10-Q 1 0001.htm THE LIMITED, INC. THE LIMITED, INC.

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 April 29, 2000

OR

o       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 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 1, 2000

431,592,356 Shares

 

THE LIMITED, INC.

TABLE OF CONTENTS

          Page No.
Part I. Financial Information    

 

  Item 1. Financial Statements      
Consolidated Statements of Income  Thirteen Weeks Ended April 29, 2000 and May 1, 1999   3  
               
  Consolidated Balance Sheets April 29, 2000, January 29, 2000 and May 1, 1999   4

 

           
    Consolidated Statements of Cash Flows Thirteen Weeks Ended  April 29, 2000 and May 1, 1999   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   19
     
Item 4. Submission of Matters to a Vote of Security Holders   20
       
Item 6. Exhibits and Reports on Form 8-K   20

 

 

PART I - FINANCIAL INFORMATION

Item 1.       FINANCIAL STATEMENTS

THE LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Thousands except per share amounts)

(Unaudited)

 

Thirteen Weeks Ended


 
 

April 29,
2000


  May 1,
1999

 

Net sales

$

2,108,436

 

$

2,104,798

 

 
 
 
Costs of goods sold and buying and occupancy costs
(1,412,909
)
  (1,451,430
)
 


Gross income

 

695,527

 

653,368

 

 


General, administrative and store operating expenses
  (571,129
)
(563,038
)
 


Operating income

 

124,398

 

90,330

 

Interest expense

 

(14,008

)

(16,790

)

Other income

 

12,421

 

15,331

 

Minority interest

 

(10,861

)

(8,420

)

 


Income before income taxes

 

111,950

 

80,451

 

Provision for income taxes

 

49,000

 

35,000

 

 


Net income

$

62,950

 

$

45,451

 

 


Net income per share:

 

 
 
 
 
               

 

Basic

$

0.15

 

$

0.10

 

 


 

Diluted

$

0.14

 

$

0.10

 

 


Dividends per share

$

0.075

 

$

0.075

 



The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

 

THE LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Thousands)

 

April 29,
2000


 

January 29,
2000

May 1,
1999

    

(Unaudited)

     

(Unaudited)

ASSETS


 

     
 

 

   

 

Current assets:

 

     
 
     
 
Cash and equivalents $

484,091

 
$

817,268

 

$

491,366

 

 

Accounts receivable

 

 

77,166

 

108,794

 

 

72,140

 

 

Inventories

 

 

1,147,194

 

1,050,913

 

 

1,170,303

 

 

Store supplies

 

 

97,574

 

99,916

 

 

99,947

 

 

Other

 

 

196,628

 

169,386

 

 

153,861

 

   
 
 

Total current assets

 

 

2,002,653

 

2,246,277

 

 

1,987,617

 

Property and equipment, net

 

 

1,241,698

 

1,229,612

 

 

1,371,263

 

Restricted cash

 

 

 

 

 

351,600

 

Deferred income taxes

 

 

129,039

 

125,145

 

 

94,842

 

Other assets

 

 

487,202

 

486,655

 

 

476,810

 

   
 
 

Total assets

 

$

3,860,592

 
$

4,087,689

 

$

4,282,132

 

   
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY

 

     
 
     
 

Current liabilities:

 

     
 
     
 
 

Accounts payable

 

$

271,872

 
$

256,306

 

$

204,700

 

 

Current portion of long-term debt

 

 

150,000

 

250,000

 

 

100,000

 

 

Accrued expenses

 

 

540,821

 

579,442

 

 

611,460

 

 

Income taxes

 

 

 

152,458

 

 

12,614

 

   
 
 

Total current liabilities

 

 

962,693

 

1,238,206

 

 

928,774

 

Long-term debt

 

 

400,000

 

400,000

 

 

550,000

 

Other long-term liabilities

 

 

183,789

 

183,398

 

 

195,819

 

Minority interest

 

 

122,613

 

119,008

 

 

51,203

 

Contingent stock redemption agreement

 

