<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 May 1, 1999
-----------
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)
<TABLE>
<S> <C>
Delaware 31-1029810
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 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 June 7, 1999
---------------------------- ---------------------------
214,080,134 Shares
<PAGE>
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen Weeks Ended
May 1, 1999 and May 2, 1998.................................3
Consolidated Balance Sheets
May 1, 1999, January 30, 1999 and May 2, 1998...............4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 1, 1999 and May 2, 1998.................................5
Notes to Consolidated Financial Statements........................6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..............12
Part II. Other Information
Item 1. Legal Proceedings...........................................22
Item 4. Submission of Matters to a Vote of Security Holders.........23
Item 6. Exhibits and Reports on Form 8-K............................24
2
<PAGE>
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
-----------------------
May 1, May 2,
1999 1998
------- ------
<S> <C> <C>
Net sales $2,104,798 $2,008,077
Cost of goods sold and buying and occupancy costs 1,444,595 1,421,407
---------- ----------
Gross income 660,203 586,670
General, administrative and store operating expenses (590,773) (530,323)
Special and nonrecurring items, net - 88,633
---------- ----------
Operating income 69,430 144,980
Interest expense (16,790) (15,741)
Other income 15,331 16,153
Minority interest (7,425) (7,923)
---------- ----------
Income before income taxes 60,546 137,469
Provision for income taxes 27,000 58,000
---------- ----------
Net income $33,546 $79,469
---------- ----------
Net income per share:
Basic $.15 $.29
========== ==========
Diluted $.14 $.28
========== ==========
Dividends per share $.15 $.13
========== ==========
</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>
May 1, January 30, May 2,
1999 1999 1998
---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and equivalents $ 491,366 $ 870,317 $ 687,869
Accounts receivable 72,140 77,715 81,602
Inventories 1,170,303 1,119,670 1,056,091
Store supplies 99,947 98,797 96,789
Other 165,069 151,685 92,422
---------- ---------- ----------
Total current assets 1,998,825 2,318,184 2,014,773
Property and equipment, net 1,371,263 1,361,761 1,398,838
Restricted cash 351,600 351,600 351,600
Deferred income taxes 94,842 48,782 62,237
Other assets 465,602 469,381 421,545
---------- ---------- ----------
Total assets $4,282,132 $4,549,708 $4,248,993
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $204,700 $289,947 $277,243
Current portion of long-term debt 100,000 100,000 -
Accrued expenses 649,392 681,515 679,365
Income taxes 52,814 176,473 18,325
---------- ---------- ----------
Total current liabilities 1,006,906 1,247,935 974,933
Long-term debt 550,000 550,000 650,000
Other long-term liabilities 58,887 56,010 56,211
Minority interest 55,564 110,860 105,574
Contingent stock redemption agreement 351,600 351,600 351,600
Shareholders' equity:
Common stock 180,352 180,352 180,352
Paid-in capital 158,203 157,214 152,056
Retained earnings 5,536,386 5,537,033 3,657,072
---------- ---------- ----------
5,874,941 5,874,599 3,989,480
Less: treasury stock, at average cost (3,615,766) (3,641,296) (1,878,805)
========== ========== ==========
Total shareholders' equity 2,259,175 2,233,303 2,110,675
---------- ---------- ----------
Total liabilities and shareholders' equity $4,282,132 $4,549,708 $4,248,993
========== ========== ==========
</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>
Thirteen Weeks Ended
-------------------------
May 1, May 2,
1999 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,546 $ 79,469
Impact of other operating activities on cash flows:
Depreciation and amortization 75,441 74,722
Special and nonrecurring items, net - (53,633)
Minority interest, net of dividends paid 2,238 3,502
Changes in assets and liabilities:
Accounts receivable 5,575 1,768
Inventories (50,633) (53,381)
Accounts payable and accrued expenses (117,370) (25,910)
Income taxes (169,719) (138,320)
Other assets and liabilities 3,865 (2,074)
-------- --------
Net cash used for operating activities (217,057) (113,857)
-------- --------
Investing activities:
Net expenditures related to Easton real estate investment (7,024) (3,967)
Capital expenditures (95,260) (58,213)
Proceeds from sale of interest in investee - 131,262
-------- --------
Net cash provided by (used for) investing activities (102,284) 69,082
-------- --------
Financing activities:
Repurchase of subsidiary common stock (56,569) -
Dividends paid (34,193) (35,571)
Stock options and other 31,152 21,820
-------- --------
Net cash used for financing activities (59,610) (13,751)
-------- --------
Net decrease in cash and equivalents (378,951) (58,526)
Cash and equivalents, beginning of year 870,317 746,395
-------- --------
Cash and equivalents, end of period $491,366 $687,869
======== ========
</TABLE>
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. The consolidated
financial statements as of and for the thirteen week period ended May 2,
1998 include the results of Abercrombie & Fitch ("A&F"), which was
established as an independent company on May 19, 1998.
