
Gross income 469,541 - 469,541 501,471
General, administrative and store operating
expenses (415,705) - (415,705) (451,847)
--------------- ------------- ---------------- ---------------
Operating income 53,836 - 53,836 49,624
Interest expense (16,547) - (16,547) (16,547)
Other income, net 17,142 (10,500) (a) 6,642 8,837
Minority interest (4,279) - (4,279) (5,647)
Gain in connection with IPO of equity investee - - - 8,606
--------------- ------------- ---------------- ---------------
Income before taxes 50,152 (10,500) 39,652 44,873
Provision for income taxes 22,000 (4,000) (b) 18,000 20,000
--------------- ------------- ---------------- ---------------
Net income $28,152 $(6,500) $21,652 $24,873
=============== ============= ================ ===============
Net income per share $.09 $.08 (c) $.09
=============== ================ ===============
Net income per share exclusive of gain in
connection with IPO $.09 $.08 $.07
=============== ================ ===============
Weighted average shares outstanding 310,491 271,260 (c) 272,478
=============== ================ ===============
(a) Reduce 1996 interest income by $10.5 million derived from the temporary
investment of the proceeds from the IBI and WFNNB Fall 1995 transactions
that were used to consummate the self-tender.
(b) Tax effect of above pro forma adjustment.
(c) 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 1996.
10
Net sales for the first quarter of 1997 grew 2% to $1.830 billion from $1.788
billion a year ago. Operating income decreased 8% to $49.6 million compared to
operating income of $53.8 million for 1996. Net income exclusive of the gain
arising in connection with the initial public offering of Brylane, Inc.
decreased 11% in 1997 to $19.3 million compared to pro forma net income of $21.7
million for 1996.
Business highlights include the following:
The Intimate Brands businesses began 1997 with a solid first quarter
performance. Victoria's Secret Stores recorded a 7% comparable store sales
increase and a 21% operating income increase. Bath & Body Works produced a
comparable store sales increase of 13% while operating income was up 50%.
Abercrombie & Fitch Co. also significantly improved first quarter operating
income supported by a 14% comparable store sales increase.
Financial Summary
- -----------------
The following summarized financial data compares the thirteen week period ended
May 3, 1997 to the comparable period for 1996:
First Quarter First Quarter % Change
1997 1996 From Prior Year
------------- ------------- ---------------
Net Sales (millions):
Victoria's Secret Stores $325 $286 14%
Victoria's Secret Catalogue 180 167 7%
Bath & Body Works 177 111 60%
Cacique 19 19 -
Other 3 3 -
------------- ------------- ---------------
Total Intimate Brands, Inc. 704 586 20%
------------- ------------- ---------------
Express 224 315 (29%)
Lerner New York 195 222 (12%)
Lane Bryant 204 219 (7%)
Limited Stores 180 187 (4%)
Henri Bendel 25 22 14%
------------- ------------- ---------------
Total Women's Businesses 828 965 (14%)
------------- ------------- ---------------
Structure 127 123 3%
The Limited Too 66 46 43%
Galyan's 31 17 82%
------------- ------------- ---------------
Total Emerging Businesses 224 186 20%
------------- ------------- ---------------
Abercrombie & Fitch Co. 74 51 45%
------------- ------------- ---------------
Total Net Sales $1,830 $1,788 2%
============= ============= ===============
11
First Quarter First Quarter % Change
1997 1996 From Prior Year
---------------- ------------------ ------------------
Operating Income (millions):
Intimate Brands, Inc. $60 $49 22%
Women's Businesses (26) 4 N/M
Emerging Businesses 14 1 N/M
Abercrombie & Fitch Co. 2 - N/M
---------------- ------------------
Total Operating Income $50 $54 (8%)
================ ==================
Increase (Decrease) in Comparable Store Sales:
Victoria's Secret Stores 7% 8%
Bath & Body Works 13% 14%
Cacique 4% 19%
---------------- ------------------
Total Intimate Brands, Inc. 8% 9%
---------------- ------------------
Express (30%) (1%)
Lerner New York (7%) 2%
Lane Bryant (7%) 5%
Limited Stores (2%) 6%
Henri Bendel 2% 8%
---------------- ------------------
Total Women's Businesses (13%) 3%
---------------- ------------------
Structure (2%) 8%
The Limited Too 35% (17%)
Galyan's 5% -**
---------------- ------------------
Total Emerging Businesses 8% 0%
---------------- ------------------
Abercrombie & Fitch Co. 14% 17%
---------------- ------------------
Total comparable store sales
increase (decrease) (4%) 4%
================ ==================
Retail sales increase attributable to new and
remodeled stores 6% 9%
Retail sales per average selling square foot $58.12 $58.94 (1%)
Retail sales per average store (thousands) $293 $304 (4%)
Average store size at end
of quarter (square feet) 5,024 5,143 (2%)
Retail selling square feet (thousands) 28,278 27,528 3%
Number of Stores:
Beginning of year 5,633 5,298
Opened 71 80
Closed (75) (26)
---------------- ------------------
End of first quarter 5,629 5,352
================ ==================
* Includes sale of four Penhaligon's stores in April 1997.
