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 2, 1998
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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
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 415-7000
------------------------------
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 29, 1998
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227,869,914 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 Weeks Ended
May 2, 1998 and May 3, 1997.............................. 3
Consolidated Balance Sheets
May 2, 1998 and January 31, 1998......................... 4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 2, 1998 and May 3, 1997.............................. 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 2, May 3,
1998 1997
------------ ------------
NET SALES $2,008,077 $1,829,780
Cost of Goods Sold, Occupancy and Buying Costs 1,421,407 1,328,309
------------ ------------
GROSS INCOME 586,670 501,471
General, Administrative and Store Operating Expenses (530,323) (451,847)
Special & Nonrecurring Items, Net 88,633 --
------------ ------------
OPERATING INCOME 144,980 49,624
Interest Expense (15,741) (16,547)
Other Income 16,153 8,837
Minority Interest (7,923) (5,647)
Gain in Connection with Initial Public Offering of Equity Investee -- 8,606
------------ ------------
INCOME BEFORE INCOME TAXES 137,469 44,873
Provision for Income Taxes 58,000 20,000
------------ ------------
NET INCOME $79,469 $24,873
============ ============
NET INCOME PER SHARE:
Basic $.29 $.09
============ ============
Diluted $.28 $.09
============ ============
DIVIDENDS PER SHARE $.13 $.12
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
May 2, January 31,
1998 1998
------------ ------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $687,869 $746,395
Accounts Receivable 81,602 83,370
Inventories 1,056,091 1,002,710
Store Supplies 96,789 99,167
Other 92,422 99,509
------------ ------------
TOTAL CURRENT ASSETS 2,014,773 2,031,151
PROPERTY AND EQUIPMENT, NET 1,491,790 1,519,908
RESTRICTED CASH 351,600 351,600
DEFERRED INCOME TAXES 62,237 56,586
OTHER ASSETS 328,593 341,516
------------ ------------
TOTAL ASSETS $4,248,993 $4,300,761
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $277,243 $300,703
Accrued Expenses 679,365 676,715
Income Taxes Payable 18,325 115,994
------------ ------------
TOTAL CURRENT LIABILITIES 974,933 1,093,412
LONG-TERM DEBT 650,000 650,000
OTHER LONG-TERM LIABILITIES 56,211 58,720
MINORITY INTEREST 105,574 102,072
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 152,056 148,018
Retained Earnings 3,657,072 3,613,174
------------ ------------
3,989,480 3,941,544
Less Treasury Stock, at Average Cost (1,878,805) (1,896,587)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 2,110,675 2,044,957
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,248,993 $4,300,761
============ ============
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 2, May 3,
1998 1997
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $79,469 $24,873
Impact of Other Operating Activities on Cash Flows:
Net Gain in Connection with Initial Public Offering of Equity
Investee - (5,606)
Special and Nonrecurring Items, Net (53,633) -
Depreciation and Amortization 74,722 75,380
Minority Interest, Net of Dividends Paid 3,502 (512)
Changes in Assets and Liabilities:
Accounts Receivable 1,768 (10,789)
Inventories (53,381) (83,753)
Accounts Payable and Accrued Expenses (25,910) (60,304)
Income Taxes (138,320) (143,400)
Other Assets and Liabilities (2,074) (4,306)
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NET CASH USED FOR OPERATING ACTIVITIES (113,857) (208,417)
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INVESTING ACTIVITIES:
Capital Expenditures (62,180) (83,881)
Proceeds From Sale of Interest in Investee 131,262 -
----------- ----------
NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES 69,082 (83,881)
----------- ----------
FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper Borrowings - 65,990
Dividends Paid (35,571) (32,529)
Stock Options and Other 21,820 3,495
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NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (13,751) 36,956
----------- ----------
NET DECREASE IN CASH AND EQUIVALENTS (58,526) (255,342)
Cash and Equivalents, Beginning of Year 746,395 312,796
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CASH AND EQUIVALENTS, END OF PERIOD $687,869 $57,454
=========== ==========
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) where the Company
has the ability to significantly influence operating and financial policies
are accounted for on the equity method.