Investments in other entities (including joint ventures) where the Company
has the ability to significantly influence operating and financial policies
are accounted for on the equity method.
Certain amounts on previously reported financial statement captions have
been reclassified to conform with current period presentation.
The consolidated financial statements as of and for the periods ended May
1, 1999 and May 2, 1998 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 1998 Annual Report on Form 10-K. In the opinion
of management, the accompanying consolidated financial statements reflect
all adjustments (which are of a normal recurring nature) necessary to
present fairly the financial position and results of operations and cash
flows for the interim periods, but are not necessarily indicative of the
results of operations for a full fiscal year.
The consolidated financial statements as of May 1, 1999 and for the
thirteen week periods ended May 1, 1999 and May 2, 1998 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.
2. Earnings Per Share
Weighted average common shares outstanding (thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
Common shares issued 379,454 379,454
Treasury shares (151,722) (105,616)
-------- --------
Basic shares 227,732 273,838
Dilutive effect of stock options and restricted shares 7,815 5,524
-------- --------
Diluted shares 235,547 279,362
======== ========
</TABLE>
The computation of earnings per diluted share excludes options to purchase
0.1 million shares of common stock that were outstanding at quarter-end for
1999 and 1998, because the options' exercise price was greater than the
average market price of the common shares.
6
<PAGE>
3. Inventories
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories is
based principally upon the lower of average cost or market determined on a
first-in, first-out basis, utilizing the retail method. Inventory valuation
at the end of the first and third quarters reflects adjustments for
inventory markdowns and shrinkage estimates for the total selling season.
4. Property and Equipment, Net
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
May 1, January 30, May 2,
1999 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Property and equipment, at cost $3,057,350 $3,014,084 $3,004,913
Accumulated depreciation and
amortization (1,686,087) (1,652,323) (1,606,075)
---------- ---------- ----------
Property and equipment, net $1,371,263 $1,361,761 $1,398,838
========== ========== ==========
</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 thirteen weeks
ended May 1, 1999 and May 2, 1998 approximated $196.7 million and $154.7
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>
May 1, January 30, May 2,
1999 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
7 1/2% Debentures due March 2023 $250,000 $250,000 $250,000
7 4/5% Notes due May 2002 150,000 150,000 150,000
9 1/8% Notes due February 2001 150,000 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000 100,000
-------- -------- --------
650,000 650,000 650,000
Less: current portion of long-term debt 100,000 100,000 -
-------- -------- --------
$550,000 $550,000 $650,000
======== ======== ========
</TABLE>
The Company maintains a $1 billion unsecured revolving credit agreement (the
"Agreement"), established on September 29,1997 (the "Effective Date").
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, subject to the approval of the lending
banks. The Agreement has several borrowing options, including interest rates
which
7
<PAGE>
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 Agreement contains covenants relating to the Company's working capital,
debt and net worth. No amounts were outstanding under the Agreement at May
1, 1999.
The Agreement supports the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. No commercial paper was outstanding at May 1, 1999.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
The Company periodically enters into interest rate swap agreements with the
intent to manage interest rate exposure. At May 1, 1999 the Company has an
interest rate swap position of $100 million notional principal amount
outstanding. This contract effectively changed the Company's interest rate
exposure on $100 million of variable rate debt to a fixed rate of 8.09%
through July 2000.
Interest paid during the thirteen weeks ended May 1, 1999 and May 2, 1998
approximated $25.1 million and $24.1 million.
7. Segment Information
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company determines operating
segments based on a business' operating characteristics. Reportable
segments were determined based on similar economic characteristics, the
nature of products and services, and the method of distribution. The
apparel segment derives its revenues from sales of women's, men's, and
children's apparel. The Intimate Brands segment derives its revenues from
sales of women's intimate and other apparel, and personal care products and
accessories. Sales outside the United States were immaterial.
The Company and Intimate Brands Inc. ("IBI") have entered into intercompany
agreements for services that include merchandise purchases, capital
expenditures, real estate management and leasing, inbound and outbound
transportation and corporate services. These agreements specify that
identifiable costs be passed through to IBI and that other services-related
costs be allocated in accordance with the intercompany agreement. Costs
are passed through and allocated to the apparel businesses in a similar
manner.
8
<PAGE>
Segment information for the thirteen weeks ended May 1, 1999 and May 2,
1998 follows (in thousands):
<TABLE>
<CAPTION>
Apparel Intimate Reconciling
1999 Businesses Brands Other (A) Items Total
- -------------------- ---------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $1,158,276 $ 877,821 $ 68,701 - $2,104,798
Intersegment sales 106,317 - - $(106,317) (B) -
Operating income (loss) (8,000) 84,194 (6,764) - 69,430
Total assets 1,287,674 1,133,506 2,020,129 (159,177) (D) 4,282,132
</TABLE>
<TABLE>
<CAPTION>
Apparel Intimate Reconciling
1998 Businesses Brands Other (A) Items Total
- -------------------- ---------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $1,055,301 $ 770,868 $181,908 - $2,008,077
Intersegment sales 96,721 - - $(96,721) (B) -
Operating income (loss) (27,483) 71,418 12,412 88,633 (C) 144,980
Total assets 1,182,043 1,224,539 2,023,232 (180,821) (D) 4,248,993
</TABLE>
(A) Included in the "Other" category are Galyan's Trading Co., Henri Bendel,
A&F (through May 19, 1998), non-core real estate, and corporate, none of
which are significant operating segments.
