1
EXHIBIT 13
pause
women's>
% OF TOTAL SALES
($ in Millions)
1994 $4,318 59%
1993 4,655 64%
1992 4,683 67%
% OF TOTAL OPERATING
INCOME
($ in Millions)
1994 $298 37%
1993 305 44%
1992 502 64%
SALES % TOTAL
(Millions) SALES
Express 1994 $1,387 19%
1993 1,421 20%
1992 1,312 19%
Lerner 1994 $1,019 14%
New York 1993 1,141 16%
1992 1,175 17%
Lane Bryant 1994 $ 959 13%
1993 928 13%
1992 918 13%
The Limited 1994 $ 869 12%
1993 1,084 15%
1992 1,205 17%
Henri Bendel 1994 $ 84 01%
1993 81 01%
1992 73 01%
22
2
pause
lingerie>
% OF TOTAL SALES
($ in Millions)
1994 $1,842 25%
1993 1,514 21%
1992 1,263 18%
% OF TOTAL OPERATING
INCOME
($ in Millions)
1994 $ 297 37%
1993 235 33%
1992 171 22%
men's>
% OF TOTAL SALES
($ in Millions)
1994 $ 721 10%
1993 561 8%
1992 403 6%
% OF TOTAL OPERATING
INCOME
($ in Millions)
1994 $ 75 9%
1993 52 7%
1992 29 4%
SALES % TOTAL
(Millions) SALES
VICTORIA'S 1994 $1,181 16%
SECRET 1993 992 14%
STORES 1992 840 12%
VICTORIA'S 1994 $ 569 8%
SECRET 1993 436 6%
CATALOGUE 1992 367 5%
CACIQUE 1994 $ 92 1%
1993 86 1%
1992 56 1%
STRUCTURE 1994 $ 556 8%
1993 450 6%
1992 318 5%
ABERCROMBIE 1994 $ 165 2%
& FITCH CO. 1993 111 2%
1992 85 1%
34
3
pause
personal care
& children's>
% OF TOTAL SALES
($ in Millions)
1994 $ 439 6%
1993 264 4%
1992 170 3%
% OF TOTAL OPERATING
INCOME
($ in Millions)
1994 $ 66 8%
1993 23 3%
1992 (11) -1%
SALES % TOTAL
(Millions) SALES
BATH & 1994 $260 4%
BODY WORKS 1993 112 2%
1992 57 1%
PENHALIGON'S 1994 $ 5 0%
1993 5 0%
1992 5 0%
THE LIMITED 1994 $174 2%
TOO 1993 147 2%
1992 108 2%
42
4
Our Operating Results
(Thousands except per share amounts)
1994 1993 % Change
Net Sales $7,320,792 $7,245,088 1%
Operating Income $ 798,989 701,556 14%
Net Income $ 448,343 $ 390,999 15%
Net Income as a
Percentage of Sales 6.1% 5.4%
Net Income Per Share $ 1.25 $ 1.08 16%
Dividends Per Share $ .36 $ 36
Our Year-End Position
(Thousands except per share amounts)
1994 1993 % Change
Total Assets $4,570,077 $4,135,105 11%
Working Capital $1,750,111 $1,513,181 16%
Current Ratio 3.2 3.1
Long-Term Debt $ 650,000 $ 650,000 --
Debt to Equity Ratio 24% 27%
Shareholders' Equity $2,760,956 $2,441,293 13%
Return on Average
Shareholders' Equity 17% 17%
Stores Open at End of Year
1994 1993
Express 716 673
Lerner New York 846 877
Lane Bryant 812 817
The Limited 709 746
Henri Bendel 4 4
Victoria's Secret Stores 601 570
Cacique 114 108
Structure 466 394
Abercrombie & Fitch Co. 67 49
Bath & Body Works 318 194
Penhaligon's 4 7
The Limited Too 210 184
Total Number of Stores 4,867 4,623
Selling Square Feet 25,627,000 24,426,000
Number of Associates 105,600
57
5
FINANCIAL SUMMARY
- -------------------------------------------------------------------------------------------------------------------
(Thousands except per share amounts, ratios and store and associate data)
- -------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1994 1993(1) 1992 1991(2) 1990(2)
- -------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Sales $ 7,320,792 $ 7,245,088 $ 6,944,296 $ 6,149,218 $ 5,253,509
Gross Income 2,114,363 1,958,835 1,990,740 1,793,543 1,630,439
Operating Income 798,989 701,556 788,698 712,700 697,537
Income Before Income Taxes 744,343 644,999 745,497 660,302 653,438
Net Income $ 448,343 $ 390,999 $ 455,497 $ 403,302 $ 398,438
Net Income as a Percentage
of Sales 6.1% 5.4% 6.6% 6.6% 7.6%
- -------------------------------------------------------------------------------------------------------------------
PER SHARE RESULTS
Net Income $ 1.25 $ 1.08 $ 1.25 $ 1.11 $ 1.10
Dividends $ .36 $ .36 $ .28 $ .28 $ .24
Book Value $ 7.72 $ 6.82 $ 6.25 $ 5.19 $ 4.33
Weighted Average Shares
Outstanding 358,601 363,234 363,738 363,594 362,044
- -------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
Total Assets $ 4,570,077 $ 4,135,105 $ 3,846,450 $ 3,418,856 $ 2,871,878
Working Capital $ 1,750,111 $ 1,513,181 $ 1,063,352 $ 1,084,205 $ 884,004
Current Ratio 3.2 3.1 2.5 3.1 2.8
Long-Term Debt $ 650,000 $ 650,000 $ 541,639 $ 713,758 $ 540,446
Debt-to-Equity Ratio 24% 27% 24% 38% 35
Shareholders' Equity $ 2,760,956 $ 2,441,293 $ 2,267,617 $ 1,876,792 $ 1,560,052
Return on Average
Shareholders' Equity 17% 17% 22% 23% 28%
- -------------------------------------------------------------------------------------------------------------------
STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 4,867 4,623 4,425 4,194 3,760
Selling Square Feet 25,627,000 24,426,000 22,863,000 20,355,000 17,008,000
Number of Associates 105,600 97,500 100,700 83,800 72,500
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes the results of companies disposed of up to the disposition date.
(2) Includes the results of companies acquired subsequent to the date of acquisition.
(3) Fifty-three week fiscal year.
