<PAGE>
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 October 31, 1998
----------------
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) 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 last 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 Outstanding at November 27, 1998
- ----------------------- -------------------------------------
$.50 Par Value 226,307,345 Shares
<PAGE>
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 Thirty-nine Weeks Ended
October 31, 1998 and November 1, 1997........................... 3
Consolidated Balance Sheets
October 31, 1998 and January 31, 1998........................... 4
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended
October 31, 1998 and November 1, 1997........................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................... 11
Part II. Other Information
Item 1. Legal Proceedings................................................... 22
Item 6. Exhibits and Reports on Form 8-K.................................... 22
</TABLE>
2
<PAGE>
PART 1 - 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 Thirty-nine Weeks Ended
---------------------------------------- ---------------------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $1,999,862 $2,070,559 $6,091,040 $5,920,423
Cost of Goods Sold, Occupancy and
Buying Costs 1,383,119 1,449,577 4,272,913 4,259,063
---------------- --------------- --------------- ----------------
GROSS INCOME 616,743 620,982 1,818,127 1,661,360
General, Administrative and Store
Operating Expenses (535,757) (525,750) (1,604,416) (1,443,844)
Special & Nonrecurring Items, Net - 62,785 1,740,030 62,785
---------------- --------------- --------------- ----------------
OPERATING INCOME 80,986 158,017 1,953,741 280,301
Interest Expense (17,074) (17,925) (49,229) (50,744)
Other Income 12,561 6,221 44,309 21,876
Minority Interest (6,118) (7,631) (26,659) (23,910)
Gain in Connection with Initial
Public Offering - - - 8,606
---------------- --------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 70,355 138,682 1,922,162 236,129
Provision for Income Taxes 31,000 59,000 119,000 104,000
================ =============== =============== ================
NET INCOME $ 39,355 $ 79,682 $1,803,162 $ 132,129
================ =============== =============== ================
NET INCOME PER SHARE:
Basic $.17 $.29 $7.34 $.49
=========== ========== ========== ===========
Diluted $.17 $.29 $7.18 $.48
=========== ========== ========== ===========
DIVIDENDS PER SHARE $.13 $.12 $ .39 $.36
=========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
--------------- ---------------
ASSETS (Unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash and Equivalents $ 64,799 $ 746,395
Accounts Receivable 101,474 83,370
Inventories 1,568,996 1,002,710
Store Supplies 95,169 99,167
Other 92,286 99,509
--------------- ---------------
TOTAL CURRENT ASSETS 1,922,724 2,031,151
PROPERTY AND EQUIPMENT, NET 1,530,705 1,519,908
RESTRICTED CASH 351,600 351,600
DEFERRED INCOME TAXES 70,517 56,586
OTHER ASSETS 412,701 341,516
--------------- ---------------
TOTAL ASSETS $ 4,288,247 $ 4,300,761
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 419,939 $ 300,703
Current Portion of Long-term Debt 100,000 -
Accrued Expenses 689,752 676,715
Income Taxes Payable 45,423 115,994
--------------- ---------------
TOTAL CURRENT LIABILITIES 1,255,114 1,093,412
LONG-TERM DEBT 550,000 650,000
OTHER LONG-TERM LIABILITIES 57,776 58,720
MINORITY INTEREST 94,075 102,072
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 149,819 148,018
Retained Earnings 5,315,969 3,613,174
--------------- ---------------
5,646,140 3,941,544
Less: Treasury Stock, at Average Cost (3,666,458) (1,896,587)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 1,979,682 2,044,957
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,288,247 $ 4,300,761
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
------------------------------------
October 31, November 1,
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,803,162 $ 132,129
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 of Tax (1,705,030) (37,785)
Depreciation and Amortization 214,146 226,578
Minority Interest, Net of Dividends Paid 9,262 7,119
Changes in Assets and Liabilities:
Accounts Receivable (19,055) (44,019)
Inventories (602,993) (435,563)
Accounts Payable and Accrued Expenses 177,510 124,877
Income Taxes (121,890) (209,338)
Other Assets and Liabilities (14,102) (34,240)
------------ -------------
NET CASH USED FOR OPERATING ACTIVITIES (258,990) (275,848)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (357,813) (296,363)
Net Proceeds from Sale of Property and Related Assets 51,476 156,731
Proceeds from Sale of Interest in Investee 131,262 108,259
------------ -------------
NET CASH USED FOR INVESTING ACTIVITIES (175,075) (31,373)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper and Other Short-term Borrowings - 101,269
Dividends Paid (94,783) (97,783)
Stock Options and Other 44,042 27,985
Repurchase of Common Stock (43,095) -
Settlement of Abercrombie & Fitch Intercompany Account (47,649) -
Repurchase of Subsidiary Common Stock, Net (106,046) -
------------ -------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (247,531) 31,471
------------ -------------
NET DECREASE IN CASH AND EQUIVALENTS (681,596) (275,750)
Cash and Equivalents, Beginning of Year 746,395 312,796
------------ -------------
CASH AND EQUIVALENTS, END OF PERIOD $ 64,799 $ 37,046
============ =============
</TABLE>
In 1998, noncash financing activities include the addition of $1.766 billion to
treasury stock as a result of the exchange of 40,484,545 common shares of
Abercrombie & Fitch previously owned by the Company for 47,075,052 shares of
common stock of the Company. Additional noncash financing activities include a
$5.6 million dividend effected by a pro rata spin-off of the Company's remaining
shares of Abercrombie & Fitch (see Note 7).