(B) Represents intersegment sales elimination.
(C) 1998 special and nonrecurring items: 1) a $93.7 million gain from the sale
of the Company's remaining interest in Brylane; and 2) a $5.1 million
charge for severance and other associate termination costs related to the
closing of Henri Bendel stores. These special items relate to the "Other"
category.
(D) Represents intersegment receivable/payable elimination.
8. Special Items
During the first quarter of 1998, the company recognized a pretax gain of
$93.7 million from the sale of 2.57 million shares at $51 per share,
representing its remaining interest in Brylane, Inc. This gain was
partially offset by a $5.1 million pretax charge for severance and other
associate termination costs related to the closing of five of six Henri
Bendel stores. The severance charge was paid in 1998.
As a result of a plan adopted in connection with a 1997 review of the
Company's retail businesses and investments as well as implementation of
initiatives intended to promote and strengthen the Company's various retail
brands (including closing businesses, identification and disposal of non-
core assets and identification of store locations not consistent with a
particular brand), the Company recognized special and nonrecurring charges
of $276 million during the fourth quarter of 1997. The plan included
closing the Cacique lingerie business effective January 31, 1998,
streamlining the Henri Bendel business from six stores to one store (the
five stores were closed by August 1, 1998), recognizing impaired asset
charges and closing and downsizing certain stores, principally at the
women's apparel businesses.
9
<PAGE>
The $276 million in special and nonrecurring charges were made up of the
following components: 1) asset write-downs of $67 million, all of which
were taken in 1997; 2) impaired asset charges of $86 million, all of which
were taken in 1997; 3) other liabilities such as severance and
cancellations of merchandise on order of $16 million, all of which were
paid in 1998; and 4) store closing and lease termination liabilities of
$107 million, of which $32 million were paid in 1998 and $4 million of
which were paid in the first quarter of 1999, leaving a $71 million
liability at May 1, 1999.
The $71 million liability relates principally to future payments and
estimated settlement amounts for store closings and downsizings and will
continue until final payments to landlords are made, currently scheduled
through the year 2016. Unless settlements with landlords occur before the
end of such lease periods, completion will run the full lease term. In
determining the provision for lease obligations, the Company considered the
amount of time remaining on each store's lease and estimated the amount
necessary for either buying out the lease or continued rent payments.
No accruals related to these charges were reversed or recorded in operating
income during the first quarter of 1999 or fiscal year 1998.
9. Subsequent Events
On May 3, 1999, the Company announced the following:
. The commencement of an issuer tender offer to purchase up to 15 million
shares of its common stock. The repurchase was made through a "Dutch
Auction" tender offer and was completed June 3, 1999, with 15,000,000
shares purchased at a price of $50 per share.
. The Contingent Stock Redemption Agreement ("the Agreement") was
rescinded, thereby making available the $351.6 million in cash that
previously had been held on a restricted basis to honor the Company's
obligations under the Agreement. This cash and other available funds were
utilized to repurchase shares under the self-tender.
. The Company's plan to establish Limited Too as a fully independent public
company through a 100% spin-off to The Limited, Inc. shareholders. The
tax-free spin-off is expected to occur in late July or August 1999.
. The Company has signed an agreement pursuant to which an affiliate of
Freeman, Spogli & Co. (together with Galyan's Trading Co. management)
will purchase a 60% interest in Galyan's Trading Co. After the
transaction, the Company will retain a 40% interest in Galyan's. In
addition, the Company expects to sell certain property for cash to a
third party, which will then lease the property to Galyan's under
operating leases. The Company expects to receive cash proceeds from
these transactions of approximately $190 million. The Galyan's
transaction, which remains subject to financing, is expected to close in
the second quarter of 1999.
Additionally, effective May 19, 1999, the Company issued $300 million of
floating rate notes. The notes are senior, unsecured obligations and are
repayable as follows: $100 million due May 2000, $100 million due November
2000 and $100 million due May 2001. Interest is based on LIBOR and is
payable quarterly in arrears commencing August 22, 1999. The Company, at
its option, may redeem any series of notes, in whole, on any interest
payment date. The Company expects to use the net proceeds from the notes
for general corporate purposes.
