SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 3, 1996 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ------------ Commission file number 1-8344 ------ THE LIMITED, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 31-1029810 - --------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216 --------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (614) 479-7000 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.50 Par Value Outstanding at August 30, 1996 ------------------------------ 270,967,452 Shares
THE LIMITED, INC. TABLE OF CONTENTS <TABLE> <CAPTION> Page No. -------- <S> <C> Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income Thirteen and Twenty-six Weeks Ended August 3, 1996 and July 29, 1995................................ 3 Consolidated Balance Sheets August 3, 1996 and February 3, 1996............................. 4 Consolidated Statements of Cash Flows Twenty-six Weeks Ended August 3, 1996 and July 29, 1995................................ 5 Notes to Consolidated Financial Statements.......................... 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition................ 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................. 19 </TABLE>
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS THE LIMITED, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Thousands except per share amounts) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended Twenty-six Weeks Ended ----------------------- ------------------------- August 3, July 29, August 3, July 29, 1996 1995 1996 1995 ----------- ---------- ----------- ----------- <S> <C> <C> <C> <C> NET SALES $1,895,601 $1,718,643 $3,683,544 $3,306,777 Cost of Goods Sold, Occupancy and Buying Costs 1,403,692 1,294,947 2,722,094 2,480,415 ---------- ---------- ----------- ---------- GROSS INCOME 491,909 423,696 961,450 826,362 General, Administrative and Store Operating Expenses 410,367 326,943 826,072 649,589 ---------- ---------- ----------- ---------- OPERATING INCOME 81,542 96,753 135,378 176,773 Interest Expense (18,734) (20,200) (35,281) (36,688) Other Income, Net 6,512 4,209 23,654 6,888 Minority Interest (8,170) - (12,449) - ---------- ---------- ----------- ---------- INCOME BEFORE INCOME TAXES 61,150 80,762 111,302 146,973 Provision for Income Taxes 28,000 32,000 50,000 59,000 ---------- ---------- ----------- ---------- NET INCOME $ 33,150 $ 48,762 $ 61,302 $ 87,973 ========== ========== ========== ========== NET INCOME PER SHARE $.12 $.14 $.21 $.25 ========== ========== ========== =========== DIVIDENDS PER SHARE $.10 $.10 $.20 $.20 ========== ========== ========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 272,077 358,961 291,284 358,468 ========== ========== ========== =========== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 3
THE LIMITED, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands) <TABLE> <CAPTION> August 3, February 3, ASSETS 1996 1996 ------ ----------- ----------- (Unaudited) <S> <C> <C> CURRENT ASSETS: Cash and Equivalents $ 33,050 $1,645,731 Accounts Receivable 96,282 77,516 Inventories 1,116,060 958,953 Other 137,692 117,832 ----------- ---------- TOTAL CURRENT ASSETS 1,383,084 2,800,032 PROPERTY AND EQUIPMENT, NET 1,772,019 1,741,456 RESTRICTED CASH 351,600 351,600 OTHER ASSETS 382,201 373,475 ----------- ---------- TOTAL ASSETS $ 3,888,904 $5,266,563 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts Payable $ 343,897 $ 280,659 Accrued Expenses 400,146 388,818 Commercial Paper 116,982 - Notes Payable 150,000 - Income Taxes 6,101 47,098 ----------- ---------- TOTAL CURRENT LIABILITIES 1,017,126 716,575 LONG-TERM DEBT 650,000 650,000 DEFERRED INCOME TAXES 166,998 250,857 OTHER LONG-TERM LIABILITIES 50,736 50,791 MINORITY INTEREST 47,068 45,699 CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600 SHAREHOLDERS' EQUITY: Common Stock 180,352 180,352 Paid-in Capital 141,315 137,134 Retained Earnings 3,207,492 3,200,350 ----------- ---------- 3,529,159 3,517,836 Less Treasury Stock, at Average Cost (1,923,783) (316,795) ----------- ---------- TOTAL SHAREHOLDERS' EQUITY 1,605,376 3,201,041 ----------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,888,904 $5,266,563 =========== ========== </TABLE> 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) <TABLE> <CAPTION> Twenty-six