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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 1, 1997
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission file number 1-13814
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ABERCROMBIE & FITCH CO.
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(Exact name of registrant as specified in its charter)
Delaware 31-1469076
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Four Limited Parkway East, P.O.
Box 182168 Reynoldsburg, OH 43218
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (614) 577-6500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
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Class A Common Stock, $.01 Par Value The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-
Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of March 28, 1997: $123,045,356.
Number of shares outstanding of the registrant's Common Stock as of March 28,
1997: 8,002,950 shares of Class A common stock; 43,000,000 shares of Class B
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report to shareholders for the fiscal year
ended February 1, 1997 are incorporated by reference into Part I, Part II and
Part IV, and portions of the registrant's proxy statement for the Annual Meeting
of Shareholders scheduled for May 20, 1997 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS.
General.
Abercrombie & Fitch Co., a Delaware corporation (the "Company"), is principally
engaged in the purchase, distribution and sale of men's and women's casual
apparel. The Company's retail activities are conducted under the Abercrombie &
Fitch trade name through retail stores bearing the Company name. Merchandise is
targeted to appeal to customers in specialty markets who have distinctive
consumer characteristics.
Description of Operations.
General.
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The Company was incorporated on June 26, 1996, and subsequently acquired the
assets and liabilities of the Abercrombie & Fitch Businesses in exchange for 43
million shares of Class B common stock issued to The Limited, Inc. ("The
Limited"). An initial public offering of 8.05 million shares of the Company's
Class A common stock was consummated on October 1, 1996 and, as a result,
approximately 84% of the outstanding common stock of the Company is owned by The
Limited.
The following table shows the changes in the number of retail stores operated by
the Company for the past five fiscal years:
<TABLE>
<CAPTION>
Fiscal Beginning
Year of Year Opened Closed End of Year
-------- --------- ------ ------- -----------
<S> <C> <C> <C> <C>
1992 36 4 40
1993 40 9 49
1994 49 20 (2) 67
1995 67 33 100
1996 100 29 (2) 127
</TABLE>
During fiscal year 1996, the Company purchased merchandise from approximately 70
suppliers and factories located throughout the world. The Company sourced
approximately 38% of its apparel merchandise through Mast Industries, Inc., a
wholly-owned contract manufacturing subsidiary of The Limited. In addition to
purchases from Mast, the Company purchases merchandise directly in foreign
markets, with additional merchandise purchased in the domestic market, some of
which is manufactured overseas. No more than 10% of goods purchased originated
from any single third party manufacturer.
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Most of the merchandise and related materials for the Company's stores is
shipped to a distribution center owned by The Limited in Reynoldsburg, Ohio,
where the merchandise is received and inspected. The Limited uses common and
contract carriers to distribute merchandise and related materials to the
Company's stores. The Company pays outbound freight for stores to The Limited
based on cartons shipped.
The Company's policy is to maintain sufficient quantities of inventory on hand
in its retail stores and distribution center so that it can offer customers a
full selection of current merchandise. The Company emphasizes rapid turnover
and takes markdowns where required to keep merchandise fresh and current with
fashion trends.
The Company views the retail apparel market as having two principal selling
seasons, Spring and Fall. As is generally the case in the apparel industry, the
Company experiences its peak sales activity during the Fall season. This
seasonal sales pattern results in increased inventory during the Fall and
Christmas holiday selling periods. During fiscal year 1996, the highest
inventory level approximated $58.1 million at the November 1996 month-end and
the lowest inventory level approximated $31.5 million at the February 1996
month-end.
Merchandise sales are paid for in cash or by personal check, credit cards issued
by third parties or The Limited's 40% owned credit card processing venture,
Alliance Data Services ("ADS"). ADS was formed in part from World Financial
Network National Bank ("WFNNB"), a wholly-owned subsidiary of The Limited prior
to January 1996, when a 60% interest was sold to a New York investment firm,
resulting in the formation of a venture that provides private-label and bank
card transaction processing and database management services to retailers,
including the Company's private-label credit card operations.
The Company offers its customers a liberal return policy stated as "No Sale is
Ever Final." The Company believes that certain of its competitors offer similar
credit card and service policies.
The following is a brief description of the Company, including its respective
target markets.
Abercrombie & Fitch is a specialty retailer of quality, casual, classic American
sportswear, targeted to the young, hip customer. The Abercrombie & Fitch brand
was established in 1892 and became well known as a supplier of rugged, high-
quality outdoor gear who placed a premium on complete customer satisfaction with
each item sold. The Company was acquired by The Limited in 1988 and in 1992
Abercrombie & Fitch was repositioned as a more fashion-oriented casual apparel
business directed at men and women with a youthful lifestyle. In re-
establishing the Abercrombie & Fitch brand, the Company combined its historical
image for quality with a new emphasis on casual American style and youthfulness.
Additional information about the Company's business, including its revenues and
profits for the last three years, plus selling square footage is set forth under
the caption "Management's Discussion and Analysis" of the Abercrombie & Fitch
Co. 1996 Annual Report to Shareholders, portions of which are annexed hereto as
Exhibit 13 (the "1996 Annual Report") and is incorporated herein by reference.
Competition.
The sale of apparel and personal care products through retail stores is a highly
competitive business with numerous competitors, including individual and chain
fashion specialty stores and department stores. Design, price, service,
selection and quality are the principal competitive factors in retail store
sales.
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The Company is unable to estimate the number of competitors or its relative
competitive position due to the large number of companies selling apparel and
personal care products at retail, both through stores and catalogues.
Associate Relations.
On February 1, 1997, the Company employed approximately 4,900 associates, 4,200
of whom were part-time. In addition, temporary associates are hired during peak
periods, such as the Holiday season.
ITEM 2. PROPERTIES.
The Company's headquarters and support functions consisting of office,
distribution and shipping facilities are located in Reynoldsburg, Ohio.
The distribution and shipping facilities are owned by The Limited and are leased
by the Company under 15 year leases, with options to renew.
Substantially all of the retail stores operated by the Company are located in
leased facilities, primarily in shopping centers throughout the continental
United States. The leases expire at various dates principally between 1997 and
2011 and generally have renewal options.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to defray a portion of the cost of
improvements. The cost of improvements varies widely, depending on the size and
location of the store. Rental terms for new locations usually include a fixed
minimum rent plus a percentage of sales in excess of a specified amount.
Certain operating costs such as common area maintenance, utilities, insurance,
and taxes are typically paid by tenants.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in lawsuits arising in the ordinary course of
business. Although the amount of any liability that could arise with respect to
any such lawsuit cannot be accurately predicted, in the opinion of management,
the resolution of these matters is not expected to have a material adverse
effect on the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of February 1, 1997.
Leslie H. Wexner, 59, has been Chairman of the Board of the Company since 1996.
Mr. Wexner has been President and Chief Executive Officer of The Limited since
he founded The Limited in 1963 and has been Chairman of the Board of Directors
of The Limited for more than five years.
Kenneth B. Gilman, 50, has been Vice Chairman of the Company since 1996. Mr.
Gilman has been Vice Chairman and Chief Financial Officer of The Limited since
June 1993 and was Executive Vice President and Chief Financial Officer of The
Limited for five years prior thereto.
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Michael S. Jeffries, 52, has been President and Chief Executive Officer since
February 1992.
Michelle S. Donnan-Martin, 33, has been Vice President-General Merchandising
Manager-Women's since February 1996. For three and one-half years prior
thereto, Ms. Donnan-Martin held the position of Vice President Women's
Merchandising.
Seth R. Johnson, 43, has been Vice President-Chief Financial Officer since June
1992.
All of the above officers serve at the pleasure of the Board of Directors of the
Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information regarding markets in which the Company's common stock was traded
during fiscal year 1996 and the approximate number of holders of common stock
for the fiscal year 1996 is set forth under the caption "Market Price
Information" on page 30 of the 1996 Annual Report and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is set forth under the caption "Financial Summary" on
page 15 of the 1996 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is set forth under the caption "Management's Discussion and Analysis"
on pages 16 through 20 of the 1996 Annual Report and is incorporated herein by
reference.
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In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 is effective for the Company's 1997 annual financial statements. The
Company believes that the impact on its financial statements will be immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and subsidiaries, the Notes
to Consolidated Financial Statements and the Report of Independent Accountants
are set forth in the 1996 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company is set forth under the captions
"ELECTION OF DIRECTORS - Nominees and Directors", "- Business Experience",
"-Information Concerning the Board of Directors" and "- Security Ownership of
Directors and Management" on pages 1 through 4 of the Company's proxy statement
for the Annual Meeting of Shareholders to be held May 20, 1997 (the "Proxy
Statement") and is incorporated herein by reference. Information regarding
compliance with Section 16 (a) of the Securities Exchange Act of 1934, as
amended, is set forth under the caption "EXECUTIVE COMPENSATION Reporting
Compliance" on page 10 of the Proxy Statement and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth under the caption
"EXECUTIVE COMPENSATION" on pages 5 through 13 of the Proxy Statement and is
incorporated herein by reference. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "ELECTION OF DIRECTORS - Security
Ownership of Directors and Management" on pages 3 and 4 of the Proxy Statement
and "PRINCIPAL HOLDERS OF VOTING SECURITIES" on pages 15 and 16 of the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is set
forth under the caption "ELECTION OF DIRECTORS - Business Experience" on page 2
of the Proxy Statement and "RELATIONSHIP AND TRANSACTIONS WITH THE LIMITED" on
pages 16 through 19 of the Proxy Statement. Information regarding executive
officers is set forth herein under the caption "SUPPLEMENTAL ITEM. EXECUTIVE
OFFICERS OF THE REGISTRANT" in Part I and is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) List of Financial Statements.