Year Number of Stores
---- ----------------
74 48
79 309
84 1,412
89 3,344
94 4,867
58
6
FINANCIAL SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands except per share amounts, ratios and store and associate data)
- ------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1989(3)(1) 1988(2) 1987 1986 1985(2) 1984(3)
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Sales $ 4,647,916 $ 4,070,777 $ 3,527,941 $ 3,142,696 $ 2,387,110 $ 1,343,134
Gross Income 1,446,635 1,214,703 992,775 961,827 718,843 404,321
Operating Income 625,254 467,418 408,872 438,229 276,212 173,102
Income Before Income Taxes 573,926 396,136 378,188 394,780 239,317 157,495
Net Income $ 346,926 $ 245,136 $ 235,188 $ 227,780 $ 145,317 $ 92,495
Net Income as a Percentage
of Sales 7.5% 6.0% 6.7% 7.2% 6.1% 6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE RESULTS
Net Income $ .96 $ .68 $ .62 $ .60 $ .40 $ .26
Dividends $ .16 $ .12 $ .12 $ .08 $ .05 $ .04
Book Value $ 3.45 $ 2.64 $ 2.04 $ 2.07 $ 1.13 $ .77
Weighted Average Shares
Outstanding 361,288 360,186 376,626 376,860 365,638 361,262
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
Total Assets $ 2,418,486 $ 2,145,506 $ 1,929,477 $ 1,726,544 $ 1,494,313 $ 657,242
Working Capital $ 685,524 $ 567,639 $ 629,783 $ 586,827 $ 419,706 $ 180,960
Current Ratio 2.4 2.2 2.9 2.7 2.2 2.0
Long-Term Debt $ 445,674 $ 517,952 $ 681,000 $ 417,420 $ 670,744 $ 150,139
Debt-to-Equity Ratio 36% 55% 93% 53% 166% 55%
Shareholders' Equity $ 1,240,454 $ 946,207 $ 729,171 $ 781,542 $ 404,075 $ 275,403
Return on Average
Shareholders' Equity 32% 29% 31% 38% 43% 40%
- ------------------------------------------------------------------------------------------------------------------------------------
STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 3,344 3,497 3,115 2,682 2,353 1,412
Selling Square Feet 14,374,000 14,296,000 12,795,000 11,320,000 10,460,000 5,166,000
Number of Associates 63,000 56,700 50,200 43,200 33,600 17,700
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes the results of companies disposed of up to the disposition date.
(2) Includes the results of companies acquired subsequent to the date of acquisition.
(3) Fifty-three week fiscal year.
59
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net sales for the fourth quarter grew to $2.539 billion, an increase of 5% from
$2.421 billion a year ago. Net income was $257 million, compared to $196
million last year, and earnings per share were $0.72 versus $0.54 in 1993.
Net sales for the 52-week fiscal year ended January 28, 1995 of $7.321
billion increased $318 million from sales of $7.003 billion last year
(excluding Brylane's 1993 sales). Net income was $448 million compared to $391
million a year ago. Earnings per share were $1.25 compared to $1.08 last year.
In 1994, the Company delivered solid results and made significant
progress on the two principal objectives for the year.
First, the Company achieved the goal of restoring merchandise margin
integrity at the women's fashion apparel businesses despite negative comparable
store sales, and thereby increased their operating income contribution as a
percentage of sales. Merchandise margin is the key indicator by which the
Company is measuring its progress in its effort to return these businesses to
their historic levels of productivity and profitability.
Second, the Company continued to profitably grow its lingerie, men's,
personal care and children's businesses. These divisions increased their total
sales by 28%, contributed 41% of total sales and 55% of operating income.
Divisional highlights include the following:
- Express delivered a significant increase in merchandise margin rate
during the fourth quarter and one of the best Fall seasons in their
history in terms of operating income.
- Lane Bryant also had a solid year, producing a moderate increase in
sales with improved margins.
- Although Lerner New York and Limited Stores experienced negative
comparable store sales, merchandise margins for the year were up to
last year.
- Victoria's Secret Stores set new fourth quarter and full year
records in operating income dollars, on an increase in sales of
almost $200 million for the year.
- Abercrombie & Fitch Co. set new records for merchandise margin rate
and profitability for the fourth quarter and year, increasing their
earnings contribution over last year.
- Structure produced a 20% increase in earnings for the year in spite
of a disappointing fourth quarter.
- Bath & Body Works produced another stellar year, more than doubling
their sales while setting new records for the fourth quarter and year
for merchandise margin and operating profit rate. The global
potential for the brand was demonstrated by the successful opening of
five stores in the United Kingdom in partnership with Next plc.
For further information about the Company's divisions including sales
and operating income, see pages 22, 23, 34, 35, 42 and 43 of this Annual
Report.
60
8
FINANCIAL SUMMARY
- ---------------------------------------------------------------------------------------------------------------
The following summarized financial data compares 1994 to the comparable periods
for 1993 and 1992:
- ---------------------------------------------------------------------------------------------------------------
% CHANGE
-----------------------
1994 1993 1992 1994-93 1993-92
- ---------------------------------------------------------------------------------------------------------------
Retail Sales (millions) $ 6,752 $ 6,567 $ 6,153 3% 7%
Catalogue Sales (millions) 569 678 791 (16%) (14%)
---------------------------------------
Total Net Sales (millions) $ 7,321 $ 7,245 $ 6,944 1% 4%
Increase (Decrease) in
Comparable Store Sales (3%) (1%) 2%
Retail Sales Increase Attributable
to New and Remodeled Stores 6% 8% 12%
Retail Sales per Average Selling
Square Foot $ 270 $ 278 $ 285 (3%) (2%)
Retail Sales per Average Store
(thousands) $ 1,423 $ 1,452 $ 1,428 (2%) 2%
Average Store Size at End
of Year (square feet) 5,265 5,284 5,167 - 2%
Retail Selling Square Feet
(thousands) 25,627 24,426 22,863 5% 7%
Number of Stores:
Beginning of Year 4,623 4,425 4,194
Opened 358 322 323
Closed (114) (124) (92)
---------------------------------------
End of Year 4,867 4,623 4,425
- ---------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET SALES
- --------------------------------------------------------------------------------
Fourth quarter 1994 sales as compared to 1993 increased 5% to $2.539 billion
due to a 9% increase in sales attributable to new and remodeled stores. Fourth
quarter 1993 sales of $2.421 billion were flat to 1992 due to the sale of a 60%
interest in the Brylane division on August 30, 1993. Excluding Brylane sales
from 1992, fourth quarter sales in 1993 would have increased 4% due to an 8%
increase in sales attributable to new and remodeled stores.
The 1994 retail sales increase is attributable to the net addition of
new and remodeled stores, which was partially offset by a 3% decline in
comparable store sales. The Company added 358 new stores in 1994, remodeled 226
stores and closed 114 stores for a net addition of 244 stores and in excess of
1.2 million square feet of new retail selling space. Consistent with the
comparable store sales decline, average sales productivity declined slightly to
$270 per square foot.
Catalogue sales decreased 16% in 1994 as compared to 1993 due to Brylane
sales being included in the first and second quarters of 1993 prior to its sale
in August 1993. Had last year's catalogue sales excluded Brylane, catalogue
sales would have increased 30%, due to a significant increase in the number of
books mailed, although the average sales demand per book decreased slightly.