The consolidated financial statements as of and for the periods ended May
2, 1998 and May 3, 1997 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's 1997 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 May 2, 1998 and for the
thirteen week periods ended May 2, 1998 and May 3, 1997 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. EARNINGS PER SHARE
Weighted average common shares outstanding (thousands):
Thirteen Weeks Ended
--------------------
May 2, May 3,
1998 1997
--------- --------
Common shares issued 379,454 379,454
Treasury shares (105,616) (108,132)
--------- --------
Basic shares 273,838 271,322
Dilutive effect of stock options and restricted shares 5,524 1,156
--------- --------
Diluted shares 279,362 272,478
========= ========
Options to purchase 0.1 million and 4.3 million shares of common stock were
outstanding at quarter-end for 1998 and 1997, but were not included in the
computation of earnings per share because the options' exercise price was
greater than the average market price of the common shares during the
period. Exercise of the 18.75 million
6
shares subject to the Contingent Stock Redemption Agreement did not have a
dilutive effect on earnings per share.
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.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
May 2, January 31,
1998 1998
----------- -----------
Property and equipment, at cost $3,097,865 $3,104,612
Accumulated depreciation and
amortization (1,606,075) (1,584,704)
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Property and equipment, net $1,491,790 $1,519,908
=========== ===========
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 2, 1998 and May 3, 1997 approximated $154.7 million and $160.4
million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for years 1992 to 1994 related to the treatment of
transactions involving the Company's foreign operations for which the
Company has provided deferred taxes on the undistributed earnings of
foreign affiliates. The Company strongly disagrees with the IRS position
and is vigorously contesting the assessment. 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 2, January 31,
1998 1998
----------- ----------
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
September 28, 2002. 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 (September 29, 1997),
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 0.1% of the committed amount per annum. The Company
is in compliance with covenants contained in the Agreement relating to the
Company's working capital, debt and net worth. No amounts were outstanding
under the Agreement as of May 2, 1998.
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. No commercial paper was outstanding at May 2, 1998.
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 2, 1998 and May 3, 1997
approximated $24.1 million and $24.4 million.
7. SPECIAL ITEMS
During the first quarter of 1998, the company recognized a pretax gain of
$93.7 million from the sale of its remaining interest in Brylane, Inc., a
specialty catalogue retailer. This gain was partially offset by a $5.1
million pretax charge for severance and other associate termination costs
related to the closing of five of six Henri Bendel stores. At May 2, 1998
$3.0 million of these charges were paid.
During first quarter of 1997, the Company recognized a pretax gain of $8.6
million in connection with the initial public offering of Brylane, Inc.
During 1997, the Company recorded pretax special and nonrecurring charges
related to closing the Cacique lingerie business, streamlining the Henri
Bendel business from six stores to one store, recognizing impaired asset
charges and closing and downsizing certain stores, principally at the
women's businesses. Write-downs related to the noncash component of the
charge were recognized in 1997. Outlays for the cash component of the
charge are expected to approximate $70 to $80 million during 1998, leaving
a remaining accrual at year-end of $20 to $30 million, principally for
contractual obligations. Cash outlays of $20 million during the first
quarter of 1998 were principally for store closings.
8. SUBSEQUENT EVENT - ABERCROMBIE & FITCH EXCHANGE OFFER
On May 19, 1998, the Company completed a tax-free exchange offer to
establish Abercrombie & Fitch ("A&F") as an independent company. The
Limited accepted 47,075,052 shares of its common stock that were exchanged
at a ratio of .86 of a share of A&F common stock for each Limited share
accepted for exchange. In addition, on June 1, 1998 The Limited effected a
pro rata spin-off to its shareholders of its remaining 3,115,455 A&F
shares. Limited shareholders of record as of the close of trading on May
29, 1998 received .013673 of a share of A&F for each Limited share owned at
that time.