** Acquired in July 1995 with comparable store sales reporting starting
July 1996.
12
Number of Stores Selling Sq. Ft. (thousands)
------------------------------- ---------------------------------
Change Change
May 3, May 4, From Prior May 3, May 4, From Prior
1997 1996 Year 1997 1996 Year
------- ------- ---------- ------- ------- ----------
Victoria's Secret Stores 742 683 59 3,360 3,074 286
Bath & Body Works 796 528 268 1,457 906 551
Cacique 118 121 (3) 362 369 (7)
Penhaligon's - 4 (4) - 2 (2)
------- ------- ---------- ------- ------- ----------
Total Intimate Brands, Inc. 1,656 1,336 320 5,179 4,351 828
------- ------- ---------- ------- ------- ----------
Express 751 744 7 4,737 4,633 104
Lerner New York 759 820 (61) 5,824 6,281 (457)
Lane Bryant 815 833 (18) 3,897 3,985 (88)
Limited Stores 651 684 (33) 3,909 4,183 (274)
Henri Bendel 6 4 2 113 88 25
------- ------- ---------- ------- ------- ----------
Total Women's Businesses 2,982 3,085 (103) 18,480 19,170 (690)
------- ------- ---------- ------- ------- ----------
Structure 541 524 17 2,120 2,016 104
The Limited Too 309 299 10 970 937 33
Galyan's 9 6 3 488 250 238
------- ------- ---------- ------- ------- ----------
Total Emerging Businesses 859 829 30 3,578 3,203 375
Abercrombie & Fitch Co. 132 102 30 1,041 804 237
------- ------- ---------- ------- ------- ----------
Total stores and selling sq. ft. 5,629 5,352 277 28,278 27,528 750
======= ======= ========== ======= ======= ==========
Net Sales
- ---------
Net sales for the first quarter of 1997 increased 2% over the first quarter of
1996, primarily as a result of the 6% increase in retail sales attributed to new
and remodeled stores and catalogue sales, offset by the 4% decrease in
comparable store sales. During the first quarter of 1997, the Company opened 71
new stores, remodeled 48 stores and closed 75 stores.
Sales at the Intimate Brand's businesses for the first quarter of 1997 increased
20% over the same period last year. This increase was attributable to the net
addition of 320 new stores, an 8% increase in comparable store sales and a 7%
increase in catalogue net sales.
Sales at the Women's businesses for the first quarter of 1997 decreased 14% from
the first quarter of 1996, primarily due to the 13% decrease in comparable store
sales, as well as a net decrease of 103 stores from the first quarter of 1996.
The disappointing sales performance in the Women's businesses included a 29%
decrease in sales at Express resulting from a 30% decrease in comparable store
sales.
Significant improvement in sales at Limited Too and Abercrombie & Fitch Co. were
bolstered by comparable store sales increases of 35% and 14%.