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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) that 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 October 31, 1998 and for the
thirteen and thirty-nine week periods ended October 31, 1998 and November
1, 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 October 31, 1998 and for the
thirteen and thirty-nine week periods ended October 31, 1998 and November
1, 1997 included herein have been reviewed by the independent public
accounting firm of PricewaterhouseCoopers LLP and the report of such firm
follows the notes to consolidated financial statements.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP requires that certain external costs
and internal payroll and payroll related costs be capitalized during the
application development and implementation stages of a software development
project and amortized over the software's useful life. The SOP is
effective in the first quarter of 1999.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued in April 1998. The SOP requires that entities expense start-up
costs and organization costs as they are incurred. The SOP is effective in
the first quarter of 1999.
6
<PAGE>
2. EARNINGS PER SHARE
Weighted average common shares outstanding (thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------ ------------------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Common shares issued 379,454 379,454 379,454 379,454
Treasury shares (152,141) (107,334) (133,693) (107,659)
------------ ------------- ------------ -------------
Basic shares 227,313 272,120 245,761 271,795
Dilutive effect of stock options
and restricted shares 3,739 3,399 5,403 1,942
------------ ------------- ------------ -------------
Diluted shares 231,052 275,519 251,164 273,737
============ ============= ============ =============
</TABLE>
Options to purchase 4.9 million and 1.3 million shares of common stock were
outstanding at October 31, 1998 and November 1, 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. In addition, the 18.75 million shares subject to the
Contingent Stock Redemption Agreement are excluded from the dilution
calculation because their redemption would 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 using 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):
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
------------- -------------
<S> <C> <C>
Property and equipment, at cost $ 3,171,757 $ 3,104,612
Accumulated depreciation and
amortization (1,641,052) (1,584,704)
------------- -------------
Property and equipment, net $ 1,530,705 $ 1,519,908
============= =============
</TABLE>
7
<PAGE>
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 thirty-nine weeks
ended October 31, 1998 and November 1, 1997 approximated $203.5 million and
$285.3 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 assessment 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):
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
<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
Less current portion of long-term debt 100,000 -
----------- -----------
$550,000 $650,000
=========== ===========
</TABLE>
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 at October 31, 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 October 31, 1998.
8
<PAGE>
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 thirty-nine weeks ended October 31, 1998 and
November 1, 1997 approximated $57.5 million and $59.1 million.
7. SPECIAL ITEMS
On May 19, 1998, the Company completed a tax-free exchange offer to
establish Abercrombie & Fitch ("A&F") as an independent company. A total
of 47,075,052 shares of the Company's common stock were exchanged at a
ratio of .86 of a share of A&F common stock for each Limited share
tendered. In connection with the exchange, the Company recorded a $1.65
billion tax-free gain. In addition, on June 1, 1998 a $5.6 million
dividend was effected through a pro rata spin-off to shareholders of the
Company's 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.
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
million pretax charge for severance and other associate termination costs
related to the closing of five of six Henri Bendel stores. At October 31,
1998, $4 million of these charges had been paid.
During the first quarter of 1997, the Company recognized a pretax gain of
$8.6 million in connection with the initial public offering of Brylane.