 

 

 

 

351,600

 

                     

Shareholders' equity:

 

     
 
     
 
 

Common stock

 

 

215,715

 

189,727

 

 

180,352

 

 

Paid-in capital

 

 

70,404

 

178,374

 

 

158,203

 

 

Retained earnings

 

 

1,905,378

 

6,109,371

 

 

5,481,947

 

   
 
 

 

 

 

2,191,497

 

6,477,472

 

 

5,820,502

 

                     

Less: treasury stock, at average cost

 

 

 

(4,330,395

)

 

(3,615,766

)

   

 

Total shareholders' equity

 

 

2,191,497

 

2,147,077

 

 

2,204,736

 

   
 
 
 
Total liabilities and shareholder's equity   $ 3,860,592   $ 4,087,689   $ 4,282,132  
   
 
 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

 

THE LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)

         

Thirteen Weeks Ended


         

April 29,
2000


 

May 1,
1999


Operating activities:      
  Net income  
$

62,950

 

$
45,451
 
  Adjustments to reconcile net income to net cash used for operating activities:  
 
    Depreciation and amortization  
63,774
 
 
75,441
    Minority interest, net of dividends paid  
4,965
 
 
3,233
 
    Changes in assets and liabilities:  
      Accounts receivable  
31,628
 
 
5,575
 
      Inventories   
(96,281
)
 
(50,633
)
      Accounts payable and accrued expenses  
(24,744
)
 
(135,571
)
      Income taxes  
(165,750
)
 
(161,719
)
      Other assets and liabilities  
(27,853
)
 
1,166
 
         
 
 

Net cash used for operating activities

 
(151,311
)
 
(217,057
)
         


 
Investing activities:  
 
  Net expenditures related to Easton real estate investment  
(4,044
)
 
(7,024
)
  Capital expenditures  
(57,353
)
 
(95,260
)
         
 
 

Net cash used for investing activities

 
(61,397
)
 
(102,284
)
       
 
 
Financing activities:  
 
  Repayment of long-term debt  
(100,000
)
 
 
  Repurchase of common stock  
(2,738

)

 

 

 

Repurchase of subsidiary common stock

 

 

 

(56,569

)

 

Dividends paid

 

(31,582

)

 

(34,193

)

 

Stock options and other

 

13,851

 

 

31,152

 

         
 
 

Net cash used for financing activities

 

(120,469

)

 

(59,610

)

         
 
 

Net decrease in cash and equivalents

 

(333,177

)

 

(378,951

)

Cash and equivalents, beginning of year

 

817,268

 

 

870,317

 

         
 
 
         
 
 

Cash and equivalents, end of period

 
$

484,091

 

$

491,366

 

         

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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 include the results of Limited Too ("TOO"), through August 23, 1999, when it was established as an independent company, and Galyan's Trading Co. ("Galyan's") through August 31, 1999, when a third party purchased a majority interest.
     
     
    The consolidated financial statements also include the results of Intimate Brands, Inc. ("IBI"), an 84.1%-owned subsidiary. Minority interest of $122.6 million, $119.0 million and $51.2 million at April 29, 2000, January 29, 2000 and May 1, 1999 represents the Company's interest in the net equity of IBI.
     
     
    Investments in other entities (including joint ventures) where the Company has the ability to significantly influence operating and financial policies, including Galyan's for periods after August 31, 1999, are accounted for on the equity method.
     
     
    The consolidated financial statements as of and for the periods ended April 29, 2000 and May 1, 1999 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 1999 Annual Report on Form 10-K. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments 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 and for the thirteen week periods ended April 29, 2000 and May 1, 1999 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.   Shareholders' Equity
     
     
    On May 2, 2000, the Company announced a two-for-one stock split ("stock split") in the form of a stock dividend to stockholders of record on May 12, 2000 and payable on May 30, 2000. Par value of the common stock will remain $0.50 per share.