Weeks Ended ---------------------- August 3, July 29, 1996 1995 ---------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 61,302 $ 87,973 Impact of Other Operating Activities on Cash Flows: Depreciation and Amortization 144,346 141,410 Minority Interest, Net of Dividends Paid 1,369 - Changes in Assets and Liabilities: Accounts Receivable (18,766) 30,822 Inventories (157,107) (193,488) Accounts Payable and Accrued Expenses 74,566 79,090 Income Taxes (124,856) (119,039) Other Assets and Liabilities (12,544) (31,597) ----------- --------- NET CASH USED FOR OPERATING ACTIVITIES (31,690) (4,829) ----------- --------- INVESTING ACTIVITIES: Capital Expenditures (191,006) (170,345) Businesses Acquired - (18,000) ----------- --------- NET CASH USED FOR INVESTING ACTIVITIES (191,006) (188,345) ----------- --------- FINANCING ACTIVITIES: Net Proceeds from Commercial Paper Borrowings and Certificates of Deposit 116,982 35,800 Proceeds from Short-Term Borrowings 150,000 250,000 Dividends Paid (54,160) (71,261) Purchase of Treasury Stock (1,615,130) (8,981) Stock Options and Other 12,323 7,427 ----------- --------- NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (1,389,985) 212,985 ----------- --------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (1,612,681) 19,811 Cash and Equivalents, Beginning of Year 1,645,731 242,780 ----------- --------- CASH AND EQUIVALENTS, END OF PERIOD $ 33,050 $ 262,591 =========== ========= </TABLE> 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 August 3, 1996 and July 29, 1995 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the Company's 1995 Annual Report. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year. The consolidated financial statements as of August 3, 1996 and for the thirteen and twenty-six week periods ended August 3, 1996 and July 29, 1995 included herein have been reviewed by the independent accounting firm of Coopers & Lybrand L.L.P. and the report of such firm follows the notes to consolidated financial statements. 2. ADOPTION OF ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock - Based Compensation". The Company will make the required disclosures in its 1996 Annual Report. 3. INVENTORIES The fiscal year of the Company and its subsidiaries is comprised of two principal selling seasons: Spring (the first and second quarters) and Fall (the third and fourth quarters). Valuation of finished goods inventories is based principally upon the lower of average cost or market determined on a first-in, first-out basis utilizing the retail method. Inventory valuation at the end of the first and third quarters reflects adjustments for inventory markdowns and shrinkage estimates for the total selling season. 6
4. PROPERTY AND EQUIPMENT, NET Property and equipment, net, consisted of (thousands): <TABLE> <CAPTION> August 3, February 3, 1996 1996 ----------- ----------- <S> <C> <C> Property and equipment, at cost $ 3,150,493 $ 3,018,757 Accumulated depreciation and amortization (1,378,474) (1,277,301) ----------- ----------- Property and equipment, net $ 1,772,019 $ 1,741,456 =========== =========== </TABLE> 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 3, 1996 and July 29, 1995 approximated $141.9 million and $156.5 million. The Internal Revenue Service has assessed the Company for additional taxes and interest for years 1989 - 1992. The assessment was based primarily on the treatment of transactions involving the Company's foreign operations and construction allowances. Although a deposit has been made to mitigate further interest being assessed, 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): <TABLE> <CAPTION> August 3, February 3, 1996 1996 ---------- ----------- <S> <C> <C> 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 ======== ======== </TABLE> 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), 7