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The following consolidated financial statements of Abercrombie & Fitch Co.
and subsidiaries and the related notes are filed as a part of this report
pursuant to ITEM 8:
Consolidated Statements of Income for the fiscal years ended February 1,
1997, February 3, 1996 and January 28, 1995.
Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996.
Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal
years ended February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Cash Flows for the fiscal years ended February
1, 1997, February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a)(2) List of Financial Statement Schedules.
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All schedules are omitted because the required information is
either presented in the financial statements or notes thereto, or
is not applicable, required or material.
(a)(3) List of Exhibits.
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3. Articles of Incorporation and Bylaws.
3.1. Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
November 2, 1996.
3.2. Bylaws of the Company incorporated by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended November 2, 1996.
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4. Instruments Defining the Rights of Security Holders.
4.1. Specimen Certificate of Class A Common Stock of the Company
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No. 33-92568) (the
"Form S-1").
4.2. Certificate of Incorporation of The Limited, Inc. incorporated
by reference to Exhibit 4.2 to the Company's Form S-1.
4.3. Bylaws of The Limited, Inc. incorporated by reference to
Exhibit 4.3 to the Company's Form S-1.
10. Material Contracts.
10.1. Services Agreement by and between Abercrombie & Fitch Co. and
The Limited, Inc., dated September 27, 1996 incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 2, 1996.
10.2. Shared Facilities Agreement, dated September 27, 1996, by and
between Abercrombie & Fitch Co. and The Limited, Inc.
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended November
2, 1996.
10.3. Shared Facilities Agreement, dated September 27, 1996, by and
between Abercrombie & Fitch Co. and The Limited, Inc.
incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended November
2, 1996.
10.4. Corporate Agreement by and between Abercrombie & Fitch Co. and
The Limited, Inc., dated October 1, 1996 incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 2, 1996.
10.5. Tax Sharing Agreement by and between Abercrombie & Fitch Co.
and The Limited, Inc., dated September 27, 1996 incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 2, 1996.
10.6. Sublease Agreement by and between Victoria's Secret Stores,
Inc. and Abercrombie & Fitch Co., Inc., dated June 1, 1995
incorporated by reference to Exhibit 10.3 to the Company's
Form S-1.
10.7. Abercrombie & Fitch Co. 1996 Stock Option and Performance
Incentive Plan incorporated by reference to Exhibit B to the
Proxy Statement dated April 14, 1997.
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10.8. Abercrombie & Fitch Co. Incentive Compensation Performance
Plan incorporated by reference to Exhibit A to the Company's
Proxy Statement dated April 14, 1997.
10.9. Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate
Directors incorporated by reference to Exhibit C to the
Company's Proxy Statement dated April 14, 1997.
10.10. Form of Indemnification Agreement between the Company and the
directors and officers of the Company.
11. Statement re Computation of Per Share Earnings.
13. Excerpts from the 1996 Annual Report to Shareholders, including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 15 - 30.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
99. Annual Report of The Limited, Inc. Savings and Retirement Plan.
(b) Reports on Form 8-K.
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No reports on Form 8-K were filed during the fourth quarter of fiscal
year 1996.
(c) Exhibits.
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The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedules.
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Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) 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.
Date: April 29, 1997
ABERCROMBIE & FITCH CO.
(registrant)
By /s/ SETH R. JOHNSON
--------------------
Seth R. Johnson,
Vice President - Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 30, 1997:
Signature Title
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/s/ LESLIE H. WEXNER* Chairman of the Board of Directors
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Leslie H. Wexner
/s/ KENNETH B. GILMAN* Vice Chairman
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Kenneth B. Gilman
/s/ MICHAEL S. JEFFRIES* Director
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Michael S. Jeffries
/s/ ROGER D. BLACKWELL* Director
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Roger D. Blackwell
/s/ E. GORDON GEE* Director
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E. Gordon Gee
/s/ DONALD B. SHACKELFORD* Director
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Donald B. Shackelford
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-indicated directors of the registrant pursuant to
powers of attorney executed by such directors.
By /s/ SETH R. JOHNSON
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Seth R. Johnson
Attorney-in-fact
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[LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Abercrombie & Fitch Co.
We have audited the accompanying consolidated balance sheets of Abercrombie and
Fitch Co. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three fiscal years in the period ended February 1, 1997, which
financial statements are included on pages 21 through 30 of the 1996 Annual
Report to Shareholders of Abercrombie & Fitch Co. and incorporated by reference
herein. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Abercrombie &
Fitch Co. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 24, 1997
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EXHIBIT INDEX
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Exhibit No. Document
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10.10 Form of Indemnification Agreement between the Company and the
directors and officers of the Company.
11 Statement re Computation of Per Share Earnings.
13 Excerpts from the 1996 Annual Report to Shareholders, including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 15 - 30.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Annual Report of The Limited, Inc. Savings and Retirement Plan.
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EXHIBIT 10.10
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INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of the 25th day of September,
1996 by and between ABERCROMBIE & FITCH CO, a Delaware corporation (the
"Company"), and the undersigned (the "Indemnitee").
RECITALS
WHEREAS, it is essential to the Company that it attract and retain as
directors and officers the most capable persons available; and
WHEREAS, Indemnitee is a director or officer of the Company; and
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in the current environment; and
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company in an effective manner, and in order to induce Indemnitee to continue to
provide services to the Company as a director or officer thereof, the Company
wishes to provide in this Agreement for the indemnification of Indemnitee to the
fullest extent permitted by law and as set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing, the covenants contained
herein and Indemnitee's continued service to the Company, the Company and
Indemnitee, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings relative to the
foregoing.
"Change in control" shall be deemed to have occurred if, other than as
approved by a majority of the Board of Directors of the Company in office
immediately prior to such event (a) any person, other than (i) a trustee or
other fiduciary holding Voting Securities under an employee benefit plan of the
Company, (ii) a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company or (iii) The Limited, Inc. ("The Limited"), any subsidiary of The
Limited or any successor to The Limited or any subsidiary thereof or (iv) Leslie
H. Wexner, his heirs, executors or administrators, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of Voting Securities representing 20% or more of the total voting power
represented by the Company's then outstanding Voting Securities, or (b) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
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approved, cease for any reason to constitute a majority thereof, or (c) the
stockholders of the Company approve (i) a merger or consolidation of the Company
with any other corporation, other than (A) a merger or consolidation which would
result in the Voting Securities outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and (B) a merger or
consolidation with The Limited, any subsidiary of The Limited or any successor
to The Limited or any subsidiary thereof, or (ii) a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company (in
one transaction or a series of transactions) of all or substantially all of the
Company's assets.
"Claim" means (a) any threatened, pending or completed action, suit,
proceeding or arbitration or other alternative dispute resolution mechanism, or
(b) any inquiry, hearing or investigation, whether conducted by the Company or
any other Person, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or arbitration or other
alternative dispute resolution mechanism, in each case whether civil, criminal,
administrative or other (whether or not the claims or allegations therein are
groundless, false or fraudulent) and includes, without limitation, those brought
by or in the name of the Company or any director or officer of the Company.
"Company Agent" means serving as a director, officer, partner, employee,
agent, trustee or fiduciary of the Company, any Subsidiary or any Other
Enterprise.
"Covered Event" means any event or occurrence on or after the date of
this Agreement related to the fact that Indemnitee is or was a Company Agent or
related to anything done or not done by Indemnitee in any such capacity, and
includes, without limitation, any such event or occurrence (a) arising from
performance of the responsibilities, obligations or duties imposed by ERISA or
any similar applicable provisions of state or common law, or (b) arising from
any merger, consolidation or other business combination involving the Company,
any Subsidiary or any Other Enterprise, including without limitation any sale or
other transfer of all or substantially all of the business or assets of the
Company, any Subsidiary or any Other Enterprise.
"D & O Insurance" means the directors' and officers' liability insurance
of the Company in effect on the date of this Agreement, and any replacement or
substitute policies issued by one or more reputable insurers providing in all
respects coverage at least comparable to and in the same amount as that provided
by the policy in effect on the date of this Agreement.
