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 August 2, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8344
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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) 415-7000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate 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 August 29, 1997
- ------------------------------- ----------------------------------
271,905,619 Shares
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
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Part I Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
August 2, 1997 and August 3, 1996 ......................3
Consolidated Balance Sheets
August 2, 1997 and February 1, 1997.....................4
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
August 2, 1997 and August 3, 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.......................................18
Item 2. Changes in Security.....................................18
Item 6. Exhibits and Reports on Form 8-K .......................18
2
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- ----------------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
----------- ----------- ----------- -----------
NET SALES $ 2,020,084 $ 1,895,601 $ 3,849,864 $ 3,683,544
Cost of Goods Sold, Occupancy and Buying Costs 1,481,177 1,403,692 2,809,486 2,722,094
----------- ----------- ----------- -----------
GROSS INCOME 538,907 491,909 1,040,378 961,450
General, Administrative and Store Operating Expenses 466,247 410,367 918,094 826,072
----------- ----------- ----------- -----------
OPERATING INCOME 72,660 81,542 122,284 135,378
Interest Expense (16,272) (18,734) (32,819) (35,281)
Other Income 6,818 6,512 15,655 23,654
Minority Interest (10,632) (8,170) (16,279) (12,449)
Gain in Connection with Initial Public Offering of
Equity Investee -- -- 8,606 --
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 52,574 61,150 97,447 111,302
Provision for Income Taxes 25,000 28,000 45,000 50,000
----------- ----------- ----------- -----------
NET INCOME $ 27,574 $ 33,150 $ 52,447 $ 61,302
=========== =========== =========== ===========
NET INCOME PER SHARE $ .10 $ .12 $ .19 $ .21
=========== =========== =========== ===========
DIVIDENDS PER SHARE $ .12 $ .10 $ .24 $ .20
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 273,214 272,077 272,846 291,284
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
ASSETS August 2, 1997 February 1, 1997
------ ---------------- ------------------
(unaudited)
CURRENT ASSETS:
Cash and Equivalents $ 22,467 $ 312,796
Accounts Receivable 91,545 69,337
Inventories 1,155,665 1,007,303
Store Supplies 92,578 90,400
Other 89,995 65,261
---------------- -----------------
TOTAL CURRENT ASSETS 1,452,250 1,545,097
PROPERTY AND EQUIPMENT, NET 1,853,267 1,828,869
RESTRICTED CASH 351,600 351,600
OTHER ASSETS 414,375 394,436
---------------- -----------------
TOTAL ASSETS $ 4,071,492 $ 4,120,002
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 353,933 $ 307,841
Accrued Expenses 446,006 481,744
Commercial Paper 116,121 --
Income Taxes Payable 2,943 117,308
---------------- -----------------
TOTAL CURRENT LIABILITIES 919,003 906,893
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 106,755 169,932
OTHER LONG-TERM LIABILITIES 52,378 51,659
MINORITY INTEREST 71,795 67,336
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 143,995 142,860
Retained Earnings 3,513,585 3,526,256
---------------- -----------------
3,837,932 3,849,468
Less Treasury Stock, at Average Cost (1,917,971) (1,926,886)
---------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 1,919,961 1,922,582
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,071,492 $ 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)
Twenty-six Weeks Ended
------------------------------
August 2, August 3,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $52,447 $61,302
Impact of Other Operating Activities on Cash Flows:
Net Gain in Connection with Initial Public Offering of Equity Investee (5,606) --
Depreciation and Amortization 149,657 144,346
Minority Interest, Net of Dividends Paid 4,459 1,369
Changes in Assets and Liabilities:
Accounts Receivable (22,208) (18,766)
Inventories (148,362) (157,107)
Accounts Payable and Accrued Expenses 10,354 74,566
Income Taxes (180,542) (124,856)
Other Assets and Liabilities 894 (12,544)
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (138,907) (31,690)
----------- -----------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (212,475) (191,006)
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FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper and Other Short-term Borrowings 116,121 266,982
Dividends Paid (65,118) (54,160)
Purchase of Treasury Stock -- (1,615,130)
Stock Options and Other 10,050 12,323
----------- -----------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 61,053 (1,389,985)
----------- -----------
NET DECREASE IN CASH AND EQUIVALENTS (290,329) (1,612,681)
Cash and Equivalents, Beginning of Year 312,796 1,645,731
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $22,467 $33,050
=========== ===========
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 August 2, 1997 and for the
thirteen and twenty-six week periods ended August 2, 1997 and August 3,
1996 are unaudited and are presented pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, these statements
should be read in conjunction with the consolidated financial statements
and notes thereto contained in the Company's 1996 Annual Report on Form
10-K. 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 August 2, 1997 and for the
thirteen and twenty-six week periods ended August 2, 1997 and August 3,
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."