Retail sales increased 7% during 1993, reflecting the additional volume
from new and remodeled stores. The Company added 322 new stores in 1993,
remodeled 239 stores and closed 124 stores for a net addition of 198 stores and
in excess of 1.5 million square feet of new retail selling space. However,
average sales productivity declined slightly to $278 per square foot.
Catalogue sales decreased 14% in 1993, due to Brylane sales being
included in the third and fourth quarters of 1992. Had 1992's catalogue sales
excluded Brylane, catalogue sales would have increased 19% during 1993 as the
number of books mailed during the year increased while the average sales demand
per book decreased slightly.
- --------------------------------------------------------------------------------
GROSS INCOME
- --------------------------------------------------------------------------------
Gross income increased as a percentage of sales to 32.8% for the fourth quarter
of 1994 from 29.1% for the same period in 1993. Merchandise margins, expressed
as a percentage of sales, increased 4.4%, as the Company continued to be less
price promotional than a year earlier. However, the merchandise margin increase
was partially offset by increased buying and occupancy costs, which rose .7%
as a percentage of sales, primarily due to the lower sales productivity
associated with an 11% decrease in women's apparel comparable store sales.
61
9
Gross income decreased as a percentage of sales to 29.1% for the fourth
quarter of 1993 from 32.2% for the same period in 1992. Merchandise margins,
expressed as a percentage of sales, decreased 1.4% reflecting a higher level of
promotional activity (particularly in the women's apparel businesses) to
liquidate seasonal inventories. In addition, buying and occupancy costs,
expressed as a percentage of sales, increased 1.6% primarily as a result of
lower sales productivity associated with several of the Company's women's
apparel businesses.
The 1994 gross income rate of 28.9% was 1.9% above the rate for 1993.
Merchandise margins, expressed as a percentage of sales, increased 3.0%, due to
the Company's less promotional pricing strategy. However, the merchandise margin
increase was partially offset by increased buying and occupancy costs, which
rose 1.2% as a percentage of sales, primarily due to the lower sales
productivity associated with a 9% decrease in women's apparel comparable store
sales.
The 1993 gross income rate of 27.0% was 1.7% below the rate for 1992.
Merchandise margins, expressed as a percentage of sales, decreased .4%
reflecting higher promotional activity, notably in the fourth quarter. Buying
and occupancy costs were not sufficiently leveraged (particularly at the
Company's women's apparel businesses) and as a result, these costs increased
approximately 1.2%, expressed as a percentage of sales.
- --------------------------------------------------------------------------------
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
- --------------------------------------------------------------------------------
General, administrative and store operating expenses, expressed as a
percentage of sales, increased to 15.4% in the fourth quarter of 1994 from 15.1%
in the same period of 1993, principally due to lower sales productivity. Sales
productivity, which is initially lower in new and remodeled stores, was also
lower in existing stores. The Company continued to maintain its high level of
customer service despite negative comparable store sales, particularly at the
women's apparel businesses where comparable store sales were down 11%.
These costs, expressed as a percentage of sales, were 18.0%, 17.4% and
17.3% for fiscal years 1994, 1993 and 1992. The increases in 1994 and 1993 were
due to the lower sales productivity at both existing stores and new and
remodeled stores. The Company expects to continue its policy of maintaining a
high level of customer service.
- --------------------------------------------------------------------------------
SPECIAL AND NONRECURRING ITEMS
- --------------------------------------------------------------------------------
As more fully described in Note 2 to the Consolidated Financial
Statements, the Company announced during 1993 the sale of a 60% interest in its
Brylane division for $285 million in cash. This transaction was part of a
program aimed at accelerating the growth of the retail businesses, which
included the acceleration of the store remodeling, downsizing and closing
program at the Limited Stores and Lerner divisions, and the refocusing of the
merchandising strategy at the Henri Bendel division. The net pre-tax gain from
these special and nonrecurring items was $2.6 million. The impact of these items
on future operating results is anticipated to be immaterial. In the near term,
the Company's reduced share of Brylane's operating income is expected to be
offset by improved sales productivity and reduced depreciation and amortization
costs.
The Company also announced a program to repurchase up to $500 million of
the Company's common stock over time as market conditions warrant. As of the end
of fiscal year 1994, the Company had repurchased 5.9 million shares at a cost of
$104.7 million. Market conditions will dictate any future purchases.
- --------------------------------------------------------------------------------
INTEREST EXPENSE
- -------------------------------------------------------------------------------
FOURTH QUARTER YEAR-TO-DATE
-----------------------------------------------
1994 1993 1994 1993 1992
- -------------------------------------------------------------------------------
Average Daily Borrowings
(in millions) $996.7 $848.2 $785.0 $822.5 $1,046.3
Average Effective
Interest Rate 7.84% 7.62% 8.33% 7.76% 5.96%
- -------------------------------------------------------------------------------
Interest expense increased in the fourth quarter and for all 1994 as compared
to the comparable periods in 1993. Higher interest rates increased costs
approximately $.6 million and $4.4 million during the fourth quarter and for
all of 1994. Higher borrowing levels during the fourth quarter increased costs
by $2.8 million. For the year, lower borrowing levels resulted in lower
interest costs of approximately $2.9 million as compared to 1993, which
partially offset the effective interest rate increase.
62
10
- --------------------------------------------------------------------------------
OPERATING INCOME
- --------------------------------------------------------------------------------
Operating income, as a percentage of sales, was 10.9%, 9.6% and 11.4% for
fiscal years 1994, 1993 and 1992. The increase in operating income in 1994 was
primarily due to higher merchandise margins, partially offset by higher buying
and occupancy costs and higher general, administrative and store operating
expenses.
- --------------------------------------------------------------------------------
GAIN ON ISSUANCE OF UNITED RETAIL GROUP, INC. STOCK
- --------------------------------------------------------------------------------
The 1992 results include a $9 million pre-tax gain which resulted from the
March 1992 initial public offering of United Retail Group, Inc. (URGI), a
specialty retailer of large-size woman's apparel. URGI sold approximately 3.7
million shares of common stock at $15 per share and received total
consideration of approximately $55.6 million. Prior to the initial public
offering, the Company owned approximately a 33% equity interest; subsequent to
the initial public offering, the Company's ownership was diluted to
approximately 20%. See Note 1 to the Consolidated Financial Statements for
further discussion of this matter.
- --------------------------------------------------------------------------------
ACQUISITIONS
- --------------------------------------------------------------------------------
Gryphon Development, L.P. (Gryphon) creates, develops and manufactures most of
the bath and personal care products sold by the Company. Prior to April 10,
1992, the Company owned approximately 65% of Gryphon. Effective April 10, 1992,
the Company acquired the remaining 35% of Gryphon for approximately $60 million
and separately entered into a non-compete agreement with certain of the former
Gryphon partners in return for warrants to purchase 1.5 million shares of the
Company's common stock.