During the third quarter of 1997, the Company recognized a net $62.8
million pre-tax gain related to the sale of approximately one-half of its
investment in Brylane, partially offset by valuation adjustments on certain
investments where the carrying values are permanently impaired.
During the fourth quarter of 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 charges for impaired assets and closing and downsizing certain
stores, principally at the women's businesses. Write-downs related to the
$175 million 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 $39 million during the first three quarters of 1998 were principally
related to store closings.
9
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS 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 (the Company) at October 31, 1998, and the related condensed
consolidated statements of income and cash flows for the thirteen-week and
thirty-nine-week periods ended October 31, 1998 and November 1, 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 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
November 17, 1998
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the third quarter ended October 31, 1998 decreased 3% to $2.0
billion from $2.071 billion last year. However, sales increased 4% in the third
quarter after adjusting for the 1997 sales of Abercrombie & Fitch Co. ("A & F"),
which became an independent public company in May 1998. Comparable store sales
increased 5% for the quarter. Operating income was $81.0 million in 1998 and
$158.0 million in 1997. Net income was $39.4 million in 1998 and $79.7 million
in 1997. Earnings per diluted share were $.17 in 1998 and $.29 in 1997. In 1997,
the Company recognized a $62.8 million pretax gain, or $.14 per diluted share of
special and nonrecurring income relating principally to the sale of
approximately one-half of the Company's interest in Brylane, Inc. Excluding
special and nonrecurring items, operating income decreased 15% compared to $95.2
million last year; net income decreased 6% compared to $41.9 million last year
(increased 21% after adjusting for A & F), and earnings per diluted share
increased 13% from $.15 per diluted share last year.
Third quarter business highlights include the following:
The Intimate Brands businesses continued their consistent positive
performance trend by recording an 8% operating income increase and a 12%
increase in net income.
Victoria's Secret Stores' operating margin and operating income were higher
on a comparable store sales increase of 4%. As expected, Victoria's Secret
Catalogue sales decreased 9% as a result of its strategy of fewer, bigger
catalogues (higher page counts) and more focused mailings.
Bath & Body Works delivered a comparable store sales increase of 6% and a
substantial increase in operating profits. The net addition of 138 stores
contributed to the sales and profit growth.
The women's businesses continued their sales improvement from the first and
second quarters, principally due to a 15% increase in comparable store
sales at Express. Overall, the women's businesses reported a 6% increase in
comparable store sales. Operating income was down despite the improvement
at Express due to declines at Lerner, Lane Bryant and Limited Stores.
Limited Too continued its strong sales momentum with a 11% comparable store
sales gain. Structure continued to struggle with a 2% decrease in
comparable store sales and an increased operating loss.
Net sales for the thirty-nine weeks ended October 31, 1998 increased 3% to
$6.091 billion compared to $5.920 billion in 1997. Operating income was $1.954
billion compared to $280 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., a $5.1 million first quarter pretax charge for severance and
other associate termination costs at Henri Bendel and a $1.651 billion second
quarter gain from the split-off of A & F. Excluding these special and
nonrecurring items, operating income decreased 2% to $214 million (increased 5%
after adjusting for A & F). Net income increased to $1.8 billion from $132.1
million in 1997, and
11
<PAGE>
earnings per diluted share were $7.18 compared to $.48 in 1997. Excluding
special and nonrecurring items and the $8.6 million 1997 gain in connection with
the initial public offering of Brylane, Inc., net income increased 11% in 1998
to $98.1 million compared to $88.7 million for 1997 and earnings per share
increased to $.39 from $.32 in 1997.