10
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP 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 sheets of The Limited, Inc.
and Subsidiaries (the "Company") at May 1, 1999 and May 2, 1998, and the related
condensed consolidated statements of income and cash flows for the thirteen-week
periods ended May 1, 1999 and May 2, 1998. 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 30, 1999, 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
23, 1999, 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 30, 1999, 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
May 17, 1999
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Net sales for the first quarter of 1999 increased 5% to $2.105 billion from
$2.008 billion in 1998. Operating income decreased to $69.4 million, from $145.0
million in 1998. Operating income in the first quarter of 1998 included a $93.7
million pretax gain from the sale of the Company's remaining interest in
Brylane, Inc. that was partially offset by a $5.1 million charge for severance
and other associate termination costs at Henri Bendel. Net income decreased to
$33.5 million from $79.5 million in 1998, and earnings per share decreased to
$.14 from $.28 in 1998. In the first quarter of 1998, special and nonrecurring
items contributed $53.2 million of net income and $0.19 earnings per share.
Business highlights for the first quarter of 1999 include the following:
. Intimate Brands, Inc. ("IBI"), led by strong performances at Victoria's Secret
Stores and Bath & Body Works, reported earnings per share of $0.19, compared
to $0.16 in 1998. Operating income increased 18% and net income increased
13%.
. Victoria's Secret Stores' sales increased 17% to $422.8 million, reflecting a
comparable store sales increase of 13%. Operating income grew 26%. Sales
were driven by three new product launches including `Body by Victoria', the
most successful launch in the brand's history. These product launches were
supported by national television advertising.
. Bath & Body Works' sales increased 26% to $258.1 million, with comparable
stores sales increasing 13%. Operating income grew 24%. Overall, the brand
experienced solid customer response to its unique product offerings and
continued strong sales of White Barn Candle Co. home fragrance products.
. The apparel businesses continued to show improvement driven by a 12% increase
in comparable store sales. The sales increase contributed to an additional
$19.5 million in operating income versus last year.
. Express' comparable store sales increased 16%. Improved merchandise margins
and expense leverage led to a significant improvement in Express' operating
income rate. Similar factors also resulted in Lane Bryant (9% comparable store
sales increase) and Limited Too (10% comparable store sales increase)
delivering improved operating income rates in the first quarter of 1999.
. Lerner New York reported a comparable store sales increase of 23%. Lerner also
reported significant improvement in its operating income rate, primarily due
to expense leverage.
12
<PAGE>
Financial Summary
- -----------------
The following summarized financial data compares the thirteen week period ended
May 1, 1999 to the comparable 1998 period:
<TABLE>
<CAPTION>
First Quarter First Quarter % Change
1999 1998 From Prior Year
------------- ------------- ---------------
<S> <C> <C> <C>
Net Sales (millions):
Express $ 301 $ 269 12%
Lerner New York 236 202 17%
Lane Bryant 223 211 6%
The Limited 166 171 (3%)
Structure 123 121 2%
Limited Too 95 82 16%
Other (principally Mast) 14 - N/M
---------- ---------- ---------
Total apparel businesses $1,158 $1,055 10%
---------- ---------- ---------
Victoria's Secret Stores $ 423 $ 362 17%
Victoria's Secret Catalogue 194 199 (3%)
Bath & Body Works 258 205 26%
Other 3 5 N/M
---------- ---------- ---------
Total Intimate Brands $ 878 $ 771 14%
---------- ---------- ---------
Henri Bendel 9 12 (25%)
Galyan's Trading Co. 60 36 67%
Abercrombie & Fitch* - 134 (100%)
---------- ---------- ---------
Total net sales $2,105 $2,008 5%
========== ========== =========
<CAPTION>
First Quarter First Quarter % Change
1999 1998 From Prior Year
------------- ------------- ---------------
<S> <C> <C> <C>
Operating Income (Loss) (millions):
Apparel businesses $ (8) $ (27) 70%
Intimate Brands 84 71 18%
Other (7) 12 N/M
---------- ---------- ---------
Subtotal 69 56 23%
Special items - 89** N/M
---------- ---------- ---------
Total operating income $ 69 $ 145 (52%)
========== ========== =========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
First Quarter First Quarter % Change
1999 1998 From Prior Year
------------- ------------- ---------------
<S> <C> <C> <C>
Comparable Store Sales:
Express 16% 20%
Lerner New York 23% 10%
Lane Bryant 9% 5%
The Limited 5% (2%)
Structure 3% (5%)
Limited Too 10% 23%
---------- ----------
Total apparel businesses 12% 8%
---------- ----------
Victoria's Secret Stores 13% 6%
Bath & Body Works 13% (1%)
---------- ----------
Total Intimate Brands 13% 4%
---------- ----------
Henri Bendel 8% (27%)
Galyan's Trading Co. 10% (2%)
Abercrombie & Fitch* - 48%
---------- ----------
Total comparable store sales increase 12% 8%
========== ==========
Retail sales increase attributable to new
and remodeled stores 2% 2%
Retail sales per average selling
square foot
Apparel businesses $59 $51 16%
Intimate Brands $116 $105 10%
Retail sales per average store (thousands)
Apparel businesses $333 $285 17%
Intimate Brands $355 $327 9%
Average store size at end of
quarter (selling square feet)
Apparel businesses 5,613 5,617
Intimate Brands 3,047 3,101
Retail selling square feet (thousands) 26,117 28,000
Number of Stores:
Beginning of year 5,382 5,640
Opened 84 64
Closed (108) (105)
---------- ----------
End of period 5,358 5,599
========== ==========
</TABLE>
* The Abercrombie & Fitch ("A&F") business was split-off effective May 19,
1998 via a tax-free exchange offer. The first quarter of 1998 includes the
results of A&F.