"Determination" means a determination made by (a) a majority vote of a
quorum of Disinterested Directors; (b) Independent Legal Counsel, in a written
opinion addressed to the Company and Indemnitee; (c) the stockholders of the
Company; or (d) a decision by a court of competent jurisdiction not subject to
further appeal.
"Disinterested Director" shall be a director of the Company who is not or
was not a party to the Claim giving rise to the subject matter of a
Determination.
"Expenses" includes attorneys' fees and all other costs, travel expenses,
fees of experts, transcript costs, filing fees, witness fees, telephone charges,
postage, copying costs, delivery services fees and other expenses and
obligations of any nature whatsoever paid or incurred in connection with
investigating, prosecuting or defending, being a witness in or participating in
(including on appeal), or preparing to prosecute or defend,
<PAGE>
be a witness in or participate in any Claim, for which Indemnitee is or becomes
legally obligated to pay.
"Independent Legal Counsel" shall mean a law firm or a member of a law
firm that (a) neither is nor in the past five years has been retained to
represent in any material matter the Company, any Subsidiary, Indemnitee or any
other party to the Claim, (b) under applicable standards of professional conduct
then prevailing would not have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights to
indemnification under this Agreement and (c) is reasonably acceptable to the
Company and Indemnitee.
"Loss" means any amount which Indemnitee is legally obligated to pay as a
result of any Claim, including, without limitation (a) all judgments, penalties
and fines, and amounts paid or to be paid in settlement, (b) all interest,
assessments and other charges paid or payable in connection therewith and (c)
any federal, state, local or foreign taxes imposed (net of the value to
Indemnitee of any tax benefits resulting from tax deductions or otherwise) as a
result of the actual or deemed receipt of any payments under this Agreement,
including the creation of the Trust.
"Other Enterprise" means any corporation (other than the Company or any
Subsidiary), partnership, joint venture, association, employee benefit plan,
trust or other enterprise or organization for which Indemnitee acts as a Company
Agent at the request of the Company or any Subsidiary. Indemnitee shall be
deemed to be acting as a Company Agent of an Other Enterprise at the request of
the Company with respect to any Other Enterprise in which the Company or any
Subsidiary has an investment as to which Indemnitee shall act as a Company Agent
from time to time. Indemnitee shall be deemed to be acting as a Company Agent of
an Other Enterprise at the request of the Company, if Indemnitee acts as a
Company Agent of an Other Enterprise at the written or oral request of the Board
of Directors of the Company or of any Subsidiary by which the Indemnitee is
employed from time to time, at the written or oral request of an Executive
Officer of the Company or of any Subsidiary by which the Indemnitee is employed
from time to time or if Indemnitee acts as a Company Agent of an Other
Enterprise by reason of being requested, elected, hired or retained to succeed
or assume the responsibilities of a Person who previously acted as a Company
Agent of an Other Enterprise at the request of the Company.
"Parent" shall have the meaning set forth in the regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended;
provided the term "Parent" shall not include the board of directors of a
corporation in its capacity as a board of directors, and provided further that
if the other party to any transaction referred to in Section 12.1.2 has no
Parent as so defined above, "Parent" shall mean such other party.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (or any subdivision, department, commission or agency thereof), and
includes without limitation any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended.
"Potential Change in Control" shall be deemed to have occurred if (a) the
Company enters into an agreement or arrangement the consummation of which would
result in the occurrence of a Change in Control, (b) any Person (including the
Company) publicly announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control or (c) the Board of
Directors of the
<PAGE>
Company adopts a resolution to the effect that, for purposes of this Agreement,
a Potential Change in Control has occurred.
"Subsidiary" means any corporation of which more than 50 % of the
outstanding stock having ordinary voting power to elect a majority of the board
of directors of such corporation is now or hereafter owned, directly or
indirectly, by the Company.
"Trust" has the meaning set forth in Section 9.2.
"Voting Securities" means any securities of the Company which vote
generally in the election of directors.
Section 2. Indemnification.
2.1. General Indemnity Obligation.
-----------------------------
2.1.1. Subject to the remaining provisions of this Agreement, the
Company hereby indemnifies and holds Indemnitee harmless for any Losses or
Expenses arising from any Claims relating to (or arising in whole or in part out
of) any Covered Event, including, without limitation, any Claim the basis of
which is any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or attempted by Indemnitee in
the capacity as a Company Agent, whether or not Indemnitee is acting or serving
in such capacity at the date of this Agreement, at the time liability is
incurred or at the time the Claim is initiated.
2.1.2. The obligations of the Company under this Agreement shall
apply to the fullest extent authorized or permitted by the provisions of
applicable law, as presently in effect or as changed after the date of this
Agreement, whether by statute or judicial decision (but, in the case of any
subsequent change, only to the extent that such change permits the Company to
provide broader indemnification than permitted prior to giving effect thereto).
2.1.3. Indemnitee shall not be entitled to indemnification pursuant
to this Agreement in connection with any Claim initiated by Indemnitee against
the Company or any director or officer of the Company, unless the Company has
joined in or consented to the initiation of such Claim; provided, the provisions
of this Section 2.1.3 shall not apply following a Change in Control to Claims
seeking enforcement of this Agreement, the Certificate of Incorporation or
Bylaws of the Company or any other agreement now or hereafter in effect relating
to indemnification for Covered Events.
2.1.4. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the Losses
or Expenses paid with respect to a Claim but not, however, for the total amount
thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless
against the portion thereof to which Indemnitee is entitled.
2.1.5. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in defense
of any or all Claims relating to (or arising in whole or in part out of) a
Covered Event or in defense of any issue or matter therein, including dismissal
without prejudice, the Company shall indemnify and hold Indemnitee harmless
against all expenses incurred in connection therewith.
<PAGE>
2.2. Indemnification for Serving as Witness and Certain Other Claims.
----------------------------------------------------------------
Notwithstanding any other provision of this Agreement, the Company hereby
indemnifies and holds Indemnitee harmless for all Expenses in connection with
(a) the preparation to serve or service as a witness in any Claim in which
Indemnitee is not a party, if such actual or proposed service as a witness arose
by reason of Indemnitee having served as a Company Agent on or the date of this
Agreement and (b) any Claim initiated by Indemnitee on or after the date of this
Agreement (i) for recovery under any directors' and officers' liability
insurance maintained by the Company or (ii) following a Change in Control, for
enforcement of the indemnification obligations of the Company under this
Agreement, the Certificate of Incorporation or Bylaws of the Company or any
other agreement now or hereafter in effect relating to indemnification for
Covered Events, regardless of whether Indemnitee ultimately is determined to be
entitled to such insurance recovery or indemnification, as the case may be.
Section 3. Limitations on Indemnification.
3.1. Coverage Limitations. No indemnification is available pursuant to
---------------------
the provisions of this Agreement:
3.1.1. If such indemnification is not lawful;
3.1.2. If Indemnitee's conduct giving rise to the Claim with respect
to which indemnification is requested was knowingly fraudulent, a knowing
violation of law, deliberately dishonest or in bad faith or constituted willful
misconduct;
3.1.3. In respect of any Claim based upon or attributable to
Indemnitee gaining in fact any personal profit or advantage to which Indemnitee
was not legally entitled;
3.1.4. In respect of any Claim for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended; or
3.1.5. In respect of any Claim based upon any violation of Section
174 of the Delaware General Corporation Law, as amended.
3.2. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment otherwise due and payable to the extent
Indemnitee has otherwise actually received payment (whether under the
Certificate of Incorporation or the Bylaws of the Company, the D & O Insurance
or otherwise) of any amounts otherwise due and payable under this Agreement.
Section 4. Payments and Determinations.
4.1. Advancement and Reimbursement of Expenses. If requested by
-----------------------------------------
Indemnitee, the Company shall advance to Indemnitee, no later than two business
days following any such request, any and all Expenses for which indemnification
is available under Section 2. Upon any Determination that Indemnitee is not
permitted to be indemnified for any expenses so advanced, Indemnitee hereby
agrees to reimburse the Company (or, as appropriate, any Trust established
pursuant to Section 9.2) for all such amounts previously paid. Such obligation
of reimbursement shall be unsecured and no interest shall be charged thereon.
4.2. Payment and Determination Procedures.
-------------------------------------
<PAGE>
4.2.1. To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, together with such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Company shall, promptly upon receipt of
such a request for indemnification, advise the Board of Directors in writing
that Indemnitee has requested indemnification.
4.2.2. Upon written request by Indemnitee for indemnification
pursuant to Section 4.2.1, a Determination with respect to Indemnitee's
entitlement thereto shall be made in the specific case (a) if a Change in
Control shall have occurred, as provided in Section 9.1; and (b) if a Change in
Control shall not have occurred, by (i) the Board of Directors by a majority
vote of a quorum of Disinterested Directors, (ii) Independent Legal Counsel, if
either (A) a quorum of Disinterested Directors is not obtainable or (B) a
majority vote of a quorum of Disinterested Directors otherwise so directs or
(iii) the stockholders of the Company (if submitted by the Board of Directors).