12
<PAGE>
Financial Summary
- -----------------
The following summarized financial and statistical data compares the thirteen-
week and thirty-nine week periods ended October 31, 1998 to the comparable 1997
periods:
<TABLE>
<CAPTION>
THIRD QUARTER YEAR-TO-DATE
------------------------------ ----------------------------------
CHANGE CHANGE
FROM FROM
PRIOR PRIOR
1998 1997 YEAR 1998 1997 YEAR
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
NET SALES (MILLIONS):
Victoria's Secret Stores $ 352 $ 332 6% $1,127 $1,046 8%
Victoria's Secret Catalogue 130 143 (9%) 531 519 2%
Bath & Body Works 218 182 19% 677 572 18%
Cacique (a) - 22 N/M - 64 N/M
Other 9 11 N/M 20 20 N/M
------ ------ ---- ------ ------ ------
Total Intimate Brands 709 690 3% 2,355 2,221 6%
------ ------ ---- ------ ------ ------
Express 357 315 13% 910 785 16%
Lerner 218 231 (6%) 636 629 1%
Lane Bryant 209 218 (4%) 649 639 2%
Limited Stores 181 177 2% 522 532 (2%)
Henri Bendel (c) 10 20 N/M 30 63 N/M
------ ------ ---- ------ ------ ------
Total Women's Businesses 975 961 1% 2,747 2,648 4%
------ ------ ---- ------ ------ ------
Structure 140 143 (2%) 393 423 (7%)
Limited Too 97 86 13% 254 213 19%
Galyan's 49 34 44% 130 100 30%
Mast and Other 30 8 N/A 56 6 N/A
------ ------ ---- ------ ------ ------
Total Emerging Businesses 316 271 17% 833 742 12%
------ ------ ---- ------ ------ ------
Subtotal 2,000 1,922 4% 5,935 5,611 6%
Abercrombie & Fitch (b) - 149 N/M 156 309 N/M
------ ------ ---- ------ ------ ------
Total Net Sales $2,000 $2,071 (3%) $6,091 $5,920 3%
====== ====== ==== ====== ====== ======
OPERATING INCOME (MILLIONS):
Intimate Brands $ 71 $ 66 8% $ 267 $ 233 15%
Women's Businesses (16) (4) (300%) (76) * (99) 23%
Emerging Businesses 26 15 73% 11 59 (81%)
------ ------ ---- ------ ------ ------
Subtotal 81 77 5% 202 193 5%
Special and Nonrecurring Items - 63 N/A 1,740 63 N/A
Abercrombie & Fitch (b) - 18 N/M 12 25 N/M
------ ------ ---- ------ ------ ------
Total Operating Income $ 81 $ 158 N/M $1,954 $ 281 N/M
====== ====== ==== ====== ====== ======
</TABLE>
(a) The Cacique business was closed effective January 31, 1998.
(b) The Abercrombie & Fitch business was split-off effective May 19, 1998 via a
tax-free exchange offer. Results up to this date are included in the
consolidated financial statements.
(c) Five of six Henri Bendel stores were closed at the end of 1997.
*The women's businesses exclude a $5 million first quarter charge for special
and nonrecurring items (see Note 7).
13
<PAGE>
<TABLE>
<CAPTION>
THIRD QUARTER YEAR-TO-DATE
----------------------------------------- ------------------------------------
CHANGE CHANGE
FROM FROM
PRIOR PRIOR
1998 1997 YEAR 1998 1997 YEAR
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN COMPARABLE STORE SALES:
Victoria's Secret Stores 4% 3% 4% 9%
Bath & Body Works 6% 9% 3% 13%
Cacique - 16% - 11%
------- ------- ------ ------
Total Intimate Brands 4% 5% 3% 10%
------- ------- ------ ------
Express 15% (11%) 17% (21%)
Lerner (1%) (6%) 7% (6%)
Lane Bryant (2%) (1%) 4% (1%)
Limited Stores 7% (13%) 1% (9%)
Henri Bendel (2%) (23%) (15%) (11%)
------- ------- ------ ------
Total Women's Businesses 6% (8%) 8% (11%)
------- ------- ------ ------
Structure (2%) (6%) (7%) (2%)
Limited Too 11% 15% 17% 23%
Galyan's 5% 4% 3% 4%
------- ------- ------ ------
Total Emerging Businesses 3% 1% - 5%
------- ------- ------ ------
Abercrombie & Fitch (through
May 19, 1998) - 25% - 19%
------- ------- ------ ------
Total comparable store sales
increase (decrease) 5% (2%) 6% (2%)
======= ======= ====== ======
RETAIL SALES EXCLUDING CATALOGUE AND OTHER:
Retail sales increase attributable to net
new and remodeled stores (1998 change
excludes impact of closing Cacique
and split-off of A&F) 1% 5% 1% 6%
Retail sales per average selling
square foot $ 68 $ 67 1% $ 199 $ 188 6%
Retail sales per average store
(thousands) $ 336 $ 332 1% $ 988 $ 941 5%
Average store size at end of quarter
(selling square feet) 4,917 4,993 (2%)
Retail selling square feet at end of
quarter (thousands) 26,854 28,931 (7%)