** 1998 special and nonrecurring items: 1) a $93.7 million gain from the sale
of the Company's remaining interest in Brylane; and 2) a $5.1 million charge
for severance and other associate termination costs related to the closing
of Henri Bendel stores. These special items relate to the "Other" category.
N/M Not meaningful
14
<PAGE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
-------------------------------------- -----------------------------------
Change Change
May 1, May 2, From Prior May 1, May 2, From Prior
1999 1998 Year 1999 1998 Year
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Express 694 735 (41) 4,462 4,674 (212)
Lerner New York 633 697 (64) 4,891 5,391 (500)
Lane Bryant 705 773 (68) 3,422 3,735 (313)
The Limited 514 614 (100) 3,166 3,709 (543)
Structure 524 540 (16) 2,080 2,135 (55)
Limited Too 321 313 8 1,014 983 31
----- ----- ----- ------ ------ ------
Total apparel businesses 3,391 3,672 (281) 19,035 20,627 (1,592)
----- ----- ----- ------ ------ ------
Victoria's Secret Stores 849 797 52 3,764 3,580 184
Bath & Body Works 1,101 960 141 2,177 1,868 309
----- ----- ----- ------ ------ ------
Total Intimate Brands 1,950 1,757 193 5,941 5,448 493
----- ----- ----- ------ ------ ------
Henri Bendel 1 1 - 35 35 -
Galyan's Trading Co. 16 11 5 1,106 641 465
Abercrombie & Fitch - 158 (158) - 1,249 (1,249)
----- ----- ----- ------ ------ ------
Total stores and selling sq. ft. 5,358 5,599 (241) 26,117 28,000 (1,883)
===== ===== ===== ====== ====== ======
</TABLE>
Net Sales
- ---------
Net sales for the first quarter of 1999 increased 5% to $2.105 billion from
$2.008 billion in 1998. A 12% comparable store sales increase was partially
offset by the loss of A&F sales following the May 19, 1998 split-off and by a
net reduction of 83 stores (excluding A&F).
Net sales at IBI for the first quarter of 1999 increased 14% to $878 million
from $771 million in 1998. This increase was primarily due to a 13% comparable
store sales increase and the net addition of 193 stores at Bath & Body Works
and Victoria's Secret Stores.
In the apparel businesses, net sales for the first quarter of 1999 increased 10%
to $1.158 billion from $1.055 billion in 1998. A 12% increase in comparable
store sales more than offset a net reduction of 281 stores. Lerner New York and
Express led the apparel businesses with comparable store sales increases of 23%
and 16%.
15
<PAGE>
Gross Income
- ------------
The first quarter of 1999 gross income rate (expressed as a percentage of sales)
increased to 31.4% from 29.2% for the first quarter of 1998. Improvement was
realized at both the apparel businesses and IBI. The apparel businesses' gross
income rate increased primarily due to positive buying and occupancy expense
leverage, partially offset by a slight decrease in merchandise margin rate. The
buying and occupancy expense leverage resulted from increased sales
(particularly at Express and Lerner New York) and the benefit of closed stores.
The IBI gross income rate increased principally due to an increase in
merchandise margin rate (representing gross income before deduction of buying
and occupancy costs), resulting from higher initial markups and reduced
markdowns, particularly at Victoria's Secret Stores.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
The first quarter of 1999 general, administrative and store operating expense
rate (expressed as a percentage of sales) increased to 28.1% from 26.4% in 1998.
This increase was primarily attributable to a 2.4% rate increase at IBI,
primarily due to an increase in national advertising investment for the
Victoria's Secret brand. In addition, the increase was driven by a shift in the
mix of net sales to Bath and Body Works, which has higher general,
administrative and store operating expense rates due to significantly smaller
stores. The apparel businesses rate increase of 0.5% reflects investments
associated with the rollout of the merchandise process redesign and brand
building activities, including investments in store staffing.
Special and Nonrecurring Items
- ------------------------------
During the first quarter of 1998, the company recognized a pretax gain of $93.7
million from the sale of 2.57 million shares at $51 per share, representing its
remaining interest in Brylane, Inc. This gain was partially offset by a $5.1
million pretax charge for severance and other associate termination costs
related to the closing of five of six Henri Bendel stores. The severance charge
was paid in 1998.