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 3, 1996. 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 3, 1996 approximated $117 million. Two subsidiaries at Abercrombie & Fitch Co. ("A&F"), a wholly-owned subsidiary of the Company, borrowed $150 million under a bank credit agreement in July 1996. The borrowings are guarenteed by A&F. The LIBOR- related interest rate at August 3, 1996 was 5.92%. The agreement places certain limitations on A&F and contains financial covenants, including fixed charge coverage and a maximum ratio of debt to earnings before income taxes, depreciation and amortization. The amounts borrowed are repayable in nine consecutive semi-annual installments, commencing on June 30, 1997, provided that borrowings must be repaid by the excess cash flow (as defined in the credit agreement) of A&F, which will include the net proceeds of any public offering. In addition, any outstanding borrowings must be paid in full in the event that the Company ceases to own directly at least 80% of the outstanding stock of A&F. 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 3, 1996 and July 29, 1995 approximated $34.6 million and $34.5 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. RECENT DEVELOPMENT On June 26, 1996, the Company announced that the Board of Directors approved a plan to file a registration statement for an initial public offering of Abercrombie & Fitch Co., a wholly-owned subsidiary. On August 29, 1996, Abercrombie & Fitch Co. filed a Registration Statement with the Securities and Exchange Commission. It is expected that the new company will be approximately 86% owned by the Company, with the balance owned by public shareholders. This action represents the next step in the Company's plan, announced in Spring 1995, to reconfigure the Company in a manner designed to encourage entrepreneurial management, yield improved operating performance, develop new growth opportunities and increase shareholder value. 8
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 3, 1996, and the related condensed consolidated statements of income and cash flows for the thirteen-week and twenty six-week periods ended August 3, 1996 and July 29, 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of February 3, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 26, 1996, except for paragraph 11 in Note 1 and Note 9, as to which the date is March 18, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND L.L.P. Columbus, Ohio September 10, 1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS During the second half of 1995 and the first quarter of 1996, the Company entered into a series of transactions that affected the comparability of the quarterly financial statements: 1) the initial public offering of a 16.9% interest in Intimate Brands, Inc. ("IBI"); 2) the sale of a 60% interest in the Company's previously wholly-owned credit card bank, World Financial Network National Bank ("WFNNB"); and 3) a reduction in outstanding shares reflecting the Company's 85 million share repurchase via a self-tender consummated effective March 17, 1996. Accordingly, to aid in the analysis of second quarter and year- to-date 1996 financial information as compared to the respective periods in 1995, certain pro-forma adjustments, including the tax impact, have been made to the 1996 and 1995 results as follows: 1) the 1995 general, administrative and store operating expenses have been adjusted for the fourth quarter 1995 sale of a 60% interest in WFNNB, as if the sale had been consummated at the beginning of 1995; 2) the 1995 income statement has been adjusted to reflect the minority interest arising from the IBI transaction as if it had occurred as of the beginning of 1995; 3) weighted average shares outstanding have been reduced to reflect the 85 million share repurchase as if it occurred at the beginning of 1995; and 4) the 1996 income statement has been adjusted to remove $10.5 million in interest income earned in the first quarter from the temporary investment of the proceeds from the IBI and WFNNB transactions that were used to consummate the self-tender effective March 17, 1996. The adjusted pro-forma summary income information is presented below. <TABLE> <CAPTION> Second Quarter Second Quarter 1995 1996 ----------------------------------------------- ---------------- Adjusted As Reported Pro-Forma Pro-Forma As Reported July 29, 1995 Adjustments July 29, 1995 August 3, 1996 ------------- ------------- --------------- ---------------- <S> <C> <C> <C> <C> Net sales $1,718,643 $ - $1,718,643 $1,895,601 Gross income 423,696 - 423,696 491,909 General, administrative and store operating expenses (326,943) (25,328)(a) (352,271) (410,367) ---------- -------- ---------- ---------- Operating income 96,753 (25,328) 71,425 81,542 Interest expense (20,200) - (20,200) (18,734) Other income, net 4,209 - 4,209 6,512 Minority interest - (5,733)(b) (5,733) (8,170) ---------- -------- ---------- ---------- Income before taxes 80,762 (31,061) 49,701 61,150 Provision for income taxes 32,000 (11,000)(c) 21,000 28,000 ---------- -------- ---------- ---------- Net income $ 48,762 $(20,061) $ 28,701 $ 33,150 ========== ======== ========== ========== Net income per share $0.14 $0.10(e) $0.12 ========== ========== ========== Weighted average shares outstanding 358,961 273,961(e) 272,077 ========== ========== ========== </TABLE> 10
<TABLE> <CAPTION> Year - to - Year - to - Date 1995 Date 1996 ---------------------------------------------------------------- ------------------ Adjusted Adjusted As Reported Pro-Forma Pro-Forma July Pro-Forma July 29, 1995 Adjustments 29, 1995 August 3, 1996 --------------- ---------------- ------------------ ------------------ <S> <C> <C> <C> <C> Net sales $3,306,777 $ - $3,306,777 $3,683,544 Gross income 826,362 - 826,362 961,450 General, administrative and store operating expenses (649,589) (54,138)(a) (703,727) (826,072) --------------- ---------------- ------------------ ------------------ Operating income 176,773 (54,138) 122,635 135,378 Interest expense (36,688) - (36,688) (35,281) Other income, net 6,888 - 6,888 13,154(d) Minority interest - (9,881)(b) (9,881) (12,449) --------------- ---------------- ------------------ ------------------ Income before taxes 146,973 (64,019) 82,954 100,802 Provision for income taxes 59,000 (25,000)(c) 34,000 46,000(c) --------------- ---------------- ------------------ ------------------ Net income $ 87,973 $(39,019) $ 48,954 $ 54,802 =============== ================ ================== ================== Net income per share $0.25 $0.18(e) $0.20(e) =============== ================== ================== Weighted average shares outstanding 358,468 273,468(e) 271,669(e) =============== ================== ================== </TABLE> (a) Sale of a 60% interest in WFNNB as if it were consummated at the beginning of 1995. (b) Minority interest in IBI as if the transaction was consummated at the beginning of 1995. (c) Tax affect of above pro-forma adjustments. (d) Reduce 1996 interest income by $10.5 million earned from the temporary investment of the proceeds from the IBI and WFNNB transactions that were used to consummate the self-tender. (e) Net income per share and weighted average shares outstanding have been adjusted for the impact of the self-tender for 85 million shares effective March 17, 1996 as if it were consummated at the beginning of 1995. During the second quarter of 1996, net sales increased 10% to $1.896 billion compared to $1.719 billion a year ago. Net income for the quarter increased 16% to $33.2 million compared to pro-forma net income of $28.7 million last year. Earnings per share were $.12 compared to pro-forma earnings per share of $.10 in 1995. Highlights include the following: Victoria's Secret Stores had a 14% sales gain with an operating income increase of 16%. The quarter ended with the launch of the "Perfect Silhouette", a perfectly smooth and seamless bra, supported by a national TV campaign. 11
Bath & Body Works achieved a 60% sales gain and a 50% increase in operating income. During the second quarter, Bath & Body Works successfully introduced Hairworks and New Albany Stables haircare, and added 75 stores, including the opening of its 600/th/ store. Although the women's businesses in total continued to underperform in the second quarter due principally to the Express division, results at Limited Stores and Lerner were encouraging. Limited Stores attained a 9% comparable store sales gain and reduced its operating losses by nearly half. Lerner accomplished an improvement in profitability and a 3% comparable store sales gain. Abercrombie & Fitch Co. also delivered record second quarter sales and operating income bolstered by a 16% comparable store sales gain and a 49% increase in total sales. Structure had a strong turnaround in sales momentum with 7% comparable store gains. Sales for the twenty-six weeks ended August 3, 1996 increased 11% to $3.684 billion compared to $3.307 billion in 1995. Pro-forma 1996 net income increased 12% to $54.8 million from pro-forma 1995 net income of $49.0 million. Pro-forma 1996 earnings per share were $.20 compared to 1995 pro-forma earnings per share of $.18. 12