   

The effect of the stock split has been recognized retroactively in shareholder's equity on the consolidated balance sheet as of April 29, 2000, and in all share and per share data throughout this report. Shareholders' equity reflects the reclassification of an amount equal to the par value of the increase in issued common shares ($107.9 million) from paid-in capital to common stock.

     
     
    In conjunction with the stock split, the Company retired 163.7 million treasury shares, representing $4.3 billion at cost. A non-cash charge was made against retained earnings for the excess cost of treasury stock over its par value.
     
     
3.       Earnings Per Share
     
     
    Weighted average common shares outstanding (thousands):

 
  Thirteen Weeks Ended
  April 29,
2000
  May 1,
1999

Basic shares

430,484

 

455,464

Dilutive effect of stock options and    restricted shares

14,822

 

15,630



Diluted shares

445,306

 

471,094

 
 

    The computation of earnings per diluted share excludes options with an exercise price that was greater than the average market price of the common shares. The excluded options totaled 1.8 million and 0.2 million of common stock that were outstanding at quarter-end for 2000 and 1999.
     
     
4.       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.
     
     
5.       Property and Equipment, Net
     
     
    Property and equipment, net, consisted of (thousands):

 

 
April 29,
2000
 
January 29,
2000
 
May 1,
1999

Property and equipment, at cost

$

2,939,058

 
$

2,944,827

 
$

3,057,350

Accumulated depreciation and amortization

(1,697,360

)

(1,715,215

)

(1,686,087

)
   
   
   
 
 
 
 
 
 
 

Property and equipment, net

$

1,241,698

 
$

1,229,612

 
$

1,371,263

   
   
   
 

6.       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 April 29, 2000 and May 1, 1999 approximated $214.8 million and $196.7 million. Income tax assets of $9.4 million, which were net of income taxes payable of $40.6 million, were included in other current assets at April 29, 2000.
     
     
    The Internal Revenue Service has assessed the Company for additional taxes and interest for the years 1992 to 1996 relating to the undistributed earnings of foreign affiliates for which the Company has provided deferred taxes. On September 7, 1999, the United States Tax Court sustained the position of the IRS with respect to the 1992 year. In connection with an appeal of the Tax Court judgment, the Company made a $112 million payment of taxes and interest in the third quarter of 1999 for the years 1992 to 1998 that reduced deferred tax liabilities. Management believes the ultimate resolution of this matter will not have a material adverse effect on the Company's results of operations or financial condition.

 

7.       Long-Term Debt
     
     
    Unsecured long-term debt consisted of (thousands):

 

    April 29,
2000
  January 29,
2000
  May 1,
1999
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 paid August 1999  
   

   

100,000

Floating rate notes  

   

100,000

   

   
 
 
     

550,000

   

650,000

   

650,000

 

Less: current portion of long-term debt

 

150,000

   

250,000

   

100,000

   
 
 
    $

400,000

  $

400,000

  $

550,000

   
 
 

 

    The Company maintains a $1 billion unsecured revolving credit agreement (the "Agreement"), established on September 29, 1997. Borrowings outstanding under the Agreement, if any, 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 September 29, 2001, 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 Agreement supports the Company's commercial paper program, which is used from time to time to fund working capital and other general corporate requirements. The Agreement contains covenants relating to the Company's working capital, debt and net worth. No commercial paper or amounts under the Agreement were outstanding at April 29, 2000.
     
     
    The Company has a shelf registration statement, under which up to $250 million of debt securities and warrants to purchase debt securities may be issued.
        At April 29, 2000 the Company had an interest rate swap that 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 April 29, 2000 and May 1, 1999 approximated $20.8 million and $25.1 million.

8.       Segment Information

        The Company identifies operating segments based on a business's 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 and men'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 not significant.
     
    The Company and 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 service-related costs be allocated in accordance with the intercompany agreement. Costs are passed through and allocated to the apparel businesses in a similar manner.
     
    As a result of its spin-off, the operating results of TOO were reclassified from the apparel segment to the "Other" category for all periods presented. The operating results of Galyan's (100% prior to August 31, 1999 and 40% thereafter) are included in the "Other" category.
     