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 2, 1998, and the related condensed consolidated
statements of income and cash flows for the thirteen-week periods ended May 2,
1998 and May 3, 1997. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1998, 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
20, 1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 31, 1998, 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
May 18, 1998
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the first quarter of 1998 grew 10% to $2.008 billion from $1.830
billion a year ago. Operating income increased to $145.0 million compared to
operating income of $49.6 million for 1997. Operating income in 1998 included a
$93.7 million pretax gain from the sale of the Company's remaining interest in
Brylane, Inc. that was partially offset by a $5.1 million pretax charge for
severance and other associate termination costs at Henri Bendel during the first
quarter. Excluding these special and nonrecurring items, operating income
increased 14% to $56.4 million. Net income increased to $79.5 million compared
to $24.9 million in 1997, and earnings per share increased to $.28 from $.09 in
1997. Exclusive of these special and nonrecurring items and the 1997 gain
arising in connection with the initial public offering of Brylane, Inc., net
income increased 34% in 1998 to $25.8 million compared to $19.3 million for 1997
and earnings per share increased to $.09 from $.07 in 1997.
Business highlights include the following:
The Intimate Brands businesses began 1998 with an 18% increase in operating
income, led by Victoria's Secret Stores which recorded a 6% comparable store
sales increase while operating income increased more than 30%.
The women's businesses showed improvement with an 8% increase in comparable
store sales, led by Express with a 20% increase in comparable store sales off of
last year's disappointing 30% decrease.
Abercrombie & Fitch Co. also significantly improved first quarter operating
income, supported by a 48% comparable store sales increase.
10
Financial Summary
- -----------------
The following summarized financial data compares the thirteen week period ended
May 2, 1998 to the comparable 1997 period:
First Quarter First Quarter % Change
1998 1997 From Prior Year
------------- ------------- ---------------
Net Sales (millions):
Victoria's Secret Stores $362 $325 11%
Victoria's Secret Catalogue 199 180 11%
Bath & Body Works 205 177 16%
Cacique - 19 N/M
Other 5 3 N/M
------------- ------------- ---------------
Total Intimate Brands 771 704 10%
------------- ------------- ---------------
Express 269 224 20%
Lerner New York 202 195 4%
Lane Bryant 211 204 3%
The Limited 171 180 (5%)
Henri Bendel 12 25 (52%)
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Total Women's Businesses 865 828 4%
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Structure 121 127 (5%)
The Limited Too 82 66 24%
Galyan's 35 31 13%
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Total Emerging Businesses 238 224 6%
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Abercrombie & Fitch 134 74 81%
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Total Net Sales $2,008 $1,830 10%
============= ============= ===============
11
First Quarter First Quarter % Change
1998 1997 From Prior Year
------------- ------------- ---------------
Operating Income (Loss) (millions):
Intimate Brands $71 $60 18%
Women's Businesses (40)* (26) (54%)
Emerging Businesses 104* 14 N/M
Abercrombie & Fitch 10 2 400%
------------- -------------
Total Operating Income $145 $50 12%
============= =============
Increase (Decrease) in Comparable Store Sales:
Victoria's Secret Stores 6% 7%
Bath & Body Works (1%) 13%
Cacique - 4%
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Total Intimate Brands 4% 8%
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Express 20% (30%)
Lerner New York 10% (7%)
Lane Bryant 5% (7%)
The Limited (2%) (2%)
Henri Bendel (27%) 2%
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Total Women's Businesses 8% (13%)
------------- -------------
Structure (5%) (2%)
The Limited Too 23% 35%
Galyan's (2%) 5%
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Total Emerging Businesses 3% 8%
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Abercrombie & Fitch 48% 14%
------------- -------------
Total comparable store sales increase (decrease) 8% (4%)
============= =============
Retail sales increase attributable to new and
remodeled stores 2% 6%
Retail sales per average selling square foot $64.03 $58.12 10%
Retail sales per average store (thousands) $322 $293 10%
Average store size at end of
quarter (selling square feet) 5,001 5,024 -
Retail selling square feet (thousands) 28,000 28,278 (1%)
Number of Stores:
Beginning of year 5,640 5,633
Opened 64 71
Closed (105) (75)**
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End of period 5,599 5,629
============= =============
* The women's businesses include a $5 million charge and the emerging
businesses include $94 million in income for special and nonrecurring
items (see Note 7).