As a result of a plan adopted in connection with a 1997 review of the Company's
retail businesses and investments as well as implementation of initiatives
intended to promote and strengthen the Company's various retail brands
(including closing businesses, identification and disposal of non-core assets
and identification of store locations not consistent with a particular brand),
the Company recognized special and nonrecurring charges of $276 million during
the fourth quarter of 1997. The plan included closing the Cacique lingerie
business effective January 31, 1998, streamlining the Henri Bendel business from
six stores to one store (the five stores were closed by August 1, 1998),
recognizing impaired asset charges and closing and downsizing certain stores,
principally at the women's apparel businesses.
The $276 million in special and nonrecurring charges were made up of the
following components: 1) asset write-downs of $67 million, all of which were
taken in 1997; 2) impaired asset charges of $86 million, all of which were taken
in 1997; 3) other liabilities such as severance and cancellations of merchandise
on order of $16 million, all of which were paid in 1998; and 4) store closing
and lease termination liabilities of $107 million, of which $32 million were
paid in 1998 and $4 million of which were paid in the first quarter of 1999,
leaving a $71 million liability at May 1, 1999.
The $71 million liability relates principally to future payments and estimated
settlement amounts for store closings and downsizings and will continue until
final payments to landlords are made, currently scheduled through the year 2016.
Unless settlements with landlords occur before the end of such lease periods,
completion will run the full lease term. In determining the provision for lease
obligations, the Company considered the amount of time remaining on each store's
lease and estimated the amount necessary for either buying out the lease or
continued rent payments.
No accruals related to these charges were reversed or recorded in operating
income during the first quarter of 1999 or fiscal year 1998.
16
<PAGE>
The $86 million of impairment charges reduced depreciation by approximately $18
million in fiscal year 1998 and will have a similar impact in fiscal year 1999.
Operating Income
- ----------------
The first quarter of 1999 operating income rate (expressed as a percentage of
sales) was 3.3% versus 7.2% for 1998. Excluding special and nonrecurring items,
the first quarter 1998 operating income rate was 2.8%. The improvement in the
operating income rate (excluding special and nonrecurring items) was driven by
the gross income rate increase of 2.2% more than offsetting the increase in
general, administrative and store operating expense rate of 1.7%.
Interest Expense
- ----------------
<TABLE>
<CAPTION>
First Quarter
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Average borrowings (millions) $803.8 $734.4
Average effective interest rate 8.36% 8.57%
</TABLE>
Interest expense was $16.8 million in the first quarter of 1999, up $1.1 million
over 1998. The increase was due to an increase in average commercial paper
borrowings.
Other Income
- ------------
Other income was $15.3 million in the first quarter of 1999, down from $16.1
million in 1998. The decrease was due to lower average invested cash balances
and lower interest rates on those balances in 1999.
17
<PAGE>
FINANCIAL CONDITION
The Company's consolidated balance sheet as of May 1, 1999 provides evidence of
financial strength and flexibility. A more detailed discussion of liquidity,
capital resources and capital requirements follows.
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities, commercial paper backed by funds
available under the committed long-term credit agreement and the Company's
capital structure continue to provide the capital resources to support
operations, including projected growth, seasonal requirements and capital
expenditures. A summary of the Company's working capital position and
capitalization follows (thousands):
<TABLE>
<CAPTION>
May 1, January 30, May 2,
1999 1999 1998
---------- ------------ ----------
<S> <C> <C> <C>
Working capital $ 991,919 $1,070,249 $1,039,840
========== ========== ==========
Capitalization:
Long-term debt $ 550,000 $ 550,000 $ 650,000
Shareholders' equity 2,259,175 2,233,303 2,110,675
---------- ---------- ----------
Total capitalization $2,809,175 $2,783,303 $2,760,675
========== ========== ==========
Additional amounts available under
long-term credit agreements $1,000,000 $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.
Net cash used for operating activities was $217.1 million in the first quarter
of 1999 versus $113.9 million in the first quarter last year. The $103.2 million
increase in net cash used was primarily attributable to decreases in accounts
payable and accrued expenses compared to the same period last year (primarily
due to timing of rent payments), and an increase in income tax payments.
Investing activities included capital expenditures, primarily for new and
remodeled stores, and in 1998, proceeds from the sale of the Company's remaining
investment in Brylane, Inc.
Financing activities for the first quarter of 1999 reflected the IBI stock
repurchase initiated during January 1999. In the first quarter, IBI repurchased
1,387,000 shares from its public shareholders for $56.6 million. Additionally,
IBI repurchased 7,578,000 shares from The Limited at the same weighted average
per share price, which had no net cash flow impact to the Limited. Financing
activities also reflected an increase in the quarterly dividend from $0.13 per
share to $0.15 per share, which was more than offset by a lower number of
outstanding shares.