    Segment information as of and for the thirteen weeks ended April 29, 2000 and May 1, 1999 follows (in thousands):

    2000
  Apparel
Businesses
  Intimate
Brands
  Other (A)
  Reconciling
Items
    Total
   

Net sales

  $

1,086,425

  $

1,012,252

  $

9,759

 

 

$2,108,436

                             
 
   

Intersegment sales

   

143,619

   

   

 
$

(143,619

)(B)

                             
 
   

Operating income (loss)

   

12,376

   

116,271

   

(4,249

)

 

124,398

                             
 
   

Total assets

   

1,098,351

   

1,339,606

   

1,544,446

 

(121,811

)(C)

3,860,592

                             
 
    1999
  Apparel
Businesses
  Intimate
Brands
  Other (A)
  Reconciling
Items
    Total
   

Net sales

  $

1,063,228

  $

877,821

  $

163,749

 

  $

2,104,798

                                 
   

Intersegment sales

   

115,934

   

   

 
$

(115,934

)(B)  

                                 
   

Operating income (loss)

   

1,298

   

94,694

   

(5,662

)

   

90,330

                                 
   

Total assets

   

1,202,952

   

1,133,506

   

2,104,851

 

(159,177

)(C)  

4,282,132

 

    (A) Included in the "Other" category are Henri Bendel, TOO (through August 23, 1999), Galyan's (100% prior to August 31, 1999 and 40% thereafter), non-core real estate and corporate, none of which are significant operating segments.
       
    (B) Represents intersegment sales elimination.
       
    (C) Represents intersegment receivable/payable elimination.

Report of Independent Accountants

To the Board of Directors and
Shareholders of
The Limited, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of The Limited, Inc. and its subsidiaries (the "Company") as of April 29, 2000 and May 1, 1999, and the related condensed consolidated statements of income and cash flows for each of the thirteen-week periods ended April 29, 2000 and May 1, 1999. 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 condensed consolidated interim financial statements for them to be in conformity with generally accepted accounting principles.

We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 29, 2000, 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 22, 2000 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 29, 2000, 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 15, 2000, except for the
information in Note 2 as to which
the date is May 30, 2000.

Item 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS

Net sales for the first quarter of 2000 increased to $2.108 billion from $2.105 billion in 1999. Operating income increased 38% to $124.4 million from $90.3 million in 1999. Net income increased 38% to $63.0 million from $45.5 million in 1999, and earnings per share increased 40% to $0.14 from $0.10 in 1999 (adjusted to reflect the two-for-one stock split declared on May 2, 2000). The first quarter of 1999 includes the results of Limited Too ("TOO") prior to its spin-off effective August 23, 1999. See the "Other Data" section that follows for further discussion of the impact of the TOO spin-off on the first quarter of 1999 earnings.

Company highlights for the first quarter of 2000 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 $0.13,  compared to $0.10 in 1999. Operating income increased 23% and net income increased 29%.
     
 

The Victoria's Secret brand strengthened its brand position with product introductions in the quarter and used all channels of distribution - stores, catalogue and e-commerce - to promote these products. Victoria's Secret Stores' sales increased 18% to $499.1 million in 2000 with a comparable store sales increase of 14%. Operating profits grew 34%. Victoria's Secret Catalogue sales increased 5% to $203.8 million while operating profits grew 21%.

     
 

Bath & Body Works' sales increased 18% to $304.4 million, with a comparable store sales increase of 6%. Operating profits grew 19%. Overall, the brand experienced solid customer response to its new product offerings and continued strong sales of White Barn Candle Co. home fragrance products.

     
 
The apparel businesses were led by Express, which generated a comparable store sales increase of 16% and nearly doubled its operating income. In total, the apparel businesses had a 6% comparable store sales increase and an $11.1 million improvement in operating income, primarily driven by improved merchandise margins.
     