If a Determination is made that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within 10 days after such Determination.
4.2.3. If no Determination is made within 60 days after receipt by
the Company of a request for indemnification by Indemnitee pursuant to Section
4.2.1, a Determination shall be deemed to have been made that Indemnitee is
entitled to the requested indemnification (and the Company shall pay the related
Losses and Expenses no later than 10 days after the expiration of such 60-day
period), except where such indemnification is not lawful; provided, however,
that (a) such 60-day period may be extended for a reasonable time, not to exceed
an additional 30 days, if the Person or Persons making the Determination in good
faith require such additional time for obtaining or evaluating the documentation
and information relating thereto; and (b) the foregoing provisions of this
Section 4.2.3 shall not apply (i) if the Determination is to be made by the
stockholders of the Company and if (A) within 15 days after receipt by the
Company of the request by Indemnitee pursuant to Section 4.2.1 the Board of
Directors has resolved to submit such Determination to the stockholders at an
annual meeting of the stockholders to be held within 75 days after such receipt,
and such Determination is made at such annual meeting, or (B) a special meeting
of stockholders is called within 15 days after such receipt for the purpose of
making such Determination, such meeting is held for such purpose within 60 days
after having been so called and such Determination is made at such special
meeting, or (ii) if the Determination is to be made by Independent Legal
Counsel.
Section 5. D & O Insurance.
5.1. Current Policies. The Company hereby represents and warrants to
-----------------
Indemnitee that the D & O Insurance is in full force and effect.
5.2. Continued Coverage. The Company shall maintain the D & O Insurance
-------------------
for so long as this Agreement remains in effect. The Company shall cause the D &
O Insurance to cover Indemnitee, in accordance with its terms and at all times
such insurance is in effect, to the maximum extent of the coverage provided
thereby for any director or officer of the Company.
5.3. Indemnification. In the event of any reduction in, or cancellation
---------------
of, the D & O Insurance (whether voluntary or involuntary on behalf of the
Company), the Company shall, and hereby agrees to, indemnify and hold Indemnitee
harmless against any Losses or Expenses which Indemnitee is or becomes obligated
to pay as a result of the
<PAGE>
Company's failure to maintain the D & O Insurance in effect in accordance with
the provisions of Section 5.2, to the fullest extent permitted by applicable
law, notwithstanding any provision of the Certificate of Incorporation or the
Bylaws of the Company, or any other agreement now or hereafter in effect
relating to indemnification for Covered Events. The indemnification available
under this Section 5.3 is in addition to all other obligations of
indemnification of the Company under this Agreement and shall be the only remedy
of Indemnitee for a breach by the Company of its obligations set forth in
Section 5.2.
Section 6. Subrogation. In the event of any payment under this Agreement to
or on behalf of Indemnitee, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee against any Person
other than the Company or Indemnitee in respect of the Claim giving rise to such
payment. Indemnitee shall execute all papers reasonably required and shall do
everything reasonably necessary to secure such rights, including the execution
of such documents reasonably necessary to enable the Company effectively to
bring suit to enforce such rights.
Section 7. Notifications and Defense of Claims.
7.1. Notice by Indemnitee. Indemnitee shall give notice in writing to the
---------------------
Company as soon as practicable after Indemnitee becomes aware of any Claim with
respect to which indemnification will or could be sought under this Agreement;
provided the failure of Indemnitee to give such notice, or any delay in giving
such notice, shall not relieve the Company of its obligations under this
Agreement except to the extent the Company is actually prejudiced by any such
failure or delay.
7.2. Insurance. The Company shall give prompt notice of the commencement
---------
of any Claim relating to Covered Events to the insurers on the D & O Insurance,
if any, in accordance with the procedures set forth in the respective policies
in favor of Indemnitee. The Company shall thereafter take all necessary action
to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a
result of such Claims in accordance with the terms of such policies.
7.3. Defense.
-------
7.3.1. In the event any Claim relating to Covered Events is by or in
the right of the Company, Indemnitee may, at the option of Indemnitee, either
control the defense therefor or accept the defense provided under the D & O
Insurance; provided, however, that Indemnitee may not control the defense if
such decision would jeopardize the coverage provided by the D & O Insurance, if
any, to the Company or the other directors and officers covered thereby.
7.3.2. In the event any Claim relating to Covered Events is other
than by or in the right of the Company, Indemnitee may, at the option of
Indemnitee, either control the defense thereof, require the Company to defend or
accept the defense provided under the D & O Insurance; provided, however, that
Indemnitee may not control the defense or require the Company to defend if such
decision would jeopardize the coverage provided by the D & O Insurance to the
Company or the other directors and officers covered thereby. In the event that
Indemnitee requires the Company to so defend, or in the event that Indemnitee
proceeds under the D & O Insurance but Indemnitee determines that such insurers
under the D & O Insurance are unable or unwilling to adequately defend
Indemnitee against any such Claim, the Company shall promptly undertake to
defend any such Claim, at the Company's sole cost and expense, utilizing counsel
of Indemnitee's choice who has been approved by the Company. If
<PAGE>
appropriate, the Company shall have the right to participate in the defense of
any such Claim.
7.3.3. In the event the Company shall fail, as required by any
election by Indemnitee pursuant to Section 7.3.2, timely to defend Indemnitee
against any such Claim, Indemnitee shall have the right to do so, including
without limitation, the right (notwithstanding Section 7.3.4) to make any
settlement thereof, and to recover from the Company, to the extent otherwise
permitted by this Agreement, all Expenses and Losses paid as a result thereof.
7.3.4. The Company shall have no obligation under this Agreement
with respect to any amounts paid or to be paid in settlement of any Claim
without the express prior written consent of the Company to any related
settlement. In no event shall the Company authorize any settlement imposing any
liability or other obligations on Indemnitee without the express prior written
consent of Indemnitee. Neither the Company nor Indemnitee shall unreasonably
withhold consent to any proposed settlement.
Section 8. Determinations and Related Matters.
8.1. Presumptions.
-------------
8.1.1. If a Change in Control shall have occurred, Indemnitee shall
be entitled to a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement and the Company shall have the burden of
proof in rebutting such presumption.
8.1.2. The termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of nolo
contendere or its equivalent, shall not adversely affect either the right of
Indemnitee to indemnification under this Agreement or the presumptions to which
Indemnitee is otherwise entitled pursuant to the provisions of this Agreement
nor create a presumption that Indemnitee did not meet any particular standard of
conduct or have a particular belief or that a court has determined that
indemnification is not permitted by applicable law.
8.2. Appeals; Enforcement.
---------------------
8.2.1. In the event that (a) a Determination is made that Indemnitee
shall not be entitled to indemnification under this Agreement, (b) any
Determination to be made by Independent Legal Counsel is not made within 90 days
of receipt by the Company of a request for indemnification pursuant to Section
4.2.1 or (c) the Company fails to otherwise perform any of its obligations under
this Agreement (including, without limitation, its obligation to make payments
to Indemnitee following any Determination made or deemed to have been made that
such payments are appropriate), Indemnitee shall have the right to commence a
Claim in any court of competent jurisdiction, as appropriate, to seek a
Determination by the court, to challenge or appeal any Determination which has
been made, or to otherwise enforce this Agreement. If a Change of Control shall
have occurred, Indemnitee shall have the option to have any such Claim conducted
by a single arbitrator pursuant to the rules of the American Arbitration
Association. Any such judicial proceeding challenging or appealing any
Determination shall be deemed to be conducted de novo and without prejudice by
-- ----
reason of any prior Determination to the effect that Indemnitee is not entitled
to indemnification under this Agreement. Any such Claim shall be at the sole
expense of Indemnitee except as provided in Section 9.3.
<PAGE>
8.2.2. If a Determination shall have been made or deemed to have
been made pursuant to this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such Determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2,
except if such indemnification is unlawful.
8.2.3. The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 8.2 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement. The Company
hereby consents to service of process and to appear in any such judicial or
arbitration proceedings and shall not oppose Indemnitee's right to commence any
such proceedings.
8.3. Procedures. Indemnitee shall cooperate with the Company and with any
-----------
Person making any Determination with respect to any Claim for which a claim for
indemnification under this Agreement has been made, as the Company may
reasonably require. Indemnitee shall provide to the Company or the Person making
any Determination, upon reasonable advance request, any documentation or
information reasonably available to Indemnitee and necessary to (a) the Company
with respect to any such Claim or (b) the Person making any Determination with
respect thereto.
Section 9. Change in Control Procedures.
9.1. Determinations. If there is a Change in Control, any Determination
---------------
to be made under Section 4 shall be made by Independent Legal Counsel selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). The Company shall pay the reasonable fees of the
Independent Legal Counsel and indemnify fully such Independent Legal Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
Independent Legal Counsel pursuant hereto.