** Includes sale of four Penhaligon's stores in April 1997.
12
Number of Stores Selling Sq. Ft. (thousands)
------------------------------------------ ------------------------------------------
Change Change
May 2, May 3, From Prior May 2, May 3, From Prior
1998 1997 Year 1998 1997 Year
------------ ------------ ------------ ------------ ------------ ------------
Victoria's Secret Stores 797 742 55 3,580 3,360 220
Bath & Body Works 960 796 164 1,868 1,457 411
Cacique - 118 (118) - 362 (362)
------------ ------------ ------------ ------------ ------------ ------------
Total Intimate Brands 1,757 1,656 101 5,448 5,179 269
------------ ------------ ------------ ------------ ------------ ------------
Express 735 751 (16) 4,674 4,737 (63)
Lerner New York 697 759 (62) 5,391 5,824 (433)
Lane Bryant 773 815 (42) 3,735 3,897 (162)
The Limited 614 651 (37) 3,709 3,909 (200)
Henri Bendel 1 6 (5) 35 113 (78)
------------ ------------ ------------ ------------ ------------ ------------
Total Women's Businesses 2,820 2,982 (162) 17,544 18,480 (936)
------------ ------------ ------------ ------------ ------------ ------------
Structure 540 541 (1) 2,135 2,120 15
The Limited Too 313 309 4 983 970 13
Galyan's 11 9 2 641 488 153
------------ ------------ ------------ ------------ ------------ ------------
Total Emerging Businesses 864 859 5 3,759 3,578 181
Abercrombie & Fitch 158 132 26 1,249 1,041 208
------------ ------------ ------------ ------------ ------------ ------------
Total stores and selling sq. ft. 5,599 5,629 (30) 28,000 28,278 (278)
============ ============ ============ ============ ============ ============
Net Sales
- ---------
Net sales for the first quarter of 1998 increased 10% over the first quarter of
1997, primarily as a result of the 8% increase in comparable store sales. During
the first quarter of 1998, the Company opened 64 new stores, remodeled 124
stores and closed 105 stores.
Sales at the Intimate Brand's businesses for the first quarter of 1998 increased
10% over the same period last year. This increase was attributable to the net
addition of 219 new stores at Bath & Body Works and Victoria's Secret Stores, a
4% increase in comparable store sales and an 11% increase in catalogue net
sales, offset by a 3% decrease from the closing of Cacique.
Sales at the women's businesses for the first quarter of 1998 increased 4% from
the first quarter of 1997, due to the 8% increase in comparable store sales more
than offsetting the net decrease in stores. The increase in sales performance in
the women's businesses included a 20% increase in comparable store sales at
Express. Significant gains in sales at Limited Too and Abercrombie & Fitch Co.
resulted from comparable store sales increases of 23% and 48%.
13
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 29.2% for the
first quarter of 1998 from 27.4% for the first quarter of 1997. The increase was
attributable to a 1.6% increase in merchandise margins, arising from 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 26.4% for the first quarter of 1998 as compared to 24.7%
for the first quarter of 1997. This increase was attributable to expenses
associated with updating computer systems and applications in preparation for
the Year 2000, expenses associated with the rollout of the merchandise process
redesign and brand building, and an inability to leverage expenses in other
businesses with poor sales results.
Operating Income
- ----------------
Operating income, expressed as a percentage of sales, was 7.2% for the first
quarter of 1998 and 2.7% for 1997. Operating income excluding special and
nonrecurring items, expressed as a percentage of sales, was 2.8% in 1998. Higher
general, administrative and store operating expense nearly offset the increase
in gross income, expressed as a percentage of sales.