 
On May 2, 2000, the Company announced a two-for-one stock split of its outstanding common stock to shareholders of record as of May 12, 2000. All share and per share information throughout this report has been retroactively adjusted to reflect this split.

Financial Summary

The following summarized financial data compares the thirteen week period ended April 29, 2000 to the comparable 1999 period (in millions):

First Quarter

2000

1999

Change

Net Sales:
 
                 
Express
$
346
$
301
 
15
%
Lerner New York
220
236
 
(7
%)
Lane Bryant
220
223
 
(1
%)
Limited Stores
157
166
 
(5
%)
Structure
113
123
 
(8
%)
Other (principally Mast)
30
14
 
N/M
   
 
 
 
  Total apparel businesses
$
1,086
$
1,063
 
2
%
   
 
 
 
Victoria's Secret Stores
$
499
$
423
 
18
%
Bath & Body Works
304
258
 
18
%
Victoria's Secret Catalogue
204
194
 
5
%
Other (principally Gryphon)
5
3
 
N/M
   
 
 
 
Total Intimate Brands
$
1,012
$
878
 
15
%
   
 
 
 
Henri Bendel
10
9
 
11
%
Galyan's (through August 31, 1999)
60
 
N/M
TOO (through August 23, 1999)
95
 
N/M
   
 
 
 
Total net sales
$
2,108
$
2,105
 
   
 
 
 
Operating Income:
 
                 
Apparel businesses
$
12
$
1
 
N/M
Intimate Brands
116
95
 
22
%
Other
(4
)
(6
)
33
%
   
 
 
 
Total operating income
$
124
$
90
 
38
%
 
 
 
 

N/M not meaningful

 
First Quarter

 
2000

1999

Change

Comparable Store Sales:                  
Express   16 %   16 %      
Lerner New York   (3 %)   23 %      
Lane Bryant   3 %   9 %      
Limited Stores   8 %   5 %      
Structure   (4 %)   3 %      
   
 
     
  Total apparel businesses   6 %   12 %      
   
 
     
Victoria's Secret Stores   14 %   13 %      
Bath & Body Works   6 %   13 %      
 
 
       
                   
  Total Intimate Brands   11 %   13 %      
   
 
     
Henri Bendel   11 %   8 %      
Galyan's (through August 31, 1999)       10 %      
TOO (through August 23, 1999)       10 %      
   
 
     
Total comparable store sales   8 %   12 %      
   
 
     
Store Data:                  
Retail sales increase attributable to net new and remodeled stores:                  
  Apparel businesses   (4 %)   (4 %)      
  Intimate Brands   6 %   6 %      
                   
Retail sales per average selling square foot:                  
  Apparel businesses $ 62   $ 57     9 %
  Intimate Brands $ 123   $ 116     6 %
                   
Retail sales per average store (thousands):                  
  Apparel businesses $ 367   $ 337     9 %
  Intimate Brands $ 378   $ 355     6 %
                   
Average store size at end of quarter (retail selling square feet):                  
  Apparel businesses   5,875     5,870     0 %
  Intimate Brands   3,056     3,047     0 %
                   
Retail selling square feet at end of quarter (thousands):                  
  Apparel businesses   16,733     18,021     (7 %)
  Intimate Brands   6,554     5,941     10 %
                   
Number of Stores:                  
Beginning of year   5,023     5,382        
  Opened   40     84        
  Closed   (70 )   (108 )      
   
 
     
End of period   4,993     5,358        
   
 
     

  Number of Stores
  Selling Sq. Ft. (thousands)
 
April 29,
2000

May 1,
1999

Change
April 29,
2000

May 1,
1999

Change

Express

 

677

 

 

694

 

 

(17

)

 

4,345

 

 

4,462

 

 

(117

)

Lerner New York

 

587

 

 

633

 

 

(46

)

 

4,528

 

 

4,891

 

 

(363

)

Lane Bryant

 

661

 

 

705

 

 

(44

)

 

3,223

 

 

3,422

 

 

(199

)

Limited Stores

431

 

514

 

(83

)

 

2,681

 