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
The Company's balance sheet at January 28, 1995 provides continuing evidence of
financial strength and flexibility. The Company's debt-to-equity ratio declined
to only 23.5% at the end of 1994, the current ratio reached a record 3.2 and
working capital was in excess of $1.75 billion. 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 committed long-term credit agreements, and the Company's
capital structure continue to provide the resources to support operations,
including projected growth, seasonal requirements and capital expenditures. A
summary of the Company's working capital position and capitalization follows
(thousands):
- ------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------
Cash Provided by Operating Activities $ 361,078 $ 448,139 $ 754,128
Working Capital $1,750,111 $1,513,181 $1,063,352
Capitalization:
Long-Term Debt $ 650,000 $ 650,000 $ 541,639
Deferred Income Taxes 306,139 275,101 274,844
Shareholders' Equity 2,760,956 2,441,293 2,267,617
- ------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION $3,717,095 $3,366,394 $3,084,100
Additional Amounts Available
Under Long-Term Credit Agreements $ 840,000 $ 840,000 $ 811,000
- ------------------------------------------------------------------------------------------
The Company considers the following to be several measures of liquidity and
capital resources:
- ------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------
Debt-to-Equity Ratio (Long-Term Debt
Divided by Shareholders' Equity) 24% 27% 24%
Debt-to-Capitalization Ratio (Long-Term
Debt Divided by Total Capitalization) 17% 19% 18%
Interest Coverage Ratio (Income Before Interest
Expense, Depreciation, Amortization and
Income Taxes Divided by Interest Expense) 16x 15x 17x
Cash Flow to Capital Investment (Net Cash
Provided by Operating Activities Divided
by Capital Expenditures) 113% 151% 176%
- ------------------------------------------------------------------------------------------
63
11
Net cash provided by operating activities totaled $361.1 million, $448.1 million
and $754.1 million for 1994, 1993 and 1992 and continued to serve as the
Company's primary source of liquidity. Cash requirements for accounts receivable
increased $235 million in 1994 and $220 million in 1993 due to the continued
growth in the number of proprietary credit card holders at the Company's various
divisions. Cash requirements for inventories and accounts payable and accrued
expenses have tended to fluctuate during the three-year period based on sales
volumes and inventory management practices. An increase in income taxes payable
in 1994 resulted in an additional $30 million in cash as compared to 1993 due to
the timing of tax payments associated with the fourth quarter earnings increase.
Cash requirements for other assets and liabilities related primarily to a
deposit made to the Internal Revenue Service in 1994 in connection with an
assessment for additional taxes and interest for 1989 and 1990 which is
discussed further in Note 7 to the Consolidated Financial Statements.
Investing activities included capital expenditures, primarily for new
and remodeled stores, the 1993 sale of 60% of the Company's interest in Brylane,
and the 1992 acquisition of Gryphon.
Financing activities included the repurchase of $11.4 million and $93.3
million of the Company's common stock in 1994 and 1993, which represented
approximately .6 million and 5.3 million shares. Cash dividends paid in 1993
increased 25% from 1992. Cash dividends paid in 1994 remained consistent with
1993 at $.36 per share.
At January 28, 1995, the Company had available $840 million under its
long-term credit agreements. In addition, the Company has the ability to offer
up to $250 million of additional debt securities and warrants to purchase debt
securities under its shelf registration statement authorization.
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------
Capital expenditures amounted to $319.7 million, $295.8 million and $429.5
million in 1994, 1993 and 1992, respectively, of which $201.2 million, $198.1
million and $258.2 million was for new stores and remodeling and expanding
existing stores. The Company expended $10.7 million in 1994 for a catalogue
telemarketing center in Kettering, Ohio to expand Victoria's Secret Catalogue
operations. Approximately $29 million was expended in 1992 for the completion of
Victoria's Secret Catalogue's fulfillment center and office facility in
Columbus, Ohio. In addition, office facilities previously committed under a
long-term lease were acquired in 1992 for approximately $101 million.
The Company anticipates spending $325-$375 million for capital
expenditures in 1995, of which $230-$270 million will be for new stores, the
remodeling of existing stores and related improvements for the retail
businesses. The Company expects that substantially all 1995 capital expenditures
will be funded by net cash provided by operating activities.
The Company has announced its intention to add approximately 1.6 million
selling square feet in 1995 which will represent a 6% increase over year-end
1994. It is anticipated the increase will result from the net addition of
approximately 465 new stores and the remodeling of approximately 225 stores. A
summary of stores and selling square feet by division for 1993 and 1994 and
goals for 1995 follow:
YEAR SELLING SQUARE FEET
- ---- -------------------
79 $ 1,082,000
84 5,166,000
89 14,374,000
94 25,627,000
64
12
CHANGE FROM
---------------------
GOAL-1995 1994 1993 1995-94 1994-93
- ----------------------------------------------------------------------------------------------------
EXPRESS
Stores 745 716 673 29 43
Selling Sq. Ft. 4,613,000 4,357,000 3,902,000 256,000 455,000
- ----------------------------------------------------------------------------------------------------
LERNER NEW YORK
Stores 838 846 877 (8) (31)
Selling Sq. Ft. 6,396,000 6,580,000 6,802,000 (184,000) (222,000)
- ----------------------------------------------------------------------------------------------------
LANE BRYANT
Stores 826 812 817 14 (5)
Selling Sq. Ft. 3,936,000 3,859,000 3,852,000 77,000 7,000
- ----------------------------------------------------------------------------------------------------
THE LIMITED
Stores 708 709 746 (1) (37)
Selling Sq. Ft. 4,284,000 4,358,000 4,482,000 (74,000) (124,000)
- ----------------------------------------------------------------------------------------------------
HENRI BENDEL
Stores 4 4 4 0 0
Selling Sq. Ft. 88,000 93,000 93,000 (5,000) 0
- ----------------------------------------------------------------------------------------------------
VICTORIA'S SECRET STORES
Stores 667 601 570 66 31
Selling Sq. Ft. 2,966,000 2,586,000 2,346,000 380,000 240,000
- ----------------------------------------------------------------------------------------------------
CACIQUE
Stores 120 114 108 6 6
Selling Sq. Ft. 364,000 342,000 318,000 22,000 24,000
- ----------------------------------------------------------------------------------------------------
STRUCTURE
Stores 514 466 394 48 72
Selling Sq. Ft. 1,985,000 1,755,000 1,409,000 230,000 346,000
- ----------------------------------------------------------------------------------------------------
ABERCROMBIE & FITCH CO.