9.2. Establishment of Trust. Following the occurrence of any Potential
----------------------
Change in Control, the Company, upon receipt of a written request from
Indemnitee, shall create a Trust (the "Trust") for the benefit of Indemnitee,
the trustee of which shall be a bank or similar financial institution with trust
powers chosen by Indemnitee. From time to time, upon the written request of
Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy
any and all Losses and Expenses reasonably anticipated at the time of each such
request to be incurred by Indemnitee for which indemnification may be available
under this Agreement. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by mutual
agreement of Indemnitee and the Company or, if the Company and Indemnitee are
unable to reach such an agreement or, in any event, a Change in Control has
occurred, by Independent Legal Counsel (selected pursuant to Section 9.1). The
terms of the Trust shall provide that, except upon the prior written consent of
Indemnitee and the Company, (a) the Trust shall not be revoked or the principal
thereof invaded, other than to make payments to unsatisfied judgment creditors
of the Company, (b) the Trust shall continue to be funded by the Company in
accordance with the funding obligations set forth in this Section, (c) the
Trustee shall promptly pay or advance to Indemnitee any amounts to which
Indemnitee shall be entitled pursuant to this Agreement, and (d) all unexpended
funds in the Trust shall revert to the Company upon a Determination by
Independent Legal Counsel (selected pursuant to Section 9.1) or a court of
competent jurisdiction that Indemnitee has been fully indemnified under the
terms of this Agreement. All income earned on the assets held in the trust shall
be reported as income by the Company for federal, state, local and foreign tax
purposes.
<PAGE>
9.3. Expenses. Following any Change in Control, the Company shall be
---------
liable for, and shall pay the Expenses paid or incurred by Indemnitee in
connection with the making of any Determination (irrespective of the
determination as to Indemnitee's entitlement to indemnification) or the
prosecution of any Claim pursuant to Section 8.2, and the Company hereby agrees
to indemnify and hold Indemnitee harmless therefrom. If requested by counsel for
Indemnitee, the Company shall promptly give such counsel an appropriate written
agreement with respect to the payment of its fees and expenses and such other
matters as may be reasonably requested by such counsel.
Section 10. Period of Limitations. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company, any
Subsidiary, any Other Enterprise or any Affiliate of the Company against
Indemnitee or Indemnitee's spouse, heirs, executors, administrators or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two-year period; provided, however, that if any
shorter period of limitations, whether established by statute or judicial
decision, is otherwise applicable to any such cause of action such shorter
period shall govern.
Section 11. Contribution. If the indemnification provisions of this Agreement
should be unenforceable under applicable law in whole or in part or insufficient
to hold Indemnitee harmless in respect of any Losses and Expenses incurred by
Indemnitee, then for purposes of this Section 11, the Company shall be treated
as if it were, or was threatened to be made, a party defendant to the subject
Claim and the Company shall contribute to the amounts paid or payable by
Indemnitee as a result of such Losses and Expenses incurred by Indemnitee in
such proportion as is appropriate to reflect the relative benefits accruing to
the Company on the one hand and Indemnitee on the other and the relative fault
of the Company on the one hand and Indemnitee on the other in connection with
such Claim, as well as any other relevant equitable considerations. For purposes
of this Section 11 the relative benefit of the Company shall be deemed to be the
benefits accruing to it and to all of its directors, officers, employees and
agents (other than Indemnitee) on the one hand, as a group and treated as one
entity, and the relative benefit of Indemnitee shall be deemed to be an amount
not greater than the Indemnitee's yearly base salary or Indemnitee's
compensation from the Company during the first year in which the Covered Event
forming the basis for the subject Claim was alleged to have occurred. The
relative fault shall be determined by reference to, among other things, the
fault of the Company and all of its directors, officers, employees and agents
(other than Indemnitee) on the one hand, as a group and treated as one entity,
and Indemnitee's and such group's relative intent, knowledge, access to
information and opportunity to have altered or prevented the Covered Event
forming the basis for the subject Claim.
Section 12. Miscellaneous Provisions.
12.1. Successors and Assigns, Etc.
----------------------------
12.1.1. This Agreement shall be binding upon and inure to the
benefit of (a) the Company, its successors and assigns (including any direct or
indirect successor by merger, consolidation or operation of law or by transfer
of all or substantially all of its assets) and (b) Indemnitee and the heirs,
personal and legal representatives, executors, administrators or assigns of
Indemnitee.
<PAGE>
12.1.2. The Company shall not consummate any consolidation,
merger or other business combination, nor will it transfer 50% or more of its
assets (in one or a series of related transactions), unless the ultimate Parent
of the successor to the business or assets of the Company shall have first
executed an agreement, in form and substance satisfactory to Indemnitee, to
expressly assume all obligations of the Company under this Agreement and agree
to perform this Agreement in accordance with its terms, in the same manner and
to the same extent that the Company would be required to perform this Agreement
if no such transaction had taken place; provided that, if the Parent is not the
Company, the legality of payment of indemnity by the Parent shall be determined
by reference to the fact that such indemnity is to be paid by the Parent rather
than the Company.
12.2. Severability. The provisions of this Agreement are severable. If
-------------
any provision of this Agreement shall be held by any court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
deemed to be modified to the minimum extent necessary to avoid a violation of
law and, as so modified, such provision and the remaining provisions shall
remain valid and enforceable in accordance with their terms to the fullest
extent permitted by law.
12.3. Rights Not Exclusive; Continuation of Right of Indemnification.
---------------------------------------------------------------
Nothing in this Agreement shall be deemed to diminish or otherwise restrict
Indemnitee's right to indemnification pursuant to any provision of the
Certificate of Incorporation or Bylaws of the Company, any agreement, vote of
stockholders or Disinterested Directors, applicable law or otherwise. This
Agreement shall be effective as of the date first above written and continue in
effect until no Claims relating to any Covered Event may be asserted against
Indemnitee and until any Claims commenced prior thereto are finally terminated
and resolved, regardless of whether Indemnitee continues to serve as an officer
of the Company, any Subsidiary or any Other Enterprise.
12.4. No Employment Agreement. Nothing contained in this Agreement
------------------------
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company, any Subsidiary or any Other Enterprise.
12.5. Subsequent Amendment. No amendment, termination or repeal of any
--------------------
provision of the Certificate of Incorporation or Bylaws of the Company, or any
respective successors thereto, or of any relevant provision of any applicable
law, shall affect or diminish in any way the rights of Indemnitee to
indemnification, or the obligations of the Company, arising under this
Agreement, whether the alleged actions or conduct of Indemnitee giving rise to
the necessity of such indemnification arose before or after any such amendment,
termination or repeal.
12.6. Notices. Notices required under this Agreement shall be given in
-------
writing and shall be deemed given when delivered in person or sent by certified
or registered mail, return receipt requested, postage prepaid. Notices shall be
directed to the Company Three Limited Parkway, Columbus, OH 43230, Attention:
Chairman of the Board, and to Indemnitee at the residential address as shown on
the Company's records (or such other address as either party may designate in
writing to the other).
12.7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and performed in such state without giving effect to the
principles of conflict of laws.
<PAGE>
12.8. Headings. The headings of the Sections of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
12.9. Counterparts. This Agreement may be executed in any number of
-------------
counterparts all of which taken together shall constitute one instrument.
12.10. Modification and Waiver. No supplement, modification or amendment
-----------------------
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver or any of the provisions of this Agreement shall
constitute, or be deemed to constitute, a waiver of any other provision hereof
(whether or not similar) nor shall any such waiver constitute a continuing
waiver.
The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.
ABERCROMBIE & FITCH CO. INDEMNITEE
By__________________________________________ ________________________________
Name: Samuel P. Fried Name:
Title: Vice President and General Counsel
<PAGE>
EXHIBIT 11
----------
ABERCROMBIE & FITCH CO.
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
February 1, February 3,
1997 1996
------------- -------------
<S> <C> <C>
Net income $20,517 $12,634
============= =============
Common shares outstanding:
Weighted average 51,050 43,000
Dilutive effect of stock options 34 -
Weighted average treasury shares - -
------------- -------------
Weighted average used to calculate
net income per share 51,084 43,000
============= =============
Net income per share $ 0.40 $ 0.29
============= =============
<CAPTION>
Year Ended
-------------------------------
February 1, February 3,
1997 1996
------------- -------------
<S> <C> <C>
Net income $24,674 $14,298
============= =============
Common shares outstanding:
Weighted average 45,749 43,000
Dilutive effect of stock options 11 -
Weighted average treasury shares - -
------------- -------------
Weighted average used to calculate
net income per share 45,760 43,000
============= =============
Net income per share $ 0.54 $ 0.33
============= =============
</TABLE>
<PAGE>
EXHIBIT 13
----------
Abercrombie & Fitch Co.