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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 consolidated
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):
August 2, February 1,
1997 1997
---------- ----------
Property and equipment, at cost $3,412,807 $3,290,244
Accumulated depreciation and
amortization (1,559,540) (1,461,375)
---------- ----------
Property and equipment, net $1,853,267 $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 twenty-six weeks
ended August 2, 1997 and August 3, 1996 approximated $183 million and $142
million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for years 1989 - 1992. The outstanding issue from the
assessment is 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):
August 2, February 1,
1997 1997
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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 August 2, 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 August 2, 1997 was $116.1
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 twenty-six weeks ended August 2, 1997 and August
3, 1996 approximated $40.1 million and $34.6 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 the first quarter of 1997, the Company recognized a pre-tax gain of
$8.6 million in connection with 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 August 2, 1997, and the related condensed consolidated
statements of income and cash flows for the thirteen-week and twenty-six-week
periods ended August 2, 1997 and August 3, 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
September 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 the twenty-six weeks ended August 2, 1997
as compared to 1996, certain proforma 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 year-to-date income
statement has been adjusted to remove $10.5 million in interest income earned on
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.
The adjusted proforma summary income information is presented below.
Thirteen Weeks Ended Twenty-six Weeks Ended
----------------------------------- ---------------------------------------
Adjusted
Proforma
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
---------------- ----------------- ----------------- -------------------
Operating Income $72,660 $81,542 $122,284 $135,378
Interest Expense (16,272) (18,734) (32,819) (35,281)
Other Income 6,818 6,512 15,655 13,154 (a)
Minority Interest (10,632) (8,170) (16,279) (12,449)
Gain in Connection with IPO of Equity Investee - - 8,606 -
---------------- ---------------- ----------------- -----------------
Income before Income Taxes 52,574 61,150 97,447 100,802
Provision for Income Taxes 25,000 28,000 45,000 46,000 (b)
---------------- ---------------- ----------------- -----------------
Net Income $27,574 $33,150 $52,447 $54,802
================ ================ ================= =================
Net Income per Share $.10 $.12 $.19 $.20
================ ================ ================= =================
Net Income per Share Exclusive of Gain in
Connection with IPO $.10 $.12 $.17 $.20
================ ================ ================= =================
Weighted Average Shares Outstanding 273,214 272,077 272,846 271,669 (c)
================ ================ ================= =================
(a) Reduced 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) Adjusted taxes for effect of $10.5 million proforma adjustment to interest
income.
(c) Adjusted net income per share and weighted average shares outstanding 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.
Net sales for the second quarter of 1997 grew 7% to $2.020 billion from $1.896
billion a year ago. Operating income decreased 11% to $72.7 million compared to
operating income of $81.5 million for 1996. Net income decreased 17% for the
quarter in 1997 to $27.6 million compared to net income of $33.2 million for
1996.
10
Sales for the twenty-six weeks ended August 2, 1997 increased 5% to $3.850
billion compared to $3.684 billion in 1996. Excluding the gain in connection
with the IPO of Brylane (see Note 8) net income decreased 15% to $46.8 million
from proforma 1996 net income of $54.8 million (earnings per share were $.17
compared to 1996 proforma earnings per share of $.20).
Business highlights include the following:
The Intimate Brands businesses continued their solid performance during the
second quarter recording a 15% comparable store sales increase and a 24%
operating income increase.
Victoria's Secret Stores had a very successful semi-annual sale in June.
Overall for the quarter, the business recorded comparable store sales
increases of 15% and a margin improvement, resulting in an operating income
increase of 29%.