3,166

 

(485

)

Structure

492

 

524

 

(32

)

 

1,956

 

2,080

 

(124

)

 
 
 
 
 
 
 

Total apparel businesses

2,848

 

3,070

 

(222

)

 

16,733

 

18,021

 

(1,288

)

 
 
 
 
 
 
 

Victoria's Secret Stores

894

 

849

 

45

 

3,972

 

3,764

 

208

Bath & Body Works

1,250

 

1,101

 

149

 

2,582

 

2,177

 

405

 
 
 
 
 
 
 

Total Intimate Brands

2,144

 

1,950

 

194

 

6,554

 

5,941

 

613

 
 
 
 
 
 
 

Henri Bendel

1

 

1

 

 

35

 

35

 

Galyan's

 

16

 

(16

)

 

 

1,106

 

(1,106

)

TOO

 

321

 

(321

)

 

 

1,014

 

(1,014

)

 
 
 
 
 
 
 

Total stores and selling sq. ft

4,993

 

5,358

 

(365

)

 

23,322

 

26,117

 

(2,795

)

 
 
 
 
 
 
 

Net Sales

Net sales for the first quarter of 2000 were $2.108 billion compared to $2.105 billion for the same period in 1999. An 8% comparable store sales increase was partially offset by: 1) the loss of TOO sales following the August 23, 1999 spin-off; 2) the exclusion of Galyan's sales following the third party purchase of a 60% majority interest effective August 31, 1999; and 3) store closings in the apparel segment.

At IBI, net sales for the first quarter of 2000 increased 15% to $1.012 billion from $878 million in 1999. The net sales increase was primarily due to an 11% increase in comparable store sales and the net addition of 194 new stores (613,000 selling square feet).

At the apparel businesses, net sales for the first quarter of 2000 increased 2% to $1.086 billion from $1.063 billion in 1999. A 6% increase in comparable store sales more than offset a net reduction of 222 stores (1.3 million selling square feet). Express and Limited Stores led the apparel businesses with comparable store sales increases of 16% and 8%.

Gross Income

The first quarter of 2000 gross income rate (expressed as a percentage of sales) increased to 33.0% from 31.0% for the same period in 1999. Improvement was realized at both the apparel businesses and IBI. The gross income rate increase at the apparel businesses was primarily due to an increase in the merchandise margin rate and a slight decrease in the buying and occupancy expense rate. The increase in the apparel merchandise margin rate was primarily attributable to improved inventory management and merchandising strategies. The gross income rate increase at IBI was primarily driven by positive buying and occupancy expense rate leverage.

General, Administrative and Store Operating Expenses

The first quarter of 2000 general, administrative and store operating expense rate (expressed as a percentage of sales) increased to 27.1% from 26.8% for the same period in 1999. The rate increase was primarily attributable to the inability of the apparel businesses to achieve expense leverage on sales growth of 2%.

Operating Income

The first quarter of 2000 operating income rate (expressed as a percentage of sales) increased to 5.9% compared to 4.3% in 1999. The improvement in the operating income rate was primarily driven by an increase in the gross income rate of 2.0% which more than offset a slight increase in general, administrative and store operating expense rate.

Interest Expense

 

First Quarter

  2000

1999
 

Average borrowings (millions)

$

661.6

 
$

803.8

 

Average effective interest rate

 

8.47

%

8.36

%

Interest expense for the first quarter of 2000 decreased to $14.0 million from $16.8 million for the same period in 1999. This decrease was primarily the result of decreased borrowing levels.

Other Income

Other income for the first quarter of 2000 decreased to $12.4 million from $15.3 million for the same period in 1999. The decrease was due to lower average invested cash balances. Average invested cash balances were reduced by the portion of the $753 million self-tender, which exceeded the funding provided by the $352 million of (formerly) restricted cash. The impact of the self-tender was further offset by $182 million in net proceeds from the sale of a 60% interest in Galyan's, and the $50 million dividend from TOO prior to its spin-off.