13
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 27.4% for the
first quarter of 1997 from 26.3% for the first quarter of 1996. The increase was
attributable to a 1.4% increase in merchandise margins, expressed as a
percentage of sales partially offset by a 0.3% increase in buying and occupancy
costs, also expressed as a percentage of sales. The increase in merchandise
margin in the first quarter of 1997 was attributable to higher initial markups
which were partially offset by a higher markdown rate over the comparable period
last year.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of sales, increased to 24.7% for the first quarter of 1997 as compared to 23.3%
for the first quarter of 1996. This increase was attributable to a combination
of the increase in IBI sales in the overall sales mix and the inability to
leverage these expenses in the Women's businesses due to poor sales performance.
The Intimate Brands expense rate increased 2.3%, resulting primarily from Bath &
Body Works which increased from 19% to 25% of the IBI sales mix. 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, investments
made in store staffing for the fragrance portion of Victoria's Secret Stores
contributed to the rate increase. The Company anticipates a similar 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 2.7% for the first quarter of
1997 and 3.0% for 1996. The decrease was due to higher general, administrative
and store operating expense which more than offset the increase in gross income,
expressed as a percentage of sales.
Interest Expense
- ----------------
First Quarter
-------------------------
1997 1996
---------- ----------
Average Borrowings $793.5 $790.9
(millions)
Average Effective Interest Rate 8.34% 8.37%
Interest expense was flat in the first quarter of 1997 versus 1996 as slightly
lower interest rates, primarily on commercial paper, were offset by a small
increase in average funds borrowed.
Other Income
- ------------
The increase in other income to $8,837 for the first quarter of 1997 from the
adjusted pro forma $6,642 in the first quarter of 1996 was principally due to
interest income earned on temporary investments.
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):
May 3, February 1,
1997 1997
---------- ------------
Working Capital $577,357 $638,204
========== ============
Capitalization:
Long-term debt $650,000 $650,000
Deferred income taxes 132,722 169,932
Shareholders' equity 1,918,421 1,922,582
---------- ------------
Total Capitalization $2,701,143 $2,742,514
========== ============
Additional amounts available under
long-term credit agreements $1,000,000 $1,000,000
========== ============
In addition, the Company may offer up to $250 million of debt securities and
warrants to purchase debt securities under its shelf registration statement.
Net cash used for operating activities was $208.4 million in the first quarter
of 1997 versus $84.5 million in the first quarter last year. The $123.9 million
increase in cash used by operations was primarily attributable to an increase in
inventory at the IBI businesses, a decrease in payables and accrued expenses,
and an increase in income tax payments.
Financing activities for the first quarter of 1997 reflect an increase in the
dividend from $.10 per share to $.12 per share and lower commercial paper
borrowings at quarter end. For 1996, financing activities include $1.615 billion
used to repurchase 85 million shares of the Company's common stock.
Investing activities included capital expenditures, primarily for new and
remodeled stores.
Capital Expenditures
- --------------------
Capital expenditures totaled $83.9 million for the first quarter of 1997,
compared to $77.9 million for the first quarter of 1996. The Company anticipates
spending $400 - $420 million for capital expenditures in 1997, of which $240 -
$260 million will be for new stores, the remodeling of existing stores and
related improvements for the retail businesses.
The Company expects that 1997 capital expenditures will be funded by net cash
provided by operating activities.
15
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
All forward-looking statements made by the Company involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors include, but are
not limited to, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, availability of suitable
store locations on appropriate terms, ability to develop new merchandise and
ability to hire and train associates, and other factors that may be described in
the Company's filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the ordinary
course of business. On April 8, 1997, the United States District Court, Central
District of California, unsealed and permitted to be served an amended complaint
previously filed in that court against the Company and certain of its
subsidiaries by the American Textiles Manufacturers Institute, a textile
industry trade association. The complaint alleges that the defendants violated
the federal False Claims Act by submitting false country of origin records to
the US Customs Service. The complaint seeks recovery on behalf of the United
States in an unspecified amount. On June 2, 1997, the defendants filed a motion
to dismiss the complaint. The Company believes the allegations made in the suit
are without merit and intends to defend it vigorously.