Bath & Body Works achieved a 58% sales gain and a 43% increase in operating
profits. To date, the business has benefited from continued product
introductions, a growing gift business and 241 new stores as compared to
last year.
Victoria's Secret Catalogue steadily gained momentum throughout the first
half of the year, achieving record sales and profits. Year-to-date,
operating income increased 39%, due to a 10% sales increase and a 2.5%
decline in catalogue and related costs, as a percentage of sales, primarily
from lower paper costs.
The Women's businesses in total continued to underperform in the second
quarter, principally due to the Express business, which experienced a 24%
decrease in comparable store sales. Overall, the Women's businesses
reported an 11% decrease in comparable store sales in the second quarter.
Limited Too had a significant improvement in sales momentum with a 25%
comparable store sales gain in the second quarter.
Abercrombie & Fitch Co. reported a 150% increase in second quarter
operating income supported by a 15% comparable store sales increase.
11
Financial Summary
- -----------------
The following summarized financial and statistical data compares the thirteen
week and twenty-six week periods ended August 2, 1997 to the comparable 1996
periods:
Second Quarter Year - to - Date
-------------------------------------------- -------------------------------------------
Change Change
From From
Prior Prior
1997 1996 Year 1997 1996 Year
----------- ------------ ----------- ----------- ------------ ----------
Net Sales (millions):
Victoria's Secret Stores $389 $319 22% $714 $605 18%
Victoria's Secret Catalogue 196 176 12% 376 343 10%
Bath & Body Works 212 134 58% 389 245 59%
Cacique 22 21 5% 42 40 5%
Other 8 3 167% 10 6 67%
----------- ------------ ----------- ----------- ------------ ----------
Total Intimate Brands, Inc. $827 $653 27% $1,531 $1,239 24%
----------- ------------ ----------- ----------- ------------ ----------
Express $246 $317 (22%) $470 $632 (26%)
Lerner 203 225 (10%) 397 446 (11%)
Lane Bryant 217 207 5% 421 426 (1%)
Limited Stores 175 205 (15%) 355 393 (10%)
Henri Bendel 17 18 (6%) 43 40 8%
----------- ------------ ----------- ----------- ------------ ----------
Total Women's Businesses $858 $972 (12%) $1,686 $1,937 (13%)
----------- ------------ ----------- ----------- ------------ ----------
Structure $152 $146 4% $279 $269 4%
The Limited Too 61 48 27% 127 93 37%
Galyan's 35 20 75% 66 37 78%
----------- ------------ ----------- ----------- ------------ ----------
Total Emerging Businesses $248 $214 16% $472 $399 18%
----------- ------------ ----------- ----------- ------------ ----------
Abercrombie & Fitch $87 $57 53% $161 $109 48%
----------- ------------ ----------- ----------- ------------ ----------
Total Net Sales $2,020 $1,896 7% $3,850 $3,684 5%
=========== ============ =========== =========== ============ ==========
Operating Income (millions):
Intimate Brands, Inc. $107 $87 23% $168 $136 24%
Women's Businesses (69) (19) (263%) (96) (15) (540%)
Emerging Businesses 30 12 150% 43 13 231%
Abercrombie & Fitch 5 2 150% 7 1 600%
=========== ============ =========== =========== ============ ==========
Total Operating Income $73 $82 (11%) $122 $135 (10%)
=========== ============ =========== =========== ============ ==========
12
Second Quarter Year - to - Date
-------------------------------------------- -------------------------------------------
Change Change
From From
Prior Prior
1997 1996 Year 1997 1996 Year
----------- ------------ ----------- ----------- ------------ ----------
Increase (decrease) in comparable
store sales:
Victoria's Secret Stores 15% 3% 11% 5%
Bath & Body Works 16% 11% 15% 12%
Cacique 11% 11% 8% 15%
----------- ------------ ----------- ------------
Total Intimate Brands, Inc. 15% 5% 12% 7%
------------ ------------- ------------- -------------
Express (24%) (2%) (27%) (2%)
Lerner (5%) 3% (6%) 2%
Lane Bryant 5% (2%) (1%) 1%
Limited Stores (12%) 9% (7%) 8%
Henri Bendel (12%) (8%) (4%) 0%