Financial Summary - ----------------- The following summarized financial data compares the thirteen and twenty-six week periods ended August 3, 1996 to the comparable periods for 1995: <TABLE> <CAPTION> Second Quarter Year - to - Date ------------------------------------------- ----------------------------------------- Change Change From From Prior Prior 1996 1995 Year 1996 1995 Year ---------- ---------- ------------ ---------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> Net Sales (millions): Victoria's Secret Stores $ 319 $ 281 14% $ 605 $ 522 16% Victoria's Secret Catalogue 176 168 5% 343 323 6% Bath & Body Works 134 84 60% 245 151 62% Cacique 21 18 17% 40 33 21% Other 3 3 - 6 4 50% --------- -------- -------- ---------- ---------- -------- Total Intimate Brands, Inc. $ 653 $ 554 18% $1,239 $1,033 20% --------- -------- -------- ---------- ---------- -------- Express 317 313 1% 632 617 2% Lerner New York 225 224 - 446 443 1% Lane Bryant 207 207 - 426 411 4% Limited Stores 205 190 7% 393 370 6% Henri Bendel 18 19 (5%) 40 40 - --------- -------- -------- ---------- ---------- -------- Total Women's Businesses $ 972 $ 953 2% $1,937 $1,881 3% --------- -------- -------- ---------- ---------- -------- Structure 146 124 18% 269 228 18% Abercrombie & Fitch Co. 57 39 46% 109 72 51% The Limited Too 48 44 9% 93 88 6% Galyan's (since 7/2/95) 20 5 37 5 --------- -------- -------- ---------- ---------- -------- Total Emerging Businesses $271 $212 28% $508 $393 29% --------- -------- -------- ---------- ---------- -------- Total Net Sales $1,896 $1,719 10% $3,684 $3,307 11% ========= ======== ======== ========== ========== ======== Operating Income (millions): Intimate Brands, Inc. $ 87 $ 73 19% $ 136 $ 113 20% Women's Businesses (19) (5) (280%) (15) 7 (314%) Emerging Businesses 14 3* 366% 14 3* 366% --------- -------- -------- ---------- ---------- -------- Total Operating Income $ 82 $ 71* 15% $ 135 $ 123* 10% ========= ======== ======== ========== ========== ======== </TABLE> * Reflects adjusted pro-forma results. Historical operating income for the Emerging Businesses (including WFNNB) was $29 million and $57 million in the second quarter and year-to-date period of 1995 and total operating income was $97 million and $177 million in the same periods. 13
<TABLE> <CAPTION> Second Quarter Year - to - Date ------------------------------------------ ----------------------------------------- Change Change From From 1996 1995 Prior Year 1996 1995 Prior Year ---------- ---------- ------------ ---------- ----------- ---------- <S> <C> <C> <C> <C> <C> <C> Increase (decrease) in comparable store sales: Victoria's Secret Stores 3% 2% 5% 2% Bath & Body Works 11% 26% 12% 27% Cacique 11% (22%) 15% (25%) ---------- ---------- ---------- ----------- Total Intimate Brands, Inc. 5% 4% 7% 3% ---------- ---------- ---------- ----------- Express (2%) 3% (2%) 5% Lerner New York 3% 2% 2% 1% Lane Bryant (2%) (5%) 1% (7%) Limited Stores 9% (9%) 8% (11%) Henri Bendel (8%) 7% 0% 9% ---------- ---------- ---------- ----------- Total Women's Businesses 1% (2%) 2% (2%) ---------- ---------- ---------- ----------- Structure 7% (4%) 7% (4%) Abercrombie & Fitch Co. 16% 0% 16% 3% The Limited Too (7%) 14% (12%) 10% Galyan's (since 7/2/96) 7% N/A 7% N/A ---------- ---------- ---------- ----------- Total Emerging Businesses 6% 0% 5% 0% ---------- ---------- ---------- ----------- Total comparable store sales increase (decrease) 3% 0% 4% (1%) ========== ========== ========== =========== Retail sales increase attributable to new and remodeled stores 8% 7% 8% 7% Retail sales per average selling square foot $62.10 $59.17 5% $120.89 $114.42 6% Retail sales per average store (thousands) $ 318 $ 310 3% $ 621 $ 601 3% Average store size at end of quarter (square feet) 5,098 5,246 (3%) Retail selling square feet (thousands) 27,804 26,480 5% Number of stores: Beginning of period 5,352 4,954 5,298 4,867 Opened 128 101 208 198 Acquired - 6 - 6 Closed (26) (13) (52) (23) ---------- ---------- ---------- ----------- End of period 5,454 5,048 5,454 5,048 ========== ========== ========== =========== </TABLE> 14