18
<PAGE>
Future Cash Flows
- -----------------
On May 3, 1999, the Company announced the following transactions impacting the
Company's future cash flows:
. The commencement of an issuer tender offer to purchase up to 15 million shares
of its common stock. The repurchase was made through a "Dutch Auction" tender
offer and was completed June 3, 1999, with 15,000,000 shares purchased at a
price of $50 per share.
. The Contingent Stock Redemption Agreement (the "Agreement") was rescinded,
thereby making available the $351.6 million in cash that previously had been
held on a restricted basis to honor the Company's obligations under the
Agreement. This cash and other available funds were utilized to repurchase
shares under the self-tender.
. The Company's plan to establish Limited Too as a fully independent public
company through a 100% spin-off to The Limited, Inc. shareholders. As part of
the transaction, the Company expects to receive a $50 million dividend from
Limited Too. The tax-free spin-off is expected to occur in late July or
August 1999.
. The Company has signed an agreement pursuant to which an affiliate of Freeman,
Spogli & Co. (together with Galyan's Trading Co. management) will purchase a
60% interest in Galyan's Trading Co. After the transaction, the Company
will retain a 40% interest in Galyan's. In addition, the Company expects to
sell certain property for cash to a third party, which will then lease the
property to Galyan's under operating leases. The Company expects to receive
cash proceeds from these transactions of approximately $190 million. The
Galyan's transaction, which remains subject to financing, is expected to close
in the second quarter of 1999.
Further information regarding these transactions is contained in the Schedule
13E-4 filed by the Company with the Securities and Exchange Commission on May 4,
1999 (with subsequent amendments), and in Note 9 of the accompanying Notes to
Consolidated Financial Statements.
Additionally, effective May 19, 1999, the Company issued $300 million of
floating rate notes. The notes are senior, unsecured obligations and are
repayable as follows: $100 million due May 2000, $100 million due November 2000
and $100 million due May 2001. Interest is based on LIBOR and is payable
quarterly in arrears commencing August 22, 1999. The Company, at its option,
may redeem any series of notes, in whole, on any interest payment date. The
Company expects to use the net proceeds from the notes for general corporate
purposes.
Capital Expenditures
- --------------------
Capital expenditures totaled $95.2 million for the first quarter of 1999,
compared to $62.2 million for the first quarter of 1998. The Company
anticipates spending $440 to $460 million for capital expenditures in 1999, of
which $330 to $350 million will be for new stores and for remodeling of and
improvements to existing stores. These estimates include capital expenditures
related to Galyan's and Limited Too, which will no longer be obligations of the
Company subsequent to their divestiture.
The Company expects that 1999 capital expenditures will be funded primarily by
net cash provided by operating activities.
19
<PAGE>
INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE
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 Company 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, 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: (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.
The status of each area of focus is as follows:
(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's businesses.
(2) Replacement of significant legacy systems with new software packages has
been completed for five of the Company's businesses. The validation and
implementation stages of these new systems are expected to be substantially
complete in the second quarter of 1999.
(3) A vast network of vendors, suppliers and service suppliers located both
within and outside the United States provide the Company with merchandise for
resale, supplies for operational purposes and services. The Company has
identified key vendors and suppliers and is 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 has completed on-site assessments of certain
of its key vendors to further assess such vendors' progress and risks. 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 complete and all other stages of its efforts are
expected to be complete in the second 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 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 in the second
half of 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.
20
<PAGE>
Total expenditures incurred through May 1, 1999 related to remediation, testing,
conversion, replacement and upgrading system applications were $79 million.
Incremental expenses totaled $7 million in the first quarter of 1999. In
addition, significant internal payroll costs (not separately identified) were
incurred relating to the Company's Year 2000 initiatives.
Total remaining expenditures are expected to range from $6 to $11 million during
1999 and 2000. Total incremental expenses, including depreciation and
amortization of new package systems, remediation to bring current systems into
compliance, and writing off legacy systems are not expected to have a material
impact on the Company's financial condition during 1999 and 2000.
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 Form 10-Q 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 1999 and
beyond to differ materially from those expressed or implied in any forward-
looking statements included in this Form 10-Q 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,
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 that had been filed against the Company and certain of its
subsidiaries by the American Textile Manufacturers Institute ("ATMI"),
a textile industry trade association. The amended complaint alleged
that the defendants violated the federal False Claims Act by submitting
false country of origin declarations 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 appealed to the United States Court of Appeals for the Sixth
Circuit, where the matter remains pending.