Interest Expense
- ----------------
First Quarter
---------------------------
1998 1997
------------ ------------
Average Borrowings (millions) $734.4 $793.5
Average Effective Interest Rate 8.57% 8.34%
Interest expense declined $800 thousand in the first quarter of 1998 versus 1997
as average commercial paper borrowings declined.
Other Income
- ------------
The increase in other income to $16.1 million for the first quarter of 1998 from
the $8.8 million in the first quarter of 1997 was due to significantly higher
average invested cash balances during 1998.
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 2, January 31,
1998 1998
------------ ------------
Working Capital $1,039,840 $937,739
============ ============
Capitalization:
Long-term debt $650,000 $650,000
Shareholders' equity 2,110,675 2,044,957
------------ ------------
Total Capitalization $2,760,675 $2,694,957
============ ============
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 $113.9 million in the first quarter
of 1998 versus $208.4 million in the first quarter last year. The $94.5 million
improvement was primarily attributable to smaller increases in inventory at the
women's businesses and smaller decreases in payables and accrued expenses
compared to the same period last year.
Investing activities included capital expenditures, primarily for new and
remodeled stores and proceeds from the sale of the Company's remaining
investment in Brylane, Inc.
Financing activities for the first quarter of 1998 reflect an increase in the
dividend from $.12 per share to $.13 per share and lower commercial paper
borrowings at quarter end.
Capital Expenditures
- --------------------
Capital expenditures totaled $62.2 million for the first quarter of 1998,
compared to $83.9 million for the first quarter of 1997. The Company anticipates
spending $390 - $410 million for capital expenditures in 1998, of which $200 -
$220 million will be for new stores, the remodeling of existing stores and
related improvements for the retail businesses. Decreases from previously
planned amounts result principally from the split-off of Abercrombie & Fitch, a
reduction in planned stores at Galyan's and a reduction in planned store
additions at other businesses.
The Company expects that 1998 capital expenditures will be funded by net cash
provided by operating activities.
15
Information Systems and "Year 2000" Compliance
- ----------------------------------------------
As discussed in the Company's Annual Report on Form 10-K, the Company has
completed a comprehensive review of its information systems and is involved in
an enterprise-wide program to update computer systems and applications in
preparation for the year 2000. The Company will incur internal staff costs as
well as outside consulting and other expenditures related to this initiative.
Total incremental expenses, including depreciation and amortization of new
package systems, remediation to bring current systems into compliance and
writing off legacy systems are not expected to have a material impact on the
Company's financial condition during any year during the conversion process from
1997 through 2000. However, incremental expenses could total approximately $30
to $35 million in 1998, of which the majority will impact the first three fiscal
quarters of 1998.
The Company is attempting to contact vendors and others on whom it relies to
assure that their systems will be timely converted. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely also will be timely converted or that any such failure to convert by
another company would not have an adverse effect on the Company's systems.
Furthermore, no assurance can be given that any or all of the Company's systems
are or will be Year 2000 compliant, or that the ultimate costs required to
address the Year 2000 issue or the impact of any failure to achieve substantial
Year 2000 compliance will not have a material adverse effect on the Company's
financial condition.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this report or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important factors. The
following factors, among others, in some cases have affected and in the future
could affect the Company's financial performance and actual results and could
cause actual results for 1998 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: 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, postal rate increases and charges, paper and printing
costs, availability of suitable store locations at appropriate terms, ability to
develop new merchandise and ability to hire and train associates.