Stores 102 67 49 35 18
Selling Sq. Ft. 808,000 541,000 405,000 267,000 136,000
- ----------------------------------------------------------------------------------------------------
BATH & BODY WORKS
Stores 518 318 194 200 124
Selling Sq. Ft. 881,000 489,000 248,000 392,000 241,000
- ----------------------------------------------------------------------------------------------------
PENHALIGON'S
Stores 4 4 7 0 (3)
Selling Sq. Ft. 2,000 2,000 3,000 0 (1,000)
- ----------------------------------------------------------------------------------------------------
THE LIMITED TOO
Stores 288 210 184 78 26
Selling Sq. Ft. 907,000 665,000 566,000 242,000 99,000
- ----------------------------------------------------------------------------------------------------
TOTAL RETAIL DIVISIONS
Stores 5,334 4,867 4,623 467 244
Selling Sq. Ft. 27,230,000 25,627,000 24,426,000 1,603,000 1,201,000
- ----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPACT OF INFLATION
- --------------------------------------------------------------------------------
The Company's results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, the Company
believes that the effects of inflation, if any, on the results of operations
and financial condition have been minor.
65
13
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
(Thousands except per share amounts)
- -----------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------
NET SALES $ 7,320,792 $ 7,245,088 $ 6,944,296
Costs of Goods Sold,
Occupancy and Buying Costs (5,206,429) (5,286,253) (4,953,556)
- -----------------------------------------------------------------------------
GROSS INCOME 2,114,363 1,958,835 1,990,740
General, Administrative
and Store Operating Expenses (1,315,374) (1,259,896) (1,202,042)
Special and Nonrecurring Items, Net - 2,617 -
- -----------------------------------------------------------------------------
OPERATING INCOME 798,989 701,556 788,698
Interest Expense (65,381) (63,865) (62,398)
Other Income, Net 10,735 7,308 10,080
Gain on Issuance of United
Retail Group Stock - - 9,117
- -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 744,343 644,999 745,497
Provision for Income Taxes 296,000 254,000 290,000
- -----------------------------------------------------------------------------
NET INCOME $ 448,343 $ 390,999 $ 455,497
- -----------------------------------------------------------------------------
NET INCOME PER SHARE $ 1.25 $ 1.08 $ 1.25
- -----------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
NET INCOME
(Millions)
CAGR 17%
(Compound Annual
Growth Rate, last
ten years)
84 $ 92
85 145
86 228
87 235
88 245
89 347
90 398
91 403
92 455
93 391
94 448
NET SALES
(Millions)
CAGR 18%
84 $1,343
85 2,387
86 3,143
87 3,528
88 4,071
89 4,648
90 5,254
91 6,149
92 6,944
93 7,245
94 7,321
66
14
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------
(Thousands)
- --------------------------------------------------------------------------
ASSETS JAN. 28, 1995 JAN. 29, 1994
- --------------------------------------------------------------------------
CURRENT ASSETS
Cash and Equivalents $ 242,780 $ 320,558
Accounts Receivable 1,292,399 1,056,911
Inventories 870,440 733,700
Other 142,047 109,456
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,547,666 2,220,625
- --------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 1,692,145 1,666,588
- --------------------------------------------------------------------------
OTHER ASSETS 330,266 247,892
- --------------------------------------------------------------------------
TOTAL ASSETS $4,570,077 $4,135,105
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts Payable $ 275,303 $ 250,363
Accrued Expenses 372,676 347,892
Certificates of Deposit 25,200 15,700
Income Taxes 124,376 93,489
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 797,555 707,444
- --------------------------------------------------------------------------
LONG-TERM DEBT 650,000 650,000
- --------------------------------------------------------------------------
DEFERRED INCOME TAXES 306,139 275,101
- --------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 55,427 61,267
- --------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock 189,727 189,727
Paid-In Capital 132,938 128,906
Retained Earnings 2,716,516 2,397,112
- --------------------------------------------------------------------------
3,039,181 2,715,745
Less: Treasury Stock, at Cost (278,225) (274,452)
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,760,956 2,441,293
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,570,077 $4,135,105
- --------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
EQUITY AND DEBT
(Billions)
84 85 86 87 88 89 90 91 92 93 94
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
EQUITY $.275 $.404 $.781 $.729 $.946 $1,240 $1,560 $1,877 $2,268 $2,441 $2,761
DEBT $.150 $.671 $.417 $.681 $.518 $ .446 $ .540 $ .714 $ .542 $ .650 $ .650
67
15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------
(Thousands)
COMMON STOCK
------------------
SHARES PAR
OUTSTANDING VALUE
- ------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1992 361,786 $189,727
- ------------------------------------------------------------------
Net Income -- --
Cash Dividends -- --
Exercise of Stock Options and Other 862 --
Warrants Issued for Acquisition -- --
- ------------------------------------------------------------------
BALANCE, JANUARY 30, 1993 362,648 $189,727
- ------------------------------------------------------------------
Net Income -- --
Cash Dividends -- --
Purchase of Treasury Stock (5,288) --
Exercise of Stock Options and Other 441 --
- ------------------------------------------------------------------
BALANCE, JANUARY 29, 1994 357,801 $189,727
- ------------------------------------------------------------------
Net Income -- --
Cash Dividends -- --
Purchase of Treasury Stock (629) --
Exercise of Stock Options and Other 432 --
- ------------------------------------------------------------------
BALANCE, JANUARY 28, 1995 357,604 $189,727
- ------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
SHAREHOLDERS' EQUITY
(Millions) CAGR 26%
84 85 86 87 88 89 90 91 92 93 94
-------- -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
$.275 $.404 $.781 $.729 $.946 $1,240 $1,560 $1,877 $2,268 $2,441 $2,761
NET INCOME PER SHARE CAGR 17%
84 85 86 87 88 89 90 91 92 93 94
------- ------- ------- ------- ------- -------- -------- -------- -------- -------- --------
$ .26 $ .40 $ .60 $ .62 $ .68 $ .96 $1.10 $1.11 $1.25 $1.08 $1.25
16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------
(Thousands)
TOTAL
PAID-IN RETAINED TREASURY STOCK, SHAREHOLDERS'
CAPITAL EARNINGS AT COST EQUITY
- ---------------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 1, 1992 $100,929 $1,783,027 $(196,891) $1,876,792
- ---------------------------------------------------------------------------------------------------------
Net Income -- 455,497 -- 455,497
Cash Dividends -- (101,730) -- (101,730)
Exercise of Stock Options and Other 6,598 -- 10,211 16,809
Warrants Issued for Acquisition 20,249 -- -- 20,249
- ---------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 30, 1993 $127,776 $2,136,794 $(186,680) $2,267,617
- ---------------------------------------------------------------------------------------------------------
Net Income -- 390,999 -- 390,999
Cash Dividends -- (130,681) -- (130,681)
Purchase of Treasury Stock -- -- (93,328) (93,328)
Exercise of Stock Options and Other 1,130 -- 5,556 6,686
- ---------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 29, 1994 $128,906 $2,397,112 $(274,452) $2,441,293
- ---------------------------------------------------------------------------------------------------------
Net Income -- 448,343 -- 448,343