<TABLE> <CAPTION> Number of Stores Selling Sq. Ft. (thousands) -------------------------------------- ------------------------------------- Change Change August 3, July 29, From August 3, July 29, From 1996 1995 Prior Year 1996 1995 Prior Year --------- --------- ---------- --------- -------- ---------- <S> <C> <C> <C> <C> <C> <C> Victoria's Secret Stores 703 629 74 3,195 2,763 432 Bath & Body Works 603 383 220 1,042 622 420 Cacique 120 116 4 368 350 18 Penhaligon's 4 4 - 2 2 - --------- --------- ---------- --------- -------- ---------- Total Intimate Brands, Inc. 1,430 1,132 298 4,607 3,737 870 --------- --------- ---------- --------- -------- ---------- Express 750 722 28 4,688 4,461 227 Lerner New York 814 838 (24) 6,225 6,495 (270) Lane Bryant 825 815 10 3,954 3,880 74 Limited Stores 681 712 (31) 4,142 4,315 (173) Henri Bendel 4 4 - 88 88 - --------- --------- ---------- --------- -------- ---------- Total Women's Businesses 3,074 3,091 (17) 19,097 19,239 (142) --------- --------- ---------- --------- -------- ---------- Structure 534 481 53 2,067 1,837 230 Abercrombie & Fitch Co. 106 77 29 830 617 213 The Limited Too 304 261 43 953 818 135 Galyan's 6 6 - 250 232 18 --------- --------- ---------- --------- -------- ---------- Total Emerging Businesses 950 825 125 4,100 3,504 596 --------- --------- ---------- --------- -------- ---------- Total stores and selling square feet 5,454 5,048 406 27,804 26,480 1,324 ========= ========= ========== ========= ======== ========== </TABLE> Net Sales - --------- Net sales for the second quarter of 1996 increased 10% as compared to the second quarter of 1995 primarily as a result of the 3% increase in comparable store sales and the net addition of new and remodeled stores. During the second quarter of this year, the Company opened 128 new stores, remodeled 75 stores and closed 26 stores. Consistent with the second quarter, the year-to-date 1996 sales increase of 11% was a result of the 4% increase in comparable store sales and the net addition of 406 stores since the second quarter of 1995. Sales at the Intimate Brands, Inc. businesses for the second quarter of 1996 increased 18% over the same period last year and accounted for over half of the total Limited, Inc. sales increase. This increase was attributable to the net addition of 298 new stores, a 5% increase in comparable store sales and a 5% increase in catalogue net sales. Year-to-date Intimate Brands, Inc. sales increased 20% over the same period in 1995, due to the net addition of new and remodeled stores, a 7% increase in comparable store sales and a 6% increase in catalogue net sales. Sales at the women's businesses for the second quarter and year-to-date periods of 1996 increased 2% and 3%, respectively, compared to the same periods in 1995, primarily due to the 1% and 2% increases in comparable store sales. Disappointing sales results at the Express division, which contributed to lower than expected women's sales results, are expected to continue into the third quarter. Continued strong sales increases at Structure and Abercrombie & Fitch bolstered by comparable store sales increases of 7% and 16%, respectively, accounted for most of the balance of the Company's sales increase. 15
Gross Income - ------------ Gross income increased as a percentage of sales to 26.0% for the second quarter of 1996 from 24.7% for the same period in 1995. This increase was primarily due to an increase in merchandise margins of 1.0%, expressed as a percentage of sales, and buying and occupancy costs, which decreased .3% as a percentage of sales. The increase in merchandise margins was primarily due to improved initial mark-up which more than offset an increase in the markdown rate. The 1996 year-to-date gross income rate increased 1.1% to 26.1% as compared to 1995. This increase was primarily attributable to a decrease in buying and occupancy costs of .7%, expressed as a percentage of sales, due to improved sales leveraging. Merchandise margins increased .4% as a percentage of sales due to improved initial mark-up. General, Administrative and Store Operating Expenses - ---------------------------------------------------- General, administrative and store operating expenses