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 November 13, 1997, the United States District Court for the
Southern District of Ohio, Eastern Division, dismissed with prejudice
an amended complaint previously transferred to that court by the
United States District Court, Central District of California. The
amended complaint, which had been filed against the Company and
certain of its subsidiaries by the American Textile Manufacturers
Institute ("ATMI"), a textile industry trade association, alleged that
the defendants violated the federal False Claims Act by submitting
false country of origin records to the US Customs Service. On November
26, 1997, ATMI served a motion to alter or amend judgment and a motion
to disqualify the presiding judge and to vacate the order of
dismissal. The motion to disqualify was denied on December 22, 1997,
but as a matter of his personal discretion, the presiding judge
elected to recuse himself from further proceedings and this matter was
transferred to another judge of the United States District Court for
the Southern District of Ohio, Western Division. On May 21, 1998, this
judge reaffirmed the earlier dismissal and denied all pending motions
seeking to alter, amend or vacate the judgment that had been entered
in favor of the Company. On June 5, 1998, ATMI filed a notice of
appeal to the United States Court of Appeals for the Sixth Circuit.
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 18, 1998.
The matters voted upon and the results of the voting were as follows:
(a) Eugene M. Freeman, Kenneth B. Gilman, David Kollat and Leslie H.
Wexner were elected to the Board of Directors for a term of three
years. Of the 230,690,672 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:
17
Shares Shares as to Which
Voted For Voting Authority
Name Election Withheld
-------------------- -------------------- --------------------
Eugene M. Freedman 226,984,270 3,706,402
Kenneth B. Gilman 226,911,455 3,779,217
David T. Kollat 227,028,389 3,662,283
Leslie H. Wexner 226,862,483 3,828,189
In addition, directors whose term of office continued after the Annual
Meeting were: E. Gordon Gee, Claudine B. Malone, Leonard A.
Schlesinger, Donald B. Shackelford, Allan R. Tessler, Martin Trust,
Abigail S. Wexner, and Raymond P. Zimmerman.
(b) The 1998 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan was approved with 168,032,396 shares voted
for approval, 29,538,451 against and 281,659 abstained.
(c) 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 180,827,245 shares were voted
against the proposal, while 6,288,676 were voted for and 10,736,585
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.
18
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 September 25, 1997 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 Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997.
10. Material Contracts
10.1 The 1998 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan incorporated by reference to Exhibit A
to the Company's Proxy Statement dated April 20, 1998.
10.2 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.
10.3 The Limited, Inc. Incentive Compensation Performance Plan
incorporated by reference to Exhibit A to the Company's Proxy
Statement dated April 14, 1997.
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.
-------------------
19
i. On February 17, 1998 the Company filed a report on Form 8-K which included
an exhibit containing a press release dated February 17, 1998.
ii. On April 9, 1998 the Company filed a report on Form 8-K which included an
exhibit containing a press release dated April 9, 1998.
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: June 11, 1998
- -------------------------------
* 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
----------- ------------------------------------
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 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
Thirteen Weeks Ended
---------------------------------
May 2, May 3,
1998 1997
-------------- ---------------
Adjusted Earnings
- -----------------
Income before income taxes $137,469 $44,873
Portion of minimum rent ($191,238 in 1998
and $179,081 in 1997) representative
of interest 63,746 59,694
Interest on indebtedness 15,741 16,547
Minority interest 7,923 5,647
-------------- --------------
Total earnings as adjusted $224,879 $126,761
============== ==============
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $63,746 $59,694
Interest on indebtedness 15,741 16,547
-------------- --------------
Total fixed charges $79,487 $76,241
============== ==============
Ratio of earnings to fixed charges 2.83x 1.66x
============== ==============
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 May 18, 1998, on our review of the interim
consolidated financial information of The Limited, Inc. and Subsidiaries for the
thirteen-week period ended May 2, 1998 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 8, 1998
5
1,000
3-MOS
JAN-30-1999
FEB-01-1998
MAY-02-1998
687,869
0
81,723
121
1,056,091
2,014,773
3,097,865
(1,606,075)
4,248,993
974,933
650,000
0
0
180,352
1,930,323
4,248,993
2,008,077
2,008,077
1,421,407
1,421,407
530,323
0
15,741
137,469
58,000
79,469
0
0
0
79,469
$.29
$.28