------------ ------------- ------------- -------------
Total Women's Businesses (11%) 1% (12%) 2%
------------ ------------- ------------- -------------
Structure 1% 7% 0% 7%
The Limited Too 25% (7%) 30% (12%)
Galyan's 2% 7% * 3% 7% *
------------ ------------- ------------- -------------
Total Emerging Businesses 6% 6% 7% 5%
------------ ------------- ------------- -------------
Abercrombie & Fitch 15% 16% 14% 16%
------------ ------------- ------------- -------------
Total comparable store sales
increase (decrease) 0% 3% (2%) 4%
============ ============= ============= =============
Retail sales increase
attributable to new and
remodeled stores 7% 8% 7% 8%
Retail sales per average
selling square foot $64 $62 3% $122 $121 1%
Retail sales per average
store (thousands) $322 $318 1% $614 $621 (1%)
Average store size at end of
quarter (selling square feet) 5,004 5,098 (2%)
Retail selling square feet at end of
quarter (thousands) 28,474 27,804 2%
Number of Stores:
Beginning of period 5,629 5,352 5,633 5,298
Opened 80 128 151 208
Closed (19) (26) (94) (52)
------------ ------------- ------------- -------------
End of period 5,690 5,454 5,690 5,454
============ ============= ============= =============
* Acquired in July 1995 with comparable store sales reporting starting July
1996.
13
Number of Stores Selling Sq. Ft. (thousands)
------------------------------------------- -------------------------------------------
Change Change
August 2, August 3, From August 2, August 3, From
1997 1996 Prior Year 1997 1996 Prior Year
---------- ------------ -------------- ------------ ----------- ---------------
Victoria's Secret Stores 757 703 54 3,433 3,195 238
Bath & Body Works 844 603 241 1,564 1,042 522
Cacique 118 120 (2) 363 368 (5)
Penhaligon's - 4 (4) - 2 (2)
---------- ------------ -------------- ------------ ----------- ---------------
Total Intimate Brands, Inc. 1,719 1,430 289 5,360 4,607 753
---------- ------------ -------------- ------------ ----------- ---------------
Express 751 750 1 4,738 4,688 50
Lerner 757 814 (57) 5,803 6,225 (422)
Lane Bryant 808 825 (17) 3,875 3,954 (79)
Limited Stores 648 681 (33) 3,891 4,142 (251)
Henri Bendel 6 4 2 113 88 25
---------- ------------ -------------- ------------ ----------- ---------------
Total Women's Businesses 2,970 3,074 (104) 18,420 19,097 (677)
---------- ------------ -------------- ------------ ----------- ---------------
Structure 543 534 9 2,132 2,067 65
The Limited Too 310 304 6 973 953 20
Galyan's 9 6 3 488 250 238
---------- ------------ -------------- ------------ ----------- ---------------
Total Emerging Businesses 862 844 18 3,593 3,270 323
---------- ------------ -------------- ------------ ----------- ---------------
Abercrombie & Fitch 139 106 33 1,101 830 271
---------- ------------ -------------- ------------ ----------- ---------------
Total Stores and Selling Square Feet 5,690 5,454 236 28,474 27,804 670
========== ============ ============== ============ =========== ===============
Net Sales
- ---------
Net sales for the second quarter of 1997 increased 7% over the second quarter of
1996, primarily as a result of the increase in retail sales attributed to new
and remodeled stores and catalogue sales as comparable store sale performance
was flat. During the second quarter of 1997, the Company opened 80 new stores,
remodeled 60 stores and closed 19 stores. Net sales for the twenty-six weeks
ended August 2, 1997 increased 5% as compared to the same period in 1996
primarily as a result of new and remodeled stores offset by a 2% decrease in
comparable store sales.
Sales at the Intimate Brands' businesses for the second quarter of 1997
increased 27% over the same period last year. This increase was attributable to
the net addition of 289 stores, a 15% increase in comparable store sales and a
12% increase in catalogue net sales. Year-to-date Intimate Brands, Inc. sales
increased 24% over the same period in 1996, due to the net addition of new and
remodeled stores, a 12% increase in comparable store sales, and a 10% increase
in catalogue net sales.