Other Data

The following adjusted income information for 1999 gives effect to the spin-off of TOO on August 23, 1999 as if it had occurred on February 1, 1999.

Management believes the presentation below provides a reasonable basis on which to present the adjusted income information. Although the adjusted income information should not be construed as an alternative to the reported results determined in accordance with generally accepted accounting principles, it is provided to assist in investors' understanding of the Company's results of operations.

Adjusted Income Information (Thousands, except per share amounts):

 
Thirteen Weeks Ended

  April 29, 2000
  May 1, 1999
 

As
Reported


 

As
Reported


 

Adjustments


 

As
Adjusted


 

Net sales

$

2,108,436

 

$

2,104,798

 

$

(95,048

)

$

2,009,750

 

 
 
 
 
 

Gross income

 

695,527

 

 

653,368

 

(31,724

)

 

621,644

 

 
 
 
 
 

General, administrative and store operating expenses

 

(571,129

)

 

(563,038

)

30,412

 

 

(532,626

)

 
 
 
 
 

Operating income

 

124,398

 

 

90,330

 

(1,312

)

 

89,018

 

Interest expense

 

(14,008

)

 

(16,790

)

 

 

(16,790

)

Other income, net

 

12,421

 

 

15,331

 

 

 

15,331

 

Minority interest

 

(10,861

)

 

(8,420

)

 

 

(8,420

)

 
 
 
 
 

Income before income taxes

 

111,950

 

 

80,451

 

(1,312

)

 

79,139

 

Provision for income taxes

 

49,000

 

 

35,000

 

(500

)

 

34,500

 

 
 
 
 
 

Net income

$

62,950

 

$

45,451

 

$

(812

)

$

44,639

 

 
 
 
 
 

Earnings per share

$
0.14

 

$

0.10

 

   

 

$

0.09

 

 
 
     
 

Weighted average shares outstanding

 

445,306

 

 

471,094

 

 
   
471,094
 
 
 
     
 

Reflecting the TOO spin-off as if it had occurred at the beginning of 1999, net sales for the first quarter of 2000 increased 5% to $2.108 billion from $2.010 billion for the same period in 1999. Net income for the first quarter of 2000 increased 41% to $63.0 million from $44.6 million in 1999 and earnings per share increased 56% to $0.14 from $0.09.

FINANCIAL CONDITION

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):

      April 29,
2000
 
 
January 29,
2000
 
 
May 1,
1999

Working capital

$

1,039,960

  $

1,008,071

  $

1,058,843

   
 
 

Capitalization:

               
  Long-term debt $

400,000

  $

400,000

  $

550,000

  Shareholders' equity  

2,191,497

   

2,147,077

   

2,204,736

   
 
 

Total capitalization

$

2,591,497

  $

2,547,077

  $

2,754,736

   
 
 
Additional amounts available under long-term credit agreements $
1,000,000
$
1,000,000
$
1,000,000
 
 
 

In addition, the Company may offer up to $250 million of debt securities and warrants to purchase debt securities under its shelf registration statement.

Net cash used for operating activities was $151.3 million in the first quarter of 2000 versus $217.1 million in the first quarter last year. The decrease in net cash used for operating activities between periods was primarily due to a significant decrease in accounts payable in the first quarter of 1999 (primarily due to the timing of rent payments).

Investing activities were for capital expenditures, which were primarily for new and remodeled stores.

Financing activities for the first quarter of 2000 primarily included the $100 million repayment of the Series C floating rate notes and the quarterly dividend payment of $0.075 per share. In addition, the Company initiated a $200 million stock repurchase program with the repurchase of $2.7 million of its common stock.

In addition, non-cash financing activities include a two-for-one stock split in the form of a stock dividend to stockholders of record on May 12, 2000 and payable on May 30, 2000. Shareholders' equity as of April 29, 2000 reflects the reclassification of an amount equal to the par value of the increase in issued common shares ($107.9 million) from paid-in capital to common stock. Also, in conjunction with the stock split, the Company retired 163.7 million treasury shares, representing $4.3 billion at cost. A non-cash charge was made against retained earnings for the excess cost of treasury stock over its par value.