NUMBER OF STORES:
Beginning of period 5,441 5,690 5,640 5,633
Opened 72 129 195 280
Disposed - - (159) * -
Closed (51) (25) (214) (119)
------- ------- ------ ------
End of period 5,462 5,794 5,462 5,794
======= ======= ====== ======
</TABLE>
*Split-off of Abercrombie & Fitch effective May 19, 1998
14
<PAGE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
--------------------------------------------- --------------------------------------------
Change Change
From From
Oct. 31, Nov. 1, Prior Oct. 31, Nov. 1, Prior
1998 1997 Year 1998 1997 Year
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 812 784 28 3,662 3,533 129
Bath & Body Works 1,044 906 138 2,054 1,728 326
Cacique - 118 (118) - 363 (363)
---------- ---------- ----------- ---------- ----------- ----------
Total Intimate Brands 1,856 1,808 48 5,716 5,624 92
---------- ---------- ----------- ---------- ----------- ----------
Express 706 755 (49) 4,535 4,764 (229)
Lerner 677 753 (76) 5,195 5,743 (548)
Lane Bryant 770 807 (37) 3,740 3,869 (129)
Limited Stores 593 648 (55) 3,577 3,874 (297)
Henri Bendel 1 6 (5) 35 113 (78)
---------- ---------- ----------- ---------- ----------- ----------
Total Women's Businesses 2,747 2,969 (222) 17,082 18,363 (1,281)
---------- ---------- ----------- ---------- ----------- ----------
Structure 534 546 (12) 2,126 2,149 (23)
Limited Too 311 311 - 983 976 7
Galyan's 14 11 3 947 641 306
---------- ---------- ----------- ---------- ----------- ----------
Total Emerging Businesses 859 868 (9) 4,056 3,766 290
---------- ---------- ----------- ---------- ----------- ----------
Abercrombie & Fitch - 149 (149) - 1,178 (1,178)
---------- ---------- ----------- ---------- ----------- ----------
Total stores and selling
square feet 5,462 5,794 (332) 26,854 28,931 (2,077)
========== ========== =========== ========== =========== ==========
</TABLE>
Net Sales
- ---------
Net sales for the third quarter of 1998 decreased 3% from the third quarter of
1997. Third quarter net sales increased 4% excluding A&F sales in 1997 as a
result of a 5% increase in comparable store sales. Net sales for the thirty-
nine weeks ended October 31, 1998 increased 3% as compared to the same period in
1997 as the 6% increase in comparable store sales more than offset a 3%
decrease from the split-off of A&F.
Sales at the Intimate Brands businesses for the third quarter of 1998 increased
3% over the same period last year. The increase was attributable to the net
addition of 166 new stores, excluding Cacique, and a 4% increase in comparable
store sales partially offset by a 9% decrease in catalogue net sales and the
loss of Cacique. Year-to-date Intimate Brands sales increased 6% over the same
period in 1997, due to the net addition of new stores, a 3% increase in
comparable store sales, and a 2% increase in catalogue net sales, partially
offset by the loss of Cacique. Adjusted for the impact of closing Cacique, the
third quarter sales increase would have been 6% and year-to-date would have
been 9%.
Sales at the women's businesses for the third quarter and year-to-date periods
of 1998 increased 1% and 4%, compared to the same periods in 1997, primarily due
to the 6% and 8% increases in comparable store sales, offset by the impact of
closed stores. Express continued its strong comparable store sales results with
a 15% increase and Limited Stores increased comparable store sales by 7%,
primarily driven by promotional activities. Sales at Lerner and Lane
Bryant declined.
15
<PAGE>
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 30.8% for the
third quarter of 1998 from 30.0% for the third quarter of 1997. Merchandise
margins increased slightly, as a result of a 2.6% increase at Intimate Brands
more than offsetting declines at the women's businesses and Structure. The
increase in the gross income rate was primarily attributable to a .6%
improvement in the buying and occupancy rate driven by leverage achieved
from a 5% increase in comparable store sales and efforts over the past two years
to close underperforming stores.