Cash Dividends -- (128,939) -- (128,939)
Purchase of Treasury Stock -- -- (11,382) (11,382)
Exercise of Stock Options and Other 4,032 -- 7,609 11,641
- ---------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 28, 1995 $132,938 $2,716,516 $(278,225) $2,760,956
- ---------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
WORKING CAPITAL
(Millions)
84 85 86 87 88 89 90 91 92 93 94
-------- -------- -------- -------- -------- -------- -------- ---------- ---------- ---------- ----------
$.181 $.420 $.587 $.630 $.568 $.686 $.884 $1,084 $1,063 $1,513 $1,750
69
17
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------
(Thousands)
1994 1993 1992
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 448,343 $ 390,999 $ 455,497
- ---------------------------------------------------------------------------------------
IMPACT OF OTHER OPERATING ACTIVITIES
ON CASH FLOWS
Depreciation and Amortization 267,888 271,353 246,977
Special and Nonrecurring Items -- (2,617) --
- ---------------------------------------------------------------------------------------
CHANGE IN ASSETS AND LIABILITIES
Accounts Receivable (235,488) (219,534) (101,545)
Inventories (136,740) 70,006 (73,657)
Accounts Payable and Accrued Expenses 49,724 14,943 118,289
Income Taxes 30,887 20,773 82,369
Other Assets and Liabilities (63,536) (97,784) 26,198
- ---------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 361,078 448,139 754,128
- ---------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures (319,676) (295,804) (429,545)
Businesses Acquired -- -- (60,043)
Proceeds from Sale of Business -- 285,000 --
Tax Effect of Gain on Sale of Business -- (64,750) --
- ---------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (319,676) (75,554) (489,588)
- ---------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Proceeds (Repayments) of
Commercial Paper Borrowings
and Certificates of Deposit 9,500 (25,939) (322,119)
Repayments of Long-Term Debt -- (100,000) --
Proceeds from Issuance
of Unsecured Notes -- 250,000 150,000
Dividends Paid (128,939) (130,681) (101,730)
Purchase of Treasury Stock (11,382) (93,328) --
Stock Options and Other 11,641 6,686 16,809
- ---------------------------------------------------------------------------------------
NET CASH USED FOR
FINANCING ACTIVITIES (119,180) (93,262) (257,040)
- ---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND EQUIVALENTS (77,778) 279,323 7,500
Cash and Equivalents, Beginning of Year 320,558 41,235 33,735
- ---------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF YEAR $ 242,780 $ 320,558 $ 41,235
- ---------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial Statements.
70
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of The Limited, Inc.
(the Company) and all significant subsidiaries which are more than 50% owned
and controlled. All significant intercompany balances and transactions have
been eliminated in consolidation.
Investments in other entities (including joint ventures) which are more
than 20% owned are accounted for on the equity method.
- - FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar year
in which the fiscal year commences. The results for fiscal years 1994, 1993 and
1992 represent the 52-week periods ended January 28, 1995, January 29, 1994 and
January 30, 1993.
- - CASH AND EQUIVALENTS
Cash and equivalents include amounts on deposit with financial institutions and
money market investments with maturities of less than 90 days.
- - INVENTORIES
Inventories are principally valued at the lower of average cost or market, on a
first-in first-out basis, utilizing the retail method.
- - PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-30 years for buildings and improvements and 3-10
years for other property and equipment. The cost of assets sold or retired and
the related accumulated depreciation or amortization are removed from the
accounts with any resulting gain or loss included in net income. Maintenance
and repairs are charged to expense as incurred. Major renewals and betterments
which extend service lives are capitalized.
- - GOODWILL AMORTIZATION
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized on a straight-line basis
principally over 30 years.
- - INTEREST RATE SWAP AGREEMENTS
The difference between the amount of interest to be paid and the amount of
interest to be received under interest rate swap agreements due to changing
interest rates is charged or credited to interest expense over the life of the
swap agreement. Gains and losses from the disposition of swap agreements are
deferred and amortized over the term of the related agreements.
- - INCOME TAXES
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes." SFAS 109
requires a change from the deferred method of accounting for income taxes to
the liability method. Under this method, deferred tax assets and liabilities
are recognized based on the difference between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect in the years in which those temporary differences are expected to
reverse. Under SFAS 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date. Under
the deferred method, which was applied in 1992 and prior years, deferred income
taxes are recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax purposes using
the tax rate applicable for the year of calculation. Under the deferred method,
deferred taxes are not adjusted for subsequent changes in tax rates.
71
19
- - SHAREHOLDERS' EQUITY
Five hundred million shares of $.50 par value common stock are authorized, of
which 357.6 million and 357.8 million were outstanding, net of 21.8 million
shares and 21.7 million shares held in treasury at January 28, 1995 and January
29, 1994. Ten million shares of $1.00 par value preferred stock are authorized,
none of which have been issued.
- - NET INCOME PER SHARE
Net income per share is computed based upon the weighted average number of
outstanding common shares, including the effect of stock options. There were
358.6 million, 363.2 million and 363.7 million weighted average outstanding
shares for 1994, 1993 and 1992.
- - ISSUANCE OF SUBSIDIARY STOCK
Gains or losses resulting from stock issued by a subsidiary of the Company are
recognized in current year's income. In 1992, the Company recognized a $9
million pre-tax gain which resulted from the March 1992 initial public offering
of the United Retail Group, Inc. A more detailed discussion of this matter is
included under the heading "Gain on Issuance of United Retail Group, Inc.
Stock" in Management's Discussion and Analysis on page 63 of this Annual Report.
2 SPECIAL AND NONRECURRING ITEMS
During the third quarter of 1993, the Company approved a plan which includes
the following components: the sale of a 60% interest in the Brylane mail order
business; the acceleration of the store remodeling, downsizing and closing
program at the Limited Stores and Lerner divisions; and the refocusing of the
merchandise strategy at the Henri Bendel division. The net pre-tax gain from
these special and nonrecurring items was $2.6 million.
The remodeling, downsizing and closing program includes approximately
360 Limited and Lerner stores and is expected to be completed by the end of
1995. The Company had closed approximately 80 of these stores and remodeled
approximately 200 of these stores as of January 28, 1995. The charge for these
actions totaled approximately $200 million. Costs remaining to be incurred
related to this program are approximately $14 million at January 28, 1995.
The net impact of the plan is anticipated to be immaterial.
A further discussion of this matter is included under the heading
"Special and Non-recurring Items" in Management's Discussion and Analysis on
page 62 of this Annual Report.