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Thousands except per share and per square foot amounts, ratios and store and associate data)
Fiscal Year 1996 1995* 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Net Sales $ 335,372 $235,659 $165,463 $110,952 $ 85,301 $ 62,583
- ---------------------------------------------------------------------------------------------------------------
Gross Income $ 123,766 $ 79,794 $ 56,820 $ 30,562 $ 13,413 $ 9,665
- ---------------------------------------------------------------------------------------------------------------
Operating Income (Loss) $ 45,993 $ 23,798 $ 13,751 $ (4,064) $(10,190) $(11,603)
- ---------------------------------------------------------------------------------------------------------------
Operating Income (Loss) as a
Percentage of Sales 13.7% 10.1% 8.3% (3.7%) (11.9%) (18.5%)
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 24,674 $ 14,298 $ 8,251 $ (2,464) $ (6,090) $ (7,003)
- ---------------------------------------------------------------------------------------------------------------
Net Income (Loss) as a
Percentage of Sales 7.4% 6.1% 5.0% (2.2%) (7.1%) (11.2%)
- ---------------------------------------------------------------------------------------------------------------
Per Share Results
Net Income (Loss) $ 0.54 $ 0.33 $ 0.19 $ (0.06) $ (0.14) $ (0.16)
- ---------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 45,760 43,000 43,000 43,000 43,000 43,000
- ---------------------------------------------------------------------------------------------------------------
Other Financial Information
Total Assets $ 105,761 $ 87,693 $ 58,018 $ 48,882 $ 61,626 $ 47,967
- ---------------------------------------------------------------------------------------------------------------
Return on Average Assets 26% 20% 15% (4%) (11%) -
- ---------------------------------------------------------------------------------------------------------------
Capital Expenditures $ 24,323 $ 24,526 $ 12,603 $ 4,694 $ 10,351 $ 7,931
- ---------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 50,000 - - - - -
- ---------------------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficit) $ 11,238 $(22,622) $(37,070) $(45,341) $(42,877) $(36,787)
- ---------------------------------------------------------------------------------------------------------------
Comparable Store Sales Increase 13% 5% 15% 6% 8% 10%
- ---------------------------------------------------------------------------------------------------------------
Sales per Selling Square Foot $ 373 $ 354 $ 350 $ 301 $ 276 $ 261
- ---------------------------------------------------------------------------------------------------------------
Stores and Associates at End of Year
Total Number of Stores Open 127 100 67 49 40 36
- ---------------------------------------------------------------------------------------------------------------
Selling Square Feet 1,006,000 792,000 541,000 405,000 332,000 287,000
- ---------------------------------------------------------------------------------------------------------------
Number of Associates 4,900 3,000 2,300 1,300 900 700
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Fifty-three week fiscal year.
<PAGE>
Abercrombie & Fitch Co.
MANAGEMENT'S DISCUSSION AND ANALYSIS
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
92 93 94 95 96
<S> <C> <C> <C> <C> <C>
Comparable Store Sales Increase 8% 6% 15% 5% 13%
<CAPTION>
92 93 94 95 96
<S> <C> <C> <C> <C> <C>
Sales Per Average Store ($ in Thousands) $2,245 $2,493 $2,853 $2,823 $2,955
</TABLE>
RESULTS OF OPERATIONS Net sales for the thirteen-week fourth quarter were
$139.2 million, an increase of 31% from $106.4 million for the fourteen-week
fourth quarter a year ago. Operating income was $35.3 million, up 68% compared
to $21.0 million last year. Earnings per share were $0.40, up 74%, from $0.23 on
an adjusted basis last year.
Net sales for the fiscal year ended February 1, 1997, increased 42% to $335.4
million from $235.7 million last year. Operating income for the year increased
93% to $46.0 million from $23.8 million in 1995. Earnings per share on an
adjusted basis were $0.48 compared to $0.21 a year ago, an increase of 129%.
The adjusted results presented below reflect: 1) 51.05 million post initial
public offering ("IPO") shares outstanding; 2) interest expense on the Company's
seasonal borrowing; and 3) interest expense on the Company's ongoing capital
structure, which excludes interest expense on the Company's $150 million credit
agreement. All of the borrowings under the credit agreement were repaid in the
fourth quarter of 1996. The adjusted income data is presented below (thousands
except per share amounts):
<TABLE>
<CAPTION>
Fourth Quarter
--------------------------------------------------
Adjusted Adjusted Actual Actual
February 1, February 3, February 1, February 3,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating income $35,342 $21,034 $35,342 $21,034
Interest expense 1,125 1,488 1,125 -
- --------------------------------------------------------------------------------
Income before income taxes 34,217 19,546 34,217 21,034
Provision for income taxes 13,700 7,820 13,700 8,400
- --------------------------------------------------------------------------------
Net income $20,517 $11,726 $20,517 $12,634
================================================================================
Net income per share $ 0.40 $ 0.23 $ 0.40 $ 0.29
================================================================================
Weighted average shares
outstanding 51,050 51,050 51,084 43,000
================================================================================
<CAPTION>
Year-to-Date
------------------------------------------------
Adjusted Adjusted Actual Actual
February 1, February 3, February 1, February 3,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating income $45,993 $23,798 $45,993 $23,798
Interest expense 5,016 5,729 4,919 -
- --------------------------------------------------------------------------------
Income before income taxes 40,977 18,069 41,074 23,798
Provision for income taxes 16,400 7,230 16,400 9,500
- --------------------------------------------------------------------------------
Net income $24,577 $10,839 $24,674 $14,298
================================================================================
Net income per share $ 0.48 $ 0.21 $ 0.54 $ 0.33
================================================================================
Weighted average shares
outstanding 51,050 51,050 45,760 43,000
================================================================================
</TABLE>
16
<PAGE>
Abercrombie & Fitch Co.
NET SALES Thirteen-week fourth quarter 1996 net sales as compared to net sales
for the fourteen-week fourth quarter 1995 increased 31% to $139.2 million, due
to an 8% increase in comparable store sales and sales attributable to new and
remodeled stores. Comparable store sales increases were strong in both the men's
and women's businesses. Sweaters were the best performing category in each
business.
In the fourteen-week fourth quarter 1995, net sales increased 43% to $106.4
million over the thirteen-week fourth quarter 1994. The increase was primarily
attributable to sales from new and remodeled stores (34% of the total increase),
a 5% increase in comparable store sales and the extra week in 1995.
Net sales for 1996 increased 42% to $335.4 million over the fifty-three week
1995 fiscal year. The sales increase was attributable to the net addition of 27
stores and a 13% comparable store sales increase. Consistent with the Company's
strategy, the women's business continued to increase as a proportion of the
total business, with sweaters and pants the strongest performing categories. The
men's business also achieved significant growth with its strongest categories
being sweaters, pants and denim. Net sales per selling square foot for the total
Company increased 5%.
For the fifty-three week year 1995, net sales were $235.7 million, an increase
of 42% from $165.5 million in 1994. Sales growth came primarily from the
addition of 33 new stores, with a comparable store sales increase of 5%.
Management believes that comparable store sales were negatively affected by
overall softness in the retail industry. The fifty-third week accounted for 2%
of the total sales increase. During 1995, the Company allocated more selling
square footage per store to women's apparel, resulting in a significant increase
in sales of women's apparel. Significant growth was achieved in women's shirts,
knits and shorts. The total volume of the men's business increased, but to a
lesser extent than the women's business, due to this reallocation of square
footage. A very strong increase in men's outerwear was partially offset by a
continuing de-emphasis of dress shirts and ties. The Company previously decided
such merchandise was not consistent with the Company's focus on casual apparel.
Net sales per selling square foot for the total Company increased 1%.
FINANCIAL SUMMARY
The following summarized financial data compares 1996 to the comparable periods
for 1995 and 1994:
<TABLE>
<CAPTION>
% Change
--------------
1996- 1995-
--------------
1996 1995 1994 1995 1994
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales (millions) $335.4 $235.7 $165.5 42% 42%
- ---------------------------------------------------------------------------
Increase in comparable
store sales 13% 5% 15%
- -------------------------------------------------------------
Sales increase attributable to
new and remodeled stores 29% 37% 34%
- -------------------------------------------------------------
Sales per selling
square foot $ 373 $ 354 $ 350 5% 1%
- ---------------------------------------------------------------------------
Sales per average store
(thousands) $2,955 $2,823 $2,853 5% (1%)
- ---------------------------------------------------------------------------
Average store size at
year end (selling
square feet) 7,921 7,920 8,075 0% (2%)
- ---------------------------------------------------------------------------
Selling square feet at
year end
(thousands) 1,006 792 541 27% 46%
- ---------------------------------------------------------------------------
Number of Stores
Beginning of year 100 67 49
Opened 29 33 20
Closed (2) - (2)
- -------------------------------------------------------------
End of year 127 100 67
===========================================================================
</TABLE>
17
<PAGE>
Abercrombie & Fitch Co.