The year-to-date gross income percentage increased to 29.8% in 1998 from 28.1%
for the same period in 1997. This increase is primarily attributable to a 1.3%
improvement in margin, expressed as a percentage of sales, due to improved
initial mark-up and a .4% improvement in the buying and occupancy rate.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of sales, increased to 26.8% for the third quarter of 1998 as compared to 25.4%
for the third quarter of 1997. This increase was attributable to a 2.2%
increase at Intimate Brands, a lack of expense leverage at Limited Stores and
Structure, expenses associated with increased investments in information
technology in preparation for the Year 2000, and expenses associated with the
rollout of the merchandise process redesign and brand building.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 26.3% in 1998 compared to 24.4% in 1997. This increase
was due primarily to the reasons discussed above.
Operating Income
- ----------------
Exclusive of special and nonrecurring items described in Note 7, third quarter
and year-to-date 1998 operating income, expressed as a percentage of sales, was
4.0% and 3.5%, compared to 4.6% and 3.7%, respectively for 1997. Increases in
gross income dollars were more than offset by increases in general,
administrative and store operating expenses. Gains in third quarter operating
income at Express, Limited Too and Intimate Brands were more than offset by
declines in operating results at the other Women's businesses and at Structure.
16
<PAGE>
Interest Expense
- ----------------
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
------------------------ -------------------------
1998 1997 1998 1997
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Average Borrowings (millions) $ 840 $ 891 $ 776 $ 817
Average Effective Interest Rate 8.12% 8.05% 8.46% 8.28%
</TABLE>
Interest expense decreased $.9 million and $1.5 million in the third quarter and
year-to-date periods in 1998 from the comparable periods in 1997. The year-to-
date decrease was mainly a result of lower average short-term borrowings.
Other Income
- ------------
Other income increased $6.3 million and $22.4 million in the third quarter and
year-to-date periods in 1998 from the comparable periods in 1997 due to interest
earned on significantly higher average cash balances during 1998.
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):
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
------------- -------------
<S> <C> <C>
Working Capital $ 667,610 $ 937,739
------------- -------------
Capitalization:
Long-term debt $ 550,000 $ 650,000
Shareholders' equity 1,979,682 2,044,957
------------- -------------
Total Capitalization $2,529,682 $2,694,957
============= =============
Amounts available under
long-term credit agreements* $1,000,000 $1,000,000
============= =============
</TABLE>
* In addition, the Company may offer up to $250 million of debt securities and
warrants to purchase debt securities under its shelf registration statement.
17
<PAGE>
Net cash used for operating activities was $259.0 million for the thirty-nine
weeks ended October 31, 1998 versus $275.8 million last year. The use of cash
in both years is principally from the growth of inventories for the Fall selling
seasons and the timing of tax payments.
Investing activities included capital expenditures of approximately $240 million
in 1998 and $156 million in 1997 for new and remodeled stores and proceeds from
the sale of approximately 50% of the Company's investment in Brylane, Inc. in
both years. Investing activities also included $39 million in expenditures and
$51 million in proceeds from the sale of properties associated with the Easton
project in 1998 (see "Capital Expenditures" below) and the sale of the Newport
office tower in 1997.
Cash used for financing activities for 1998 reflects an increase in the
quarterly dividend to $.13 per share from $.12 per share offset by the reduction
in shares outstanding from the split-off of A & F. No commercial paper
borrowings were outstanding at quarter end in 1998. Intimate Brands repurchased
4.5 million shares for $106.0 million, that are specifically reserved to cover
shares needed for employee benefit plans. In addition, the Company repurchased
1.9 million shares in the third quarter with proceeds from stock option
exercises and to fund employee benefit plans. In connection with the split-off
of A & F (see Note 7), the Company paid $47.6 million to settle its intercompany
balance at May 19, 1998.
Capital Expenditures
- --------------------
Capital expenditures totaled $358 million for the thirty-nine weeks ended
October 31, 1998, compared to $296 million for the same period of 1997. The
Company anticipates spending $460 to $480 million for capital expenditures in
1998, of which $200 to $220 million will be for new stores, the remodeling of
existing stores and related improvements for the retail businesses.
Significant capital expenditures, other than those classified as store related,
include expenditures for Galyan's land and buildings, information technology
expenditures for new systems related to the Year 2000 issue, deposits on
replacement aircraft, and land acquisition and development costs for the Easton
project in Columbus, Ohio. With respect to Easton, the sale of land, buildings
and interests in various development projects is expected to more than offset
capital expenditures in 1998, and the project is projected to continue to be
net cash positive in 1999 and going forward.