3 ACCOUNTS RECEIVABLE
Accounts receivable consisted of (Thousands):
- ----------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------
Deferred Payment Accounts $1,250,636 $1,013,276
Trade and Other 86,709 78,532
Allowance for Uncollectible Accounts (44,946) (34,897)
---------- ----------
$1,292,399 $1,056,911
- ----------------------------------------------------------------------
Finance charge revenue on the deferred payment accounts amounted to $223.9
million, $174.5 million and $141.8 million in 1994, 1993 and 1992, and the
provision for uncollectible accounts amounted to $72.7 million, $50.8 million
and $40.0 million in 1994, 1993 and 1992. These amounts are classified as
components of the cost to administer the deferred payment program and are
included in general, administrative and store operating expenses.
72
20
4 PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (Thousands):
- ---------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------
Land, Buildings and Improvements $ 510,563 $ 510,998
Furniture, Fixtures and Equipment 1,714,587 1,571,568
Leaseholds and Improvements 515,226 506,258
Construction in Progress 58,039 49,373
---------- ----------
2,798,415 2,638,197
Less: Accumulated Depreciation and Amortization 1,106,270 971,609
---------- ----------
Property and Equipment, Net $1,692,145 $1,666,588
- ---------------------------------------------------------------------------
5 LEASED FACILITIES AND COMMITMENTS
Annual store rent is comprised of a fixed minimum amount, plus contingent rent
based upon a percentage of sales exceeding a stipulated amount. Store lease
terms generally require additional payments covering taxes, common area costs
and certain other expenses.
A summary of rent expense for 1994, 1993 and 1992 follows (Thousands):
- ---------------------------------------------------------------------------
STORE RENT: 1994 1993 1992
- ---------------------------------------------------------------------------
Fixed Minimum $586,437 $540,381 $498,607
Contingent 17,522 19,727 19,043
-------- -------- --------
Total Store Rent 603,959 560,108 517,650
Equipment and Other 27,710 31,897 37,228
-------- -------- --------
Total Rent Expense $631,669 $592,005 $554,878
- ---------------------------------------------------------------------------
At January 28, 1995, the Company was committed to noncancelable leases
with remaining terms of one to forty years. A substantial portion of these
commitments are store leases with initial terms ranging from ten to twenty
years. Accrued rent expense was $116.5 million and $99.1 million at January 28,
1995 and January 29, 1994.
A summary of minimum rent commitments under noncancelable leases
follows (Thousands):
1995 $ 617,645
1996 606,120
1997 587,825
1998 565,999
1999 539,742
Thereafter $2,802,487
6 LONG-TERM DEBT
Long-term debt consisted of (Thousands):
- ---------------------------------------------------------
1994 1993
- ---------------------------------------------------------
7 1/2% Debentures Due March 2023 $250,000 $250,000
7 4/5% Notes Due May 2002 150,000 150,000
9 1/8% Notes Due February 2001 150,000 150,000
8 7/8% Notes Due August 1999 100,000 100,000
-------- --------
$650,000 $650,000
- --------------------------------------------------------
73
21
The Company maintains two revolving credit agreements (the "Agreements")
totaling $840 million. One Agreement provides the Company available borrowings
of up to $490 million. The other Agreement provides World Financial Network
National Bank, a wholly-owned consolidated subsidiary, available borrowings of
up to $350 million. Borrowings outstanding under the Agreements are due
December 4, 1999. However, the revolving terms of each of the Agreements may be
extended an additional two years upon notification by the Company at least 60
days prior to December 4, 1996, subject to the approval of the lending banks.
Both Agreements have similar 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. Aggregate commitment
and facility fees for the Agreements approximate 0.11% of the total commitment.
Both Agreements place restrictions on the amount of the Company's working
capital, debt and net worth. No amounts were outstanding under the Agreements
at January 28, 1995.
The Agreements support 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 January 28, 1995.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
All long-term debt outstanding at January 28, 1995 and January 29, 1994 is
unsecured.
The Company periodically enters into interest rate swap agreements with the
intent to manage interest rate exposure. At January 28, 1995, the Company had
three interest rate swap positions outstanding, each having a $100 million
notional principal amount. One 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. The counterparty to the swap contract has an option to
cancel the remaining term of the contract in July 1995. The remaining two
contracts effectively change the interest rate on $200 million of fixed rate
debt to a variable rate. These contracts expire in November 1995 and February
1996.
No long-term debt matures in years 1995-1998; $100 million matures in 1999.
Interest paid approximated $64.7 million, $57.4 million and $60.0 million in
1994, 1993 and 1992.
7 INCOME TAXES
The Company adopted SFAS No. 109 effective January 31, 1993. No cumulative
effect adjustment was required for the adoption as the difference in deferred
income taxes under SFAS 109 and APB Opinion 11 was immaterial. The impact on
the year of adoption was also immaterial.
The provision for income taxes consisted of (Thousands):
- ------------------------------------------------------------------------------
CURRENTLY PAYABLE: 1994 1993 1992
- ------------------------------------------------------------------------------
Federal $231,000 $249,400 $174,900
State 32,000 35,100 28,700
Foreign 4,100 6,400 6,400
-------- -------- --------
267,100 290,900 210,000
- ------------------------------------------------------------------------------
DEFERRED:
Federal 12,900 (41,800) 62,700
State 16,000 4,900 17,300
-------- -------- --------
28,900 (36,900) 80,000
-------- -------- --------
Total Provision $296,000 $254,000 $290,000
- ------------------------------------------------------------------------------
The foreign component of pre-tax income, arising principally from overseas
sourcing operations, was $40.9 million, $54.8 million and $58.7 million in
1994, 1993 and 1992.
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate follows:
74
22
- -------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------
Federal Income Tax Rate 35.0% 35.0% 34.0%
State Income Tax, Net of
Federal Income Tax Effect 4.2 4.0 4.0
Other Items, Net .6 .4 .9
---- ---- ----
39.8% 39.4% 38.9%
- -------------------------------------------------------------------------------
Income taxes payable included current deferred tax assets of $44.5 million and
$41.1 million at January 28, 1995 and January 29, 1994. The effect of temporary
differences which give rise to deferred income tax balances was as follows
(Thousands):
- -------------------------------------------------------------------------------------------------------
1994 1993
------------------------------------ -----------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
- -------------------------------------------------------------------------------------------------------
Excess of Tax Over
Book Depreciation -- $(156,208) $(156,208) -- $(123,539) $(123,539)
Undistributed Earnings
of Foreign Affiliate -- (109,350) (109,350) -- (103,485) (103,485)
Investment in Affiliate -- (28,056) (28,056) -- (39,171) (39,171)
State Income Taxes $12,595 -- 12,595 $ 8,681 -- 8,681
Bad Debt Reserve 18,678 -- 18,678 11,022 -- 11,022
Special and Nonrecurring 18,912 -- 18,912 25,092 -- 25,092
Other 30,170 (48,385) (18,215) 23,163 (35,735) (12,572)
------- --------- --------- ------- --------- ---------
Total Deferred
Income Taxes $80,355 $(341,999) $(261,644) $67,958 $(301,930) $(233,972)
- -------------------------------------------------------------------------------------------------------
For the year 1992, deferred income tax expense resulted from timing differences
in the recognition of income and expense. The components of the deferred tax
provision follow (Thousands):
- ---------------------------------------------------------------------------
1992
- ---------------------------------------------------------------------------
Excess of Tax Over Book Depreciation $45,400
Other Items, Net 34,600
-------
$80,000
- ---------------------------------------------------------------------------
Income tax payments approximated $230.9 million, $291.3 million and $199.8
million for 1994, 1993 and 1992.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for 1989 and 1990. The assessment was based primarily on the
treatment of transactions involving the Company's foreign operations and
construction allowances. The Company strongly disagrees with the assessment and
is vigorously contesting the matter. Management believes resolution of this
matter will not have a material adverse effect on the Company's results of
operations or financial condition.