14
Sales at the Women's businesses for the second quarter and year-to-date periods
of 1997 decreased 12% and 13%, respectively, compared to the same periods in
1996, primarily due to the 11% and 12% decreases in comparable store sales. A
substantial portion of the disappointing sales results in the Women's businesses
can be attributed to the Express business which recorded a 24% and 27% decline
in comparable store sales for the thirteen and twenty-six week periods ended
August 2, 1997.
Sales improved significantly at Limited Too and Abercrombie & Fitch Co. which
were bolstered by comparable store sales increases of 25% and 15% for the second
quarter 1997 and 30% and 14% for the year-to-date period.
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 26.7% for the
second quarter of 1997 from 26.0% for the second quarter of 1996. The increase
was attributable to a 0.5% increase in merchandise margins, expressed as a
percentage of sales, and a 0.2% decrease in buying and occupancy costs, also
expressed as a percentage of sales. The increase in merchandise margin was
attributable to higher initial markup which was partially offset by a higher
markdown rate over the comparable period last year.
The 1997 year-to-date gross income percentage increased 0.9% to 27.0% in 1997
from 26.1% for the same period in 1996, which was primarily attributable to
higher initial markup partially offset by higher markdowns.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of sales, increased to 23.1% for the second quarter of 1997 as compared to 21.6%
for the second quarter of 1996. This increase was attributable to a combination
of the increase in IBI businesses 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 1.3%, resulting primarily from Bath &
Body Works which increased from 21% to 26% of total IBI sales. Although Bath &
Body Works has a higher gross margin, 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
also contributed to the rate increase.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 23.8% in 1997 compared to 22.4% in 1996. This increase
was due primarily to the reasons discussed above.
Operating Income
- ----------------
Second quarter and year-to-date 1997 operating income, expressed as a percentage
of sales, were 3.6% and 3.2%, compared to 4.3% and 3.7%, respectively, for 1996.
The decrease was due to higher general, administrative and store operating
expenses which more than offset the increase in gross income, expressed as a
percentage of sales.
15
Interest Expense
- ----------------
Second Quarter Year-to-Date
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Average Borrowings (millions) $767 $917 $780 $854
Average Effective Interest Rate 8.49% 8.17% 8.42% 8.26%
Interest expense decreased $2.5 million in the second quarter and year-to-date
periods in 1997 from the comparable periods in 1996. In 1996 two subsidiaries of
Abercrombie & Fitch borrowed $150 million in July which was repaid in the third
quarter of 1996. The Company also experienced slightly lower average borrowings
in the second quarter of 1997 versus 1996.
Other Income
- ------------
The increase in 1997 second quarter and year-to-date other income of $0.3
million and $2.5 million, compared to 1996 second quarter and adjusted proforma
year-to-date other income, was due to interest income earned on temporary
investments.
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 working capital requirements
and capital expenditures. A summary of the Company's working capital position
and capitalization follows (thousands):
August 2, February 1,
1997 1997
------------ ------------
Working Capital $533,247 $638,204
============ ============
Capitalization:
Long-term debt $650,000 $650,000
Deferred income taxes 106,755 169,932
Shareholders' equity 1,919,961 1,922,582
------------ ------------
Total Capitalization $2,676,716 $2,742,514
============ ============
Amounts available under
long-term credit agreements* $873,879 $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.
16
Net cash used for operating activities was $138.9 million for the twenty-six
weeks ended August 2, 1997 versus $31.7 million last year. The increase was
primarily attributable to an increase in income tax payments and an increase in
inventories as merchandise payables, used to fund inventory, remained flat to
last year.
Investing activities included capital expenditures, approximately $107 million
of which were for new and remodeled stores.
Cash used for financing activities for 1997 reflect an increase in the dividend
to $.12 per share from $.10 per share. For 1996, financing activities included
$1.615 billion used to repurchase 85 million shares of the Company's common
stock.
Capital Expenditures
- --------------------
Capital expenditures totaled $212.5 million for the twenty-six weeks ended
August 2, 1997, compared to $191.0 million for the same period of 1996. The
Company anticipates spending $390 - $410 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.
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,
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.