The Company expects that 1998 capital expenditures will be funded with cash from
operations.
Adoption of New Accounting Standards
- ------------------------------------
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires that certain external costs and internal
payroll and payroll related costs be capitalized during the application
development and implementation stages of a software development project and
amortized over the software's useful life. The SOP is effective in the first
quarter of 1999 and the Company does not anticipate that this SOP will have an
adverse effect on the Company's reported results of operations.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities," was
issued in April 1998. The SOP requires that entities expense start-up costs and
organization costs as they are incurred. The
18
<PAGE>
SOP is effective in the first quarter of 1999 and the Company does not
anticipate that this SOP will have an adverse effect on the Company's reported
results of operations.
Year 2000 Readiness Disclosures
- -------------------------------
The Year 2000 issue arises primarily from computer programs, commercial systems
and embedded chips that will be unable to properly interpret dates beyond the
year 1999. The Limited utilizes a variety of proprietary and third party
computer technologies - both hardware and software - directly in its businesses.
The Company also relies on numerous third parties and their systems' ability to
address the Year 2000 issue. The Company's critical information technology (IT)
functions include point-of-sale equipment, merchandise distribution, merchandise
and non-merchandise procurement, credit card and banking services,
transportation, and business and accounting management systems. The Company is
using both internal and external resources to complete its Year 2000
initiatives.
In order to address the Year 2000 issue for The Limited, Inc., the Company
established a program management office to oversee, monitor and coordinate the
company-wide Year 2000 effort. This office has developed and is implementing a
Year 2000 plan. The implementation includes five stages, including (i)
awareness, (ii) assessment, (iii) renovation/development, (iv) validation, and
(v) implementation. There are several areas of focus: (1) renovation of legacy
systems throughout the Company; (2) installation of new software packages to
replace legacy systems at five of our operating businesses; (3) assessment of
Year 2000 readiness at key vendors and suppliers; and (4) evaluating facilities
and distribution equipment with embedded computer technology.
(1) All five stages of Year 2000 implementation for renovation of legacy
systems are nearly complete or have been completed for significant IT
systems at the Company businesses.
(2) Replacement of significant legacy systems with new software packages for
the five operating companies is underway. The validation and implementation
stages of these new systems are expected to be substantially complete in or
prior to the second quarter of 1999.
(3) A vast network of vendors and suppliers located both within and outside the
United States provide the Company with merchandise for resale and supplies
for operational purposes. The Company has identified key vendors and
suppliers and has begun making inquiries to determine their Year 2000
status. The Company has obtained assurances from a number of its key
vendors regarding their Year 2000 status and expects to complete this
process in mid-1999. In addition, the Company plans to conduct on-site
assessments of certain of its key vendors to further assess such vendors'
progress. Also, the Company, along with other major retail organizations,
is participating in a national industry Year 2000 survey of over 80,000
suppliers and vendors.
(4) The Company also utilizes various facilities and distribution equipment
with embedded computer technology, such as conveyors, elevators, security
systems, fire protection systems, and energy management systems. The
Company's assessment of these systems is in process and all stages of its
efforts are expected to be complete in or prior to the first quarter of
1999.
The Company believes that the reasonably likely worst case scenario would
involve short-term disruption of systems affecting its supply and distribution
channels. The Company is in the early stages of developing contingency plans,
such as alternative sourcing, and identifying the necessary
19
<PAGE>
actions that it would need to take if critical systems or service providers were
not Year 2000 compliant. The Company expects to finalize these contingency plans
by mid-1999.
At the present time, the Company is not aware of any Year 2000 issues that are
expected to affect materially its products, services, competitive position or
financial performance. However, despite the Company's significant efforts to
make its systems, facilities and equipment Year 2000 compliant, the compliance
of third party service providers and vendors (including, for instance,
governmental entities and utility companies) is beyond the Company's control.
Accordingly, the Company can give no assurances that the failure of systems of
other companies on which the Company's systems rely, or the failure of key
suppliers or other third parties to comply with Year 2000 requirements, will not
have a material adverse effect on the Company.