On January 13, 1999, two complaints were filed against the Company and
its subsidiary, Lane Bryant, Inc., as well as other defendants,
including many national retailers. Both complaints relate to labor
practices allegedly employed on the island of Saipan, Commonwealth of
the Northern Mariana Islands, by apparel manufacturers unrelated to the
Company (some of which have sold goods to the Company) and seek
injunctions, unspecified monetary damages, and other relief. One
complaint, on behalf of a class of unnamed garment workers, filed in
the United States District Court for the Central District of
California, Western Division, alleges violations of federal statutes,
the United States Constitution, and international law. On March 29,
1999, a motion was filed to transfer this action to the United States
District Court located on Saipan, and on April 12, 1999, a motion to
dismiss the complaint for failure to state a claim upon which relief
can be granted was filed. The second complaint, filed by a national
labor union and other organizations in the Superior Court of the State
of California, San Francisco County, alleges unfair business practices
under California law. On March 29, 1999, a motion seeking dismissal of
this complaint was filed.
In May 1999, alleged shareholders of the Company filed purported
derivative actions in the State of Delaware Court of Chancery, naming
as defendants the members of the Company's board of directors and
naming the Company as a nominal defendant. The complaints in these
actions allege that the rescission of the Contingent Stock Redemption
Agreement constituted a waste of corporate assets. One complaint also
alleges that the issuer tender offer completed on June 3, 1999 was a
"wasteful transaction in its own right." The complaints seek monetary
damages in an unspecified amount from the members of the Company's
board of directors.
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.
22
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 17, 1999.
The matter voted upon and the results of the voting were as follows:
. Leonard A. Schlesinger, Donald B. Shackelford, Martin Trust and
Raymond Zimmerman were elected to the Board of Directors for a term
of three years. Of the 200,669,404 shares present in person or
represented by proxy at the meeting, the number of shares voted for
and the number of shares as to which authority to vote in the
election was withheld were as follows with respect to each of the
nominees:
<TABLE>
<CAPTION>
Shares Shares as to Which
Voted For Voting Authority
Name Election Withheld
- ------------------------ ------------- ------------------
<S> <C> <C>
Leonard A. Schlesinger 198,841,741 1,827,663
Donald B. Shackelford 198,801,554 1,867,850
Martin Trust 198,940,078 1,729,326
Raymond Zimmerman 198,732,349 1,937,055
</TABLE>
In addition, directors whose term of office continued after the Annual
Meeting were: E. Gordon Gee, Claudine B. Malone, Allan R. Tessler,
Abigail S. Wexner, Leslie H. Wexner, Eugene M. Freedman, Kenneth B.
Gilman, and David T. Kollat.
23
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
10. Agreement dated as of May 3, 1999 among The Limited, Inc., Leslie H.
Wexner and the Wexner Children's Trust, incorporated by reference to
Exhibit 99 (c) 1 to the Company's Schedule 13E-4 dated May 4, 1999.
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.
-------------------
On May 18, 1999 the Company filed a report on Form 8-K which disclosed
that a legal action had been filed by an alleged shareholder of the
Company, naming as defendants the members of the Company's Board of
Directors and naming the Company as a nominal defendant.
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: June 11, 1999
- --------------------
* Ms. Hailey is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
25
<PAGE>
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------
May 1, May 2,
1999 1998
------------ ------------
<S> <C> <C>
Adjusted Earnings
- -----------------
Income before income taxes $ 60,546 $137,469
Portion of minimum rent ($182,178 in 1999
and $191,238 in 1998) representative
of interest 60,726 63,746
Interest on indebtedness 16,790 15,741
Minority interest 7,425 7,923
------------ ------------
Total earnings as adjusted $145,487 $224,879
============ ============
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $ 60,726 $ 63,746
Interest on indebtedness 16,790 15,741
------------ ------------
Total fixed charges $ 77,516 $ 79,487
============ ============
Ratio of earnings to fixed charges 1.88x 2.83x
============ ============
</TABLE>
<PAGE>
[LETTERHEAD OF PRICWATERHOUSECOOPERS LLP APPEARS HERE]
Exhibit 15
----------
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Commissioners:
We are aware that our report dated May 17, 1999, on our review of the interim
consolidated financial information of The Limited, Inc. and Subsidiaries (the
"Company") as of and for the thirteen-week period ended May 1, 1999 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.
Very truly yours,
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
June 11, 1999
<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 May 1, 1999 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-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 491,366
<SECURITIES> 0
<RECEIVABLES> 72,140
<ALLOWANCES> 0
<INVENTORY> 1,170,303
<CURRENT-ASSETS> 1,998,825
<PP&E> 3,057,350
<DEPRECIATION> 1,686,087
<TOTAL-ASSETS> 4,282,132
<CURRENT-LIABILITIES> 1,006,906
<BONDS> 550,000
0
0
<COMMON> 180,352
<OTHER-SE> 2,078,823
<TOTAL-LIABILITY-AND-EQUITY> 4,282,132
<SALES> 2,104,798
<TOTAL-REVENUES> 2,104,798
<CGS> 1,444,595
<TOTAL-COSTS> 1,444,595
<OTHER-EXPENSES> 590,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,790
<INCOME-PRETAX> 60,546
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 33,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,546
<EPS-BASIC> $.15
<EPS-DILUTED> $.14
</TABLE>