<TABLE>
<CAPTION>
Sales per Selling Square Foot
[BAR GRAPH APPEARS HERE]
92 93 94 95 96
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
$276 $301 $350 $354 $373
</TABLE>
GROSS INCOME Gross income increased, as a percentage of net sales, to 43.0% for
the fourth quarter of 1996 from 37.4% for the same period in 1995. The increase
was due to a significant increase in merchandise margins (representing gross
income before the deduction of buying and occupancy costs) and a reduction in
buying and occupancy costs, as a percentage of net sales. The increase in
merchandise margins was the result of higher initial markups (IMU). The decrease
in buying and occupancy costs is primarily attributable to higher sales
productivity associated with the 8% increase in comparable store sales.
Gross income decreased as a percentage of net sales to 37.4% for the fourth
quarter 1995 from 41.8% for the same period in 1994. Merchandise margins,
expressed as a percentage of net sales, decreased, due principally to higher
markdowns in 1995 as the retail environment during the 1995 Holiday season was
very promotional. Buying and occupancy costs rose as a percentage of net sales.
For the year, the gross income rate increased to 36.9% in 1996 from 33.9% in
1995. Merchandise margins, expressed as a percentage of net sales, improved due
to a higher IMU in both the men's and women's businesses. Buying and occupancy
costs, expressed as a percentage of net sales, declined due to a 13% increase in
comparable store sales, including a 5% increase in net sales per selling square
foot.
In 1995, gross income, expressed as a percentage of net sales, was 33.9%,
which represented a 0.4% decrease from the 34.3% level in 1994. The decrease was
primarily attributable to an increase in buying and occupancy costs. Merchandise
margins were up slightly for the period.
18
<PAGE>
Abercrombie & Fitch Co.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES General, administrative and
store operating expenses, expressed as a percentage of net sales, were 17.6% in
the fourth quarter of 1996 and 17.7% in the comparable period in 1995. The
improvement resulted primarily from the favorable leveraging of expenses over
higher sales volume.
For the year, general, administrative and store operating expenses, expressed
as a percentage of net sales, were 23.2%, 23.8% and 26.0% for 1996, 1995 and
1994, respectively. The improvement during the three-year period resulted from
management's continued emphasis on expense control and the favorable leveraging
of store and home office expenses.
OPERATING INCOME Operating income, as a percentage of net sales, was 13.7%,
10.1% and 8.3% for 1996, 1995 and 1994. The improvement was the result of higher
merchandise margins coupled with lower general, administrative and store
operating expenses, as a percentage of net sales. Sales volume and gross income
have increased at a faster rate than general, administrative and store operating
expenses as the Company continues to emphasize cost controls.
INTEREST EXPENSE In 1996, the Company incurred $1.1 million and $4.9 million in
net interest expense for the fourth quarter and year, whereas no expense was
recognized for the comparable periods in 1995 and 1994. Interest expense for
1996 is comprised of $2.3 million on the $50 million long-term debt. The balance
was primarily from interest on short-term borrowings.
FINANCIAL CONDITION The Company's continuing growth in operating income
provides evidence of financial strength and flexibility. A more detailed
discussion of liquidity, capital resources and capital requirements follows.
LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities and cash
funding from The Limited, Inc.'s centralized cash management system provided the
resources to support operations, including seasonal requirements and capital
expenditures. A summary of the Company's working capital position and
capitalization follows (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by operating activities $46,836 $ 12,714 $ 20,155
- -----------------------------------------------------------------------------
Working capital $ 1,288 $(70,940) $ 4,882
- -----------------------------------------------------------------------------
Capitalization:
Long-term debt $50,000 $ - $ -
Shareholders' equity (deficit) 11,238 $(22,622) $(37,070)
- -----------------------------------------------------------------------------
Total capitalization $61,238 $(22,622) $(37,070)
=============================================================================
</TABLE>
The Company considers the following to be measures of liquidity and capital
resources:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt-to-capitalization ratio
(long-term debt divided by
total capitalization) 82% n/m n/m
- ------------------------------------------------------------------------------
Cash flow to capital investment
(net cash provided by operating
activities divided by capital
expenditures) 193% 52% 160%
==============================================================================
n/m=not meaningful
</TABLE>
Net cash provided by operating activities totaled $46.8 million, $12.7 million
and $20.2 million for 1996, 1995 and 1994.
The Company has consistently improved its financial performance as evidenced
by the past three years' net income growth. Cash requirements for inventory
increased over the three-year period, supporting the sales growth. In 1996,
accounts payable and accrued expenses increased principally as a result of
increases of $1.8 million of accrued rent, $2.0 million of merchandise payables
and $2.2 million of accrued interest. Prior to 1996, the Company had no direct
debt and paid no interest. Also in 1996, cash provided by income taxes was $4.2
million due to the timing of tax payments in relation to fourth quarter
earnings.
19
<PAGE>
Abercrombie & Fitch Co.
Investing activities were all for capital expenditures, which were primarily
for new stores.
Financing activities in 1996 include $150 million in proceeds from borrowings
under a bank credit agreement, which along with the $8.6 million working capital
note, were later repaid, with funds made available from the IPO and cash flow
from operations. Proceeds of the $150 million bank credit agreement were used to
repay $91 million of intercompany debt and $32 million of trademark obligations
and fund a $27 million dividend to The Limited, Inc. Other financing activities
were due to intercompany and cash management account activity (see Note 8).
CAPITAL EXPENDITURES Capital expenditures, primarily for new and remodeled
stores, amounted to $24.3 million, $24.5 million and $12.6 million for 1996,
1995 and 1994.
The Company anticipates spending $26 to $31 million in 1997 for capital
expenditures, of which $24 to $28 million will be for new stores, the remodel
and/or expansion of existing stores and related improvements. The Company
intends to add approximately 220,000 selling square feet in 1997, which will
represent a 22% increase over year-end 1996. It is anticipated the increase will
result from the addition of 28 new stores and the remodeling and/or expansion of
three stores. The Company expects that substantially all future capital
expenditures will be funded by net cash provided by operating activities.
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 its
results of operations and financial condition have been minor.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Company's Form 10-K or made by management of the Company
involves risks and uncertainties, and are subject to change based on various
important factors. 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 1997 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements: 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.
20
<PAGE>
Abercrombie & Fitch Co.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Thousands except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $335,372 $235,659 $165,463
Cost of Goods Sold, Occupancy and Buying Costs 211,606 155,865 108,643
- -----------------------------------------------------------------------------------------------------------------
Gross Income 123,766 79,794 56,820
General, Administrative and Store Operating Expenses 77,773 55,996 43,069
- -----------------------------------------------------------------------------------------------------------------
Operating Income 45,993 23,798 13,751
Interest Expense, Net 4,919 - -
- -----------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 41,074 23,798 13,751
Provision for Income Taxes 16,400 9,500 5,500
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 24,674 $ 14,298 $ 8,251
=================================================================================================================
Net Income Per Share $ .54 $ .33 $ .19
=================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Net Sales ($ in Millions)
[BAR GRAPH APPEARS HERE]
<PAGE>
Abercrombie & Fitch Co.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands) February 1, 1997 February 3, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash $ 1,945 $ 874
Accounts Receivable 2,102 3,617
Inventories 34,943 30,388
Store Supplies 5,300 3,529
Other 588 448
- ------------------------------------------------------------------------------
Total Current Assets 44,878 38,856
- ------------------------------------------------------------------------------
Property and Equipment, Net 58,992 47,203
- ------------------------------------------------------------------------------
Deferred Income Taxes 1,885 1,624
- ------------------------------------------------------------------------------
Other Assets 6 10
- ------------------------------------------------------------------------------
Total Assets $ 105,761 $ 87,693
==============================================================================
Liabilities and Shareholders' Equity
(Deficit)
Current Liabilities
Accounts Payable $ 6,414 $ 4,359
Accrued Expenses 22,388 14,500
Intercompany Payable 5,417 86,045
Income Taxes Payable 9,371 4,892
- ------------------------------------------------------------------------------
Total Current Liabilities 43,590 109,796
- ------------------------------------------------------------------------------
Long-Term Debt 50,000 -
- ------------------------------------------------------------------------------
Other Long-Term Liabilities 933 519
- ------------------------------------------------------------------------------
Shareholders' Equity (Deficit)
Common Stock 511 -
Paid-In Capital 117,980 305
Retained Earnings (Deficit) (107,253) (22,927)
- ------------------------------------------------------------------------------
Total Shareholders' Equity (Deficit) 11,238 (22,622)
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders'
Equity (Deficit) $ 105,761 $ 87,693
==============================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
22
<PAGE>
Abercrombie & Fitch Co.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
--------------------
Retained Total
Shares Par Paid-In Earnings Shareholders'
(Thousands) Outstanding Value Capital (Deficit) Equity (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 29, 1994 43,000 - $ 135 $ (45,476) $(45,341)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income - - - 8,251 8,251
Other - - 20 - 20
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 28, 1995 43,000 - $ 155 $ (37,225) $(37,070)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income - - - 14,298 14,298