increased as a percentage of sales to 21.6% in the second quarter of 1996 compared to 20.5% on an adjusted pro-forma basis in the second quarter of 1995. This increase was attributable to the inability to leverage expense increases due to poor sales performance at Express and a 2.3% rate increase at the Intimate Brands, Inc. businesses, which is the result of Bath & Body Works' higher contribution of total sales. Although Bath & Body Works has higher general, administrative and store operating expenses as a percentage of sales it also has higher gross margins than other divisions. Year-to-date general, administrative and store operating expenses increased as a percentage of sales to 22.4% in 1996 compared to 21.3% on an adjusted pro-forma basis in 1995. This increase was primarily due to the reasons discussed above, as well as lower sales productivity at Limited Too. During the fourth quarter of 1995, the Company recognized a special and nonrecurring charge of approximately $45.6 million related to the planned closing and downsizing of stores. The Company expects to have taken action on substantially all of the planned closings and downsizings by the end of fiscal 1996. Operating Income - ---------------- Second quarter and year-to-date operating income, as a percentage of sales, was flat in 1996 at 4.3% and 3.7%, respectively, compared to 1995 on an adjusted pro-forma basis as gross income gains were offset by the rate increase from general, administrative and store operating expenses. Interest Expense - --------------------------------- <TABLE> <CAPTION> Second Quarter Year-to-Date --------------- -------------- 1996 1995 1996 1995 ------ ------ ------ ------ <S> <C> <C> <C> <C> Average Borrowings (millions) $916.9 $955.1 $853.9 $846.0 Average Effective Interest Rate 8.17% 8.46% 8.26% 8.67% </TABLE> Interest expense decreased in the second quarter and year-to-date periods of 1996 as compared to the comparable periods of 1995. The decrease in interest expense was primarily due to increased borrowing levels in the second quarter of 1995 associated with $250 million in additional short-term borrowings related to the Intimate Brands, Inc. initial public offering, combined with lower average effective interest rates. 16
Other Income - ------------ The increase in 1996 second quarter and 1996 adjusted pro-forma year-to-date other income of $2.3 million and $6.3 million, respectively, compared to 1995 on an adjusted pro-forma basis was due to interest income earned on the restricted cash balance related to the contingent stock redemption agreement. FINANCIAL CONDITION Liquidity and Capital Resources - ------------------------------- Cash provided from operating activities, commercial paper backed by funds available under committed long-term credit agreements and the Company's capital structure continue to provide the resources to support operations, including projected growth, seasonal requirements and capital expenditures. A summary of the Company's working capital position and capitalization follows (thousands): <TABLE> <CAPTION> Adjusted August 3, February 3, February 3, 1996 1996 1996 * --------- ----------- ----------- <S> <C> <C> <C> Working Capital $ 365,958 $2,083,457 $ 468,457 ========== ========== ========== Capitalization: Long-term debt $ 650,000 $ 650,000 $ 650,000 Deferred income taxes 166,998 250,857 250,857 Shareholders' equity 1,605,376 3,201,041 1,586,041 ---------- ---------- ---------- Total Capitalization $2,422,374 $4,101,898 $2,486,898 ========== ========== ========== Additional amounts available under long-term credit agreements $1,000,000 $1,000,000 $1,000,000 ========== ========== ========== </TABLE> * Adjusted February 3, 1996 reflects the impact of the March 17, 1996 repurchase of 85 million shares of the Company's common stock for $1.615 billion. Net cash used for operating activities was $31.7 million for the twenty-six weeks ended August 3, 1996 versus $4.8 million for the same period of 1995. Cash provided from the payment of accounts receivable was lower in 1996 due to a lower receivables balance at the beginning of the year caused by the sale of a 60% interest in WFNNB in the fourth quarter of 1995. Cash requirements for inventories were lower in 1996 due to a planned decrease in inventories on both a per store and per square foot basis. Investing activities included capital expenditures, primarily for new and remodeled stores. In addition, 1995 included the acquisition of Galyan's for $18 million in cash and stock. Financing activities included proceeds from $150 million in short-term debt. Financing activities also included $1.615 billion used to repurchase 85 million shares of the Company's common stock (see note 7). Financing activities in 1995 included $250 million in short-term debt. 17