Total expenditures related to remediation, testing, conversion, replacement and
upgrading system applications are expected to range from $85 to $100 million
from 1997 through 2000. Of the total, approximately $50 to $60 million will be
capital expenditures related to acquisition and implementation of new package
systems. The balance, approximately $35 to $40 million, will be expenses
associated with remediation and testing of existing systems. 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 in any year during the conversion process from 1997 through 2000.
In 1998, incremental expenses will total approximately $25 to $30 million, of
which $23 million has been incurred as of October 31, 1998. In addition, we have
incurred significant internal payroll costs (not separately identified) relating
to the Company's Year 2000 initiatives.
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, many of 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. Among other things, the foregoing
statements as to costs and dates relating to the Year 2000 effort are forward-
looking and are based on the Company's current best estimates that may be proven
incorrect as additional information becomes available. The Company's Year 2000-
related forward-looking statements are also based on assumptions about many
important factors, including the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the ability
of vendors to deliver merchandise or perform services required by the Company
and the collateral effects of the Year 2000 issues on the Company's business
partners and customers. While the Company believes its assumptions are
reasonable, it cautions that it is impossible to predict factors that could
cause actual costs or timetables to differ materially from the expected results.
In addition to Year 2000 issues, 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 forward-
looking statements included in this Report or otherwise made by management:
changes in consumer spending patterns, consumer preferences and overall economic
conditions, the impact of competition and pricing, changes in weather patterns,
20
<PAGE>
political stability, currency and exchange risks and changes in existing or
potential duties, tariffs or quotas, availability of suitable store locations at
appropriate terms, ability to develop new merchandise and ability to hire and
train associates.
21
<PAGE>
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 for the 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 U.S. 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 a judge of the United States District Court for the
Southern District of Ohio, Western Division. On May 21, 1998, this
judge 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 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, 1998.
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.
22
<PAGE>
4.2 Conformed copy of the Indenture dated as of March 15, 1998
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 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.
23
<PAGE>
10.19 Employment agreement by and between The Limited, Inc. and
V. Ann Hailey dated as of July 27, 1998 incorporated by
reference to Exhibit 10.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1998.
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.
24
<PAGE>
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: December 11, 1998
______________________________
*Ms. Hailey is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
<PAGE>
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.
<PAGE>
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
------------------------------------
October 31, November 1,
1998 1997
----------- -----------
<S> <C> <C>
Adjusted Earnings
- -----------------
Income, excluding gain on split-off of Abercrombie &
Fitch, before income taxes $ 270,765 $ 236,129
Portion of minimum rent ($546,662 in 1998 and
$565,157 in 1997) representative of interest 182,221 186,502
Interest on indebtedness 49,229 50,744
Minority interest 26,659 23,910
---------- ---------
Total earnings as adjusted $ 528,874 $ 497,285
========== =========
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $ 182,221 $ 186,502
Interest on indebtedness 49,229 50,744
---------- ---------
Total fixed charges $ 231,450 $ 237,246
========== =========
Ratio of earnings to fixed charges 2.29x 2.10x
====== ======
</TABLE>
<PAGE>
EXHIBIT 15
----------
[LETTERHEAD OF PRICEWATERHOUSECOOPERS APPEARS HERE]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated November 17, 1998, on our review of the
interim consolidated financial information of The Limited, Inc. and Subsidiaries
for the thirteen-week and thirty-nine-week periods ended October 31, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
December 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF THE LIMITED, INC. AND
SUBSIDIARIES FOR THE QUARTER ENDED OCTOBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 64,799
<SECURITIES> 0
<RECEIVABLES> 101,474
<ALLOWANCES> 0
<INVENTORY> 1,568,996
<CURRENT-ASSETS> 1,922,724
<PP&E> 3,171,757
<DEPRECIATION> (1,641,052)
<TOTAL-ASSETS> 4,288,247
<CURRENT-LIABILITIES> 1,255,114
<BONDS> 550,000
0
0
<COMMON> 180,352
<OTHER-SE> 1,799,330
<TOTAL-LIABILITY-AND-EQUITY> 4,288,247
<SALES> 1,999,862
<TOTAL-REVENUES> 1,999,862
<CGS> 1,383,119
<TOTAL-COSTS> 1,383,119
<OTHER-EXPENSES> 535,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,074
<INCOME-PRETAX> 70,355
<INCOME-TAX> 31,000
<INCOME-CONTINUING> 39,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,355
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