17
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 amended complaint alleges that the defendants
violated the federal False Claims Act by submitting false country of
origin records to the US Customs Service. The amended 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
and a motion to transfer the case to the United States District Court
for the Southern District of Ohio, Eastern Division. On June 30,
1997, the motion to transfer was granted. The motion to dismiss the
amended complaint remains pending. The Company believes the
allegations made are without merit and intends to defend the lawsuit
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 2. CHANGES IN SECURITIES
(c) Recent Sales of Unregistered Securities
In July 1997, the Company issued 110,345 shares of common stock of
The Limited, Inc. to Patrick W. Galyan in settlement of certain
contractual obligations. The sale of the common stock was exempt from
registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof, as a transaction
not involving a public offering.
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.
18
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 Directors and Officers who
became parties to an Indemnification Agreement.
10.2 The 1997 Restatement of The Limited, Inc. 1993
Stock Option and Performance Incentive Plan
incorporated by reference to Exhibit B to the
Company's Proxy Statement dated April 14, 1997.
10.3 The Limited, Inc. 1996 Stock Plan for Non-Associate
Directors incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for
the quarter ended November 2, 1996.
10.4 The Limited, Inc. Incentive Compensation
Performance Plan incorporated by reference to
Exhibit A to the Company's Proxy Statement dated
April 14, 1997.
19
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.
20
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/ V. Ann Hailey
-----------------
V. Ann Hailey,
Executive Vice President
and Chief Financial Officer*
Date: September 12, 1997
-------------------------------------
* Ms. Hailey is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
21
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- -----------------------------------
10.1 Supplemental Schedule of Directors and Officers who became
parties 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
Independent Accountants' Report.
27 Financial Data Schedule.
EXHIBIT 10.1
------------
SUPPLEMENTAL SCHEDULE OF DIRECTORS AND OFFICERS WHO BECAME
PARTIES TO AN INDEMNIFICATION AGREEMENT
Signatory Effective Date Capacity
- --------- -------------- --------
Abigail S. Wexner May 19, 1997 Director
V. Ann Hailey August 11, 1997 Executive Officer
EXHIBIT 11
----------
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
Thirteen Weeks Ended
----------------------------------
August 2, August 3,
1997 1996
--------------- --------------
Net Income $27,574 $33,150
=============== ==============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,620 1,190
Weighted average treasury shares (107,860) (108,567)
--------------- --------------
Weighted average used to calculate net income per share 273,214 272,077
=============== ==============
Net income per share $.10 $.12
=============== ==============
Twenty-six Weeks Ended
----------------------------------
August 2, August 3,
1997 1996
--------------- --------------
Net Income $52,447 $61,302
=============== ==============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,213 870
Weighted average treasury shares (107,821) (89,040)
--------------- --------------
Weighted average used to calculate net income per share 272,846 291,284
=============== ==============
Net income per share $.19 $.21
=============== ==============
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)
Twenty-six Weeks Ended
--------------------------------
August 2, August 3,
1997 1996
--------------- --------------
Adjusted Earnings
- -----------------
Income before income taxes $97,447 $111,302
Portion of minimum rent ($373,745 in 1997 and $360,223 in 1996)
representative of interest 124,582 120,074
Interest on indebtedness 32,819 35,281
Minority Interest 16,279 12,449
--------------- --------------
Total earnings as adjusted $271,127 $279,106
=============== ==============
Fixed Charges
- -------------
Portion of minimum rent representative of interest $124,582 $120,074
Interest on indebtedness 32,819 35,281
--------------- --------------
Total fixed charges $157,401 $155,355
=============== ==============
Ratio of earnings to fixed charges 1.72x 1.80x
=============== ==============
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 September 10, 1997, on our review of the
interim consolidated financial information of The Limited, Inc. and Subsidiaries
for the thirteen-week and twenty-six-week periods ended August 2, 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
September 10, 1997
5
1,000
6-MOS
JAN-31-1998
FEB-02-1997
AUG-02-1997
22,467
0
91,545
0
1,155,665
1,452,250
3,412,807
1,559,540
4,071,492
919,003
650,000
0
0
18,352
0
4,071,492
3,894,864
3,894,864
2,809,486
2,809,486
918,094
0
32,819
97,447
45,000
52,447
0
0
0
52,447
.19
.19