Although it is not possible to predict with certainty the eventual outcome of
any litigation, in the opinion of management, the foregoing proceedings are not
expected to have a material adverse effect on the Company's financial position
or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 19, 1997. The matters
voted upon and the results of the voting were as follows:
(a) E. Gordon Gee, Claudine B. Malone, Allen R. Tessler and Abigail S.
Wexner were elected to the Board of Directors for a term of three
years. Of the 227,085,180 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
--------------------- ---------------- ---------------------
E. Gordon Gee 223,062,611 4,011,846
Claudine B. Malone 223,201,009 3,873,448
Allan R. Tessler 223,145,940 3,928,517
Abigail S. Wexner 223,804,948 4,269,509
In addition, directors whose term of office continued after the
Annual Meeting were: Leslie H. Wexner, Kenneth B. Gilman, Eugene M.
Freedman, David T. Kollat, Leonard A. Schlesinger, Donald B.
Shackelford, Martin Trust and Raymond P. Zimmerman. Bella Wexner
retired from the Board of Directors and will hold the honorary
position of Director Emeritus. Michael Weiss resigned from the Board
of Directors to devote his full attention to the Express business.
17
(b) The Limited, Inc. Incentive Compensation Performance Plan was
approved with 217,595,183 votes for approval, 7,706,138 against and
969,846 abstained.
(c) The 1997 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan was approved with 182,099,221 shares
voted for approval, 43,238,197 against and 933,749 abstained.
(d) A proposal made by the Kentucky State District Council of Carpenters
Pension Fund, one of the Company's shareholders, concerning the
composition of the Board of Directors of the Company was defeated. A
total of 166,284,718 shares were voted against the proposal, while
29,516,849 were voted for and 3,152,068 abstained.
(e) A proposal made by the Amalgamated Bank of New York Long View
Collection Investment Fund, one of the Company's shareholders,
concerning the selection of foreign suppliers and executive
compensation, was defeated. A total of 185,909,985 shares were voted
against the proposal, while 7,887,671 were voted for and 5,155,979
abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
3. Articles of Incorporation and Bylaws.
3.1 Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1988.
3.2 Restated Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 2, 1991 (the "1990" form
10-K).
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.
18
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).
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: June 12, 1997
- -----------------------------------------------
* 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.
EXHIBIT 11
----------
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
Thirteen Weeks Ended
----------------------------------
May 3, May 4,
1997 1996
---------------- ----------------
Net income $24,873 $28,152
================ ================
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,156 550
Weighted average treasury shares (108,132) (69,513)
---------------- ----------------
Weighted average used to calculate
net income per share 272,478 310,491
================ ================
Net income per share $.09 $.09
================ ================
Note: Exercise of the Wexner Agreement (which cannot occur prior to January 31,
1998) was determined not to dilute reported earnings per share.
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
Thirteen Weeks Ended
----------------------------------
May 3, May 4,
1997 1996
---------------- ----------------
Adjusted Earnings
- -----------------
Income before income taxes $44,873 $50,152
Portion of minimum rent ($179,081 in 1997
and $178,472 in 1996) representative
of interest 59,694 59,491
Interest on indebtedness 16,547 16,547
Minority interest 5,647 4,279
---------------- ----------------
Total earnings as adjusted $126,761 $130,469
================ ================
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $59,694 $59,491
Interest on indebtedness 16,547 16,547
---------------- ----------------
Total fixed charges $76,241 $76,038
================ ================
Ratio of earnings to fixed charges 1.66x 1.72x
================ ================
EXHIBIT 15
----------
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated June 10, 1997, on our review of the interim
consolidated financial information of The Limited, Inc. and Subsidiaries for the
thirteen-week period ended May 3, 1997 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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 10, 1997
5
1,000
3-MOS
JAN-31-1998
FEB-02-1997
MAY-03-1997
57,454
0
80,126
0
1,091,056
1,386,746
3,347,511
(1,511,701)
3,982,164
809,389
650,000
0
0
180,352
1,738,069
3,982,164
1,829,780
1,829,780
1,328,309
1,328,309
415,847
0
16,547
44,873
20,000
24,873
0
0
0
24,873
.09
.09