 

Capital Expenditures

Capital expenditures totaled $57.4 million for the first quarter of 2000, compared to $95.3 million for the first quarter of 1999. The Company anticipates spending $475 to $500 million for capital expenditures in 2000, of which $375 to $400 million will be for new stores and for remodeling of and improvements to existing stores.

The Company expects that 2000 capital expenditures will be funded primarily by net cash provided by operating activities.

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. 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 2000 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.

PART II  -  OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS
     
     
    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 April 12, 1999, a motion to dismiss that complaint for failure to state a claim upon which relief can be granted was filed, and it remains pending. On September 29, 1999, the United States District Court for the Central District of California, Western Division, transferred the case to the United States District Court for the District of Hawaii. The Company, along with certain other defendants, filed a petition for a writ of mandamus from the Ninth Circuit Court of Appeals seeking an order holding that the transfer of the case to the United States District Court for the District of Hawaii was in error and ordering that the case be transferred to the United States District Court on Saipan. That petition has been denied. A first amended complaint was filed on April 28, 2000, which adds additional defendants but does not otherwise substantively alter either the claims alleged or relief sought. The second complaint, filed by a national labor union and other organizations in the Superior Court of the State of California, San Francisco County, and which alleges unfair business practices under California law, remains pending.
     
     
    In May and June 1999, purported shareholders of the Company filed three derivative actions in the Court of Chancery of the State of Delaware, naming as defendants the members of the Company's board of directors and the Company, as nominal defendant. The actions thereafter were consolidated. The operative complaint generally alleged that the rescission of the Contingent Stock Redemption Agreement previously entered into by the Company with Leslie H. Wexner and The Wexner Children's Trust (the "Contingent Stock Redemption Agreement") constituted a waste of corporate assets and a breach of the board members' fiduciary duties, and that the issuer tender offer completed on June 3, 1999 was a "wasteful transaction in its own right." On July 30, 1999, all defendants moved to dismiss the complaint, both on the ground that it failed to allege facts showing that demand on the board to institute such an action would be futile and for failure to state a claim. Plaintiffs did not respond to that motion, but on February 16, 2000, plaintiffs filed a first amended consolidated derivative complaint (the "amended complaint"), which makes allegations similar to the first complaint concerning the rescission of the Contingent Stock Redemption Agreement and the 1999 issuer tender offer and adds allegations apparently intended to show that certain directors were not disinterested in those decisions. Defendants moved to dismiss the amended complaint on April 14, 2000.

Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the foregoing proceedings are not expected to have a material adverse effect on the Company's financial position or results of operations.

Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Stockholders on May 15, 2000. The matter voted upon and the results of the voting were as follows:

E. Gordon Gee, Alex Shumate, Allan R. Tessler, and Abigail S. Wexner were elected to the Board of Directors for a term of three years. Of the 173,526,884 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:

Name

Shares
Voted For
Election

  Shares as to Which
Voting Authority
Withheld

E. Gordon Gee
171,642,405
1,884,479
Alex Shumate
171,687,539
1,839,345
Allan R. Tessler
171,737,837
1,789,047
Abigail S. Wexner
171,800,097
1,726,787

In addition, directors whose term of office continued after the Annual Meeting were: Eugene M. Freedman, Kenneth B. Gilman, David T. Kollat, Leslie H. Wexner, Leonard Schlesinger, Donald B. Shackelford, Martin Trust, Raymond Zimmerman.

Item 6.       EXHIBITS AND REPORTS ON FORM 8-K

(a)       Exhibits.

12.   Statement re: Computation of Ratio of Earnings to Fixed Charges.
     
15.   Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Report of Independent Accountants.
     
27.   Financial Data Schedule.

(b)       Reports on Form 8-K.

    None.

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 9, 2000    

* Ms. Hailey is the principal financial officer and has been duly authorized to sign on behalf of the Registrant.