Capital Expenditures - -------------------- Capital expenditures totaled $191.0 million during the twenty-six weeks ended August 3, 1996, compared to $170.3 million for the comparable period of 1995. The Company anticipates spending approximately $350 - $385 million for capital expenditures in 1996, of which approximately $220 - $260 million will be for new stores, the remodeling of existing stores and related improvements for the retail businesses. The Company presently anticipates that substantially all 1996 capital expenditures will be funded by net cash provided from operating activities. In addition, the Company presently has available $1 billion under its long-term credit agreement and has the ability to offer up to $250 million of additional debt securities and warrants to purchase debt securities under its shelf registration statement. 18
PART II - OTHER INFORMATION 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. 4. Instruments Defining the Rights of Security Holders. 4.1 Copy of the form of Global Security representing the Company's 7 1/2% Debentures due 2023, incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-K dated March 4, 1993. 4.2 Conformed copy of the Indenture dated as of March 15, 1988 between the Company and The Bank of New York, incorporated by reference to Exhibit 4.1(a) to the Company's Current Report on Form 8-K dated March 21, 1989. 4.3 Copy of the form of Global Security representing the Company's 8 7/8% Notes due August 15, 1999 incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 14, 1989. 4.4 Copy of the form of Global Security representing the Company's 9 1/8% Notes due February 1, 2001 incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 6, 1991. 4.5 Copy of the form of Global Security representing the Company's 7.80% Notes due May 15, 2002, incorporated by reference to the Company's Current Report on Form 8-K dated February 27, 1992. 4.6 Proposed form of Debt Warrant Agreement for Warrants attached to Debt Securities, with proposed form of Debt Warrant Certificate incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (File no. 33-53366) originally filed with the Securities and Exchange Commission (the "Commission") on October 16, 1992 as amended by Amendment No. 1 thereto, filed with the Commission on February 23, 1993 (the "1993 Form S-3"). 4.7 Proposed form of Debt Warrant Agreement for Warrants not attached to Debt Securities, with proposed form of Debt Warrant Certificate incorporated by reference to Exhibit 4.3 to the 1993 Form S-3. 19
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. 4.9 Credit Agreement dated as of June 28, 1996 among Abercrombie & Fitch Stores, Inc., Abercrombie & Fitch Trademark, Inc., the banks listed therein and Chase Manhattan Bank, N.A. as Agent. 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 Report of Independent Accountants. 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/ Kenneth B. Gilman --------------------------------- Kenneth B. Gilman, Vice Chairman and Chief Financial Officer* Date: September 13, 1996 - --------------------------- * Mr. Gilman is the principal financial officer and has been duly authorized to sign on behalf of the Registrant. 21
EXHIBIT INDEX ------------- Exhibit No. Document - ----------- --------------------------- 4.9 Credit Agreement dated as of June 28, 1996 among Abercrombie & Fitch Stores, Inc., Abercrombie & Fitch Trademark, Inc., the banks listed therein and Chase Manhattan Bank, N.A. as Agent. 10.1 Supplemental Schedule of Officer who became a party to an Indemnification Agreement. 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Ratio of Earnings to Fixed Charges. 15 Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Independent Accountants' Report 27 Financial Data Schedule