8 STOCK OPTIONS AND RESTRICTED STOCK
Stock options are granted to officers and key employees based upon fair market
value at the date of grant. Option activity for 1992, 1993 and 1994 follows:
- ---------------------------------------------------------------------------------------------
Number of Weighted Average
Shares Option Price Per Share
- ---------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS, FEBRUARY 1, 1992 5,122,000 $16.49
Activity During 1992: Granted 1,476,000 23.91
Exercised (772,000) 12.73
Canceled (312,000) 22.99
- ---------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS, JANUARY 30, 1993 5,514,000 $18.57
Activity During 1993: Granted 2,457,000 21.74
Exercised (431,000) 12.22
Canceled (357,000) 22.32
- ---------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS, JANUARY 29, 1994 7,183,000 $19.87
Activity During 1994: Granted 2,122,000 17.19
Exercised (393,000) 11.44
Canceled (498,000) 21.49
- ---------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS, JANUARY 28, 1995 8,414,000 $19.56
- ---------------------------------------------------------------------------------------------
75
23
The Company had approximately 2.2 million shares available for grant at January
28, 1995 as compared to 5.3 million shares available at January 29, 1994 and
7.4 million shares available at January 30, 1993. Approximately 8.4 million
shares of the Company's common stock were reserved for outstanding options, of
which 4.1 million were exercisable as of January 28, 1995.
In 1994 and 1993, approximately 848,000 and 590,000 restricted shares of the
Company's common stock were granted to certain officers and key associates. The
market value of the shares at the date of grant amounted to $16.7 million in
1994 and $12.7 million in 1993 and is recorded within treasury stock in the
accompanying Consolidated Financial Statements. The market value is being
amortized as compensation expense over the vesting period which ranges from
four to ten years. Compensation expense of $7.3 million and $1.3 million was
recorded in 1994 and 1993.
9 RETIREMENT BENEFITS
The Company sponsors a defined contribution retirement plan. Participation in
this plan is available to all associates who have completed 1,000 or more hours
of service with the Company during certain 12 month periods and attained the
age of 21. Company contributions#to this plan are based on a percentage of the
associates# annual compensation. The cost of this plan was $26.7 million in
1994, $25.9 million in 1993 and $20.1 million in 1992.
10 FINANCE SUBSIDIARY
World Financial Network National Bank, a wholly-owned consolidated finance subsidiary,
provides private label credit card lines to the customers of certain retail affiliates.
Condensed financial information of the finance subsidiary follows (Thousands):
- ----------------------------------------------------------------------------------
ASSETS JAN. 28, 1995 JAN. 29, 1994
- ----------------------------------------------------------------------------------
Credit Card Receivables, Net of
Allowance for Uncollectible Accounts $1,206,000 $0,978,500
Other Assets, Net 48,900 40,300
---------- ----------
$1,254,900 $1,018,800
- ----------------------------------------------------------------------------------
LIABILITIES AND INVESTMENT
Certificates of Deposit $ 25,200 $ 15,700
Payable to Wholly-Owned Subsidiaries
and Affiliates of The Limited, Inc. 37,400 18,200
- ----------------------------------------------------------------------------------
INVESTMENT OF THE LIMITED, INC.:
Subordinated Debt 1,095,900 902,700
Equity Investment 96,400 82,200
---------- ----------
$1,254,900 $1,018,800
- ----------------------------------------------------------------------------------
Holders of credit cards issued by the finance subsidiary are located throughout
the United States, and have various available lines of credit which are subject
to change by the finance subsidiary. The credit cards are used to purchase
merchandise offered for sale by affiliates.
11 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
/ / CURRENT ASSETS AND CURRENT LIABILITIES
The carrying value of cash equivalents, short-term borrowings, accounts payable
and accrued expenses approximates fair value because of their short maturity.
The carrying amount of the credit card receivables approximates fair value due
to the short maturity and because the average interest rate approximates
current market origination rates.
/ / LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities.
/ / INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swaps is the estimated amount that the Company
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counterparties.
76
24
The estimated fair values of the Company's financial instruments are as follows (Thousands):
- --------------------------------------------------------------------------------------
1994 1993
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------------
Long-Term Debt $(650,000) $(620,540) $(650,000) $(712,078)
Interest Rate Swaps $ (886) $ (5,970) $ (13) $ (13,289)
- --------------------------------------------------------------------------------------
12 QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 1994 and 1993 follow (Thousands
except per share amounts):
- ---------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------------------
1994 QUARTER
Net Sales $1,481,628 $1,585,392 $1,715,176 $2,538,596
Gross Income 384,931 402,666 495,295 831,471
Net Income 47,276 53,832 90,490 256,745
Net Income Per Share $0.13 $0.15 $0.25 $0.72
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1993 QUARTER
Net Sales $1,518,561 $1,689,055 $1,616,667 $2,420,805
Gross Income 380,727 427,710 447,048 703,350
Net Income 44,225 68,232 82,215 196,327
Net Income Per Share $0.12 $0.19 $0.23 $0.54
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MARKET PRICE AND DIVIDEND INFORMATION
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CASH DIVIDEND
MARKET PRICE PER SHARE
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FISCAL YEAR 1994 HIGH LOW
4th Quarter $21-3/8 $16-7/8 $.09
3rd Quarter 21-5/8 17-1/4 .09
2nd Quarter 20 16-7/8 .09
1st Quarter $22-1/4 $16-3/4 $.09
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FISCAL YEAR 1993
4th Quarter $23-1/4 $16-5/8 $.09
3rd Quarter 24 20 .09
2nd Quarter 24-7/8 19-3/4 .09
1st Quarter $30 $21-1/4 $.09
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The Company's common stock is traded on the New York Stock Exchange ("LTD") and
the London Stock Exchange. On January 28, 1995, there were 74,321 shareholders
of record. However, when including active associates who participate in the
Company's stock purchase plan, associates who own shares through Company
sponsored retirement plans and others holding shares in broker accounts under
street name, the Company estimates the shareholder base at approximately
140,000.
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