Other - - 150 - 150
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 1996 43,000 - $ 305 $ (22,927) $(22,622)
- ----------------------------------------------------------------------------------------------------------------------------------
Transfer of Equity to Debt ($50,000 Long-Term Debt
and $32,000 Short-Term Borrowings) - - - (82,000) (82,000)
Cash Dividend to Parent Prior
to Initial Public Offering - - - (27,000) (27,000)
Sale of Common Stock in Initial Public Offering 8,050 $511 117,667 - 118,178
Net Income - - - 24,674 24,674
Other - - 8 - 8
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 51,050 $511 $117,980 $(107,253) $ 11,238
==================================================================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Abercrombie & Fitch Co.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 24,674 $ 14,298 $ 8,251
Impact of Other Operating Activities on
Cash Flows
Depreciation and Amortization 11,759 9,104 7,799
Change in Assets and Liabilities
Accounts Receivable 1,515 15 (2,058)
Inventories (4,555) (13,837) (6,499)
Accounts Payable and Accrued Expenses 9,943 4,069 4,117
Income Taxes 4,218 (2,525) 6,391
Other Assets and Liabilities (718) 1,590 2,154
- ----------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 46,836 12,714 20,155
Cash Used for Investing Activities
- ----------------------------------------------------------------------------------
Capital Expenditures (24,323) (24,526) (12,603)
- ----------------------------------------------------------------------------------
Financing Activities
Increase (Decrease) in Intercompany Payable 18,988 11,944 (7,387)
Dividend Paid to Parent (27,000) - -
Net Proceeds from Issuance of Common Stock 118,178 - -
Proceeds from Credit Agreement 150,000 - -
Repayment of Credit Agreement (150,000) - -
Repayment of Trademark Obligations (32,000) - -
Repayment of Intercompany Debt (91,000) - -
Repayment of Working Capital Note (8,616) - -
Other Changes in Shareholders' Equity
(Deficit) 8 150 20
- ----------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing
Activities (21,442) 12,094 (7,367)
- ----------------------------------------------------------------------------------
Net Increase in Cash 1,071 282 185
Cash, Beginning of Year 874 592 407
- ----------------------------------------------------------------------------------
Cash, End of Year $ 1,945 $ 874 $ 592
==================================================================================
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
Abercrombie & Fitch Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION Abercrombie & Fitch Co. (the "Company") was
incorporated on June 26, 1996, and on July 15, 1996 acquired the stock of
Abercrombie & Fitch Holdings, the parent company of the Abercrombie & Fitch
Business, and A&F Trademark, Inc., in exchange for 43 million shares of Class B
Common Stock issued to The Limited, Inc. ("The Limited"). The Company is a
specialty retailer of high quality, casual apparel for men and women with an
active, youthful lifestyle. The business was established in 1892 and
subsequently acquired by The Limited in 1988.
An initial public offering (the "Offering") of 8.05 million shares of the
Company's Class A Common Stock, including the sale of 1.05 million shares
pursuant to the exercise by the underwriters of their options to purchase
additional shares, was consummated on October 1, 1996. As a result of the
Offering, 84.2% of the outstanding common stock of the Company is owned by The
Limited.
The net proceeds received by the Company from the Offering, approximating
$118.2 million, and cash from operations were used to repay the borrowings under
a $150 million credit agreement.
The accompanying consolidated financial statements include the historical
financial statements of, and transactions applicable to the Company and its
subsidiaries and reflect the assets, liabilities, results of operations and cash
flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of 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.
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
1996 and 1994 represent the fifty-two week periods ended February 1, 1997 and
January 28, 1995. The results for fiscal year 1995 represent the fifty-three
week period ended February 3, 1996.
STORE SUPPLIES The initial inventory of supplies for new stores including, but
not limited to, hangers, signage, security tags and point-of-sale supplies are
capitalized at the store opening date. Subsequent shipments are expensed except
for new merchandise presentation programs which are capitalized.
INVENTORY Inventories are principally valued at the lower of average cost or
market, on a first-in first-out basis, utilizing the retail method.
PROPERTY & 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 10-15 years for building improvements and
3-10 years for other property and equipment. Beneficial leaseholds represent the
present value of the excess of fair market rent over contractual rent of
existing stores at the 1988 purchase of the Company by The Limited and are being
amortized over the lives of the related leases. 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 that extend service lives are capitalized. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that full recoverability is questionable. Factors used in the valuation include,
but are not limited to, management's plans for future operations, recent
operating results and projected cash flows.
SHAREHOLDERS' EQUITY At February 1, 1997, there were 150 million of $.01 par
value class A shares and 150 million of $.01 par value of class B shares
authorized, of which 8.05 million shares and 43 million shares, respectively,
were issued and outstanding. In addition there were 15 million of $.01 par value
preferred shares authorized, none of which have been issued.
Holders of Class A Common Stock generally have identical rights to holders of
Class B Common Stock, except that holders of Class A Common Stock are entitled
to one vote per share while holders of Class B Common Stock are entitled to
three votes per share on all matters submitted to a vote of shareholders. Each
share of Class B Common Stock is convertible while held by The
<PAGE>
Abercrombie & Fitch Co.
Limited or any of its subsidiaries into one share of Class A Common Stock.
REVENUE RECOGNITION Sales are recorded upon purchase by customers.
INCOME TAXES Income taxes are calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires the use of the liability 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.
The Company is included in The Limited's consolidated federal and certain
state income tax groups for income tax reporting purposes and is responsible for
its proportionate share of income taxes calculated upon its federal taxable
income at a current estimate of the annual effective tax rate.
ADVERTISING Advertising costs consist of in-store photographs and advertising in
selected national publications and are expensed when the photographs or
publications first appear. Advertising costs amounted to $4.1 million in 1996,
$3.1 million in 1995 and $1.2 million in 1994.
STORE PRE-OPENING EXPENSES Pre-opening expenses related to new store openings
are charged to operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded values of current assets and
current liabilities, including accounts receivable and accounts payable,
approximate fair value due to the short maturity and because the average
interest rate approximates current market origination rates.
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 maturity. The estimated
fair value of the Company's long-term debt at February 1, 1997 was $50.6
million.
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. The common stock issued to The Limited (43 million Class B shares) in
connection with the incorporation of the Company is assumed to have been
outstanding for all periods presented. There were 45.8 million weighted average
shares outstanding for 1996.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Since
actual results may differ from those estimates, the Company revises its
estimates and assumptions as new information becomes available.
3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consisted of
(thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 88,248 $71,590
- --------------------------------------------------------------------
Beneficial leaseholds 7,925 7,925
- --------------------------------------------------------------------
Building improvements and leaseholds 5,565 1,267
- --------------------------------------------------------------------
Construction in progress 181 85
- --------------------------------------------------------------------
Total $101,919 $80,867
- --------------------------------------------------------------------
Less: accumulated depreciation and amortization 42,927 33,664
- --------------------------------------------------------------------
Property and equipment, net $ 58,992 $47,203
====================================================================
</TABLE>
4. 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.
<PAGE>
Abercrombie & Fitch Co.
A summary of rent expense for 1996, 1995 and 1994 follows (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Store rent:
Fixed minimum $24,599 $17,465 $11,308
Contingent 1,620 1,322 1,475
- ---------------------------------------------------------------
Total store rent $26,219 $18,787 $12,783
Buildings, equipment and other 1,229 1,058 613
- ---------------------------------------------------------------
Total rent expense $27,448 $19,845 $13,396
===============================================================
</TABLE>
Rent expense includes charges from The Limited and other divisions of The
Limited for space under formal agreements, which approximate market rates. At
February 1, 1997, the Company was committed to noncancelable leases with
remaining terms of one to fifteen years. These commitments include store leases
with initial terms ranging from ten to fifteen years and offices and a
distribution center leased from an affiliate of The Limited with an initial term
of 15 years. A majority of the Company's store leases are guaranteed by The
Limited. A summary of minimum rent commitments under noncancelable leases
follows (thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 29,655
1998 29,684
1999 30,029
2000 30,149
2001 30,331
Thereafter 156,428
</TABLE>
5. ACCRUED EXPENSES Accrued expenses consisted of the
following (thousands):
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Accrued rent $ 4,639 $ 2,872
Accrued compensation 4,260 3,025
Accrued interest 2,162 -
Accrued taxes, other than income 1,689 1,882
Other 9,638 6,721
- ---------------------------------------------------------------------------
Total $ 22,388 $14,500
===========================================================================
</TABLE>
6. INCOME TAXES The provision for income taxes consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $13,800 $6,900 $4,300
State 1,300 1,700 1,100
- ------------------------------------------------------------------------------
$15,100 $8,600 $5,400
- ------------------------------------------------------------------------------
Deferred:
Federal (400) 700 100
State 1,700 200 -
- ------------------------------------------------------------------------------
$ 1,300 $ 900 $ 100
- ------------------------------------------------------------------------------
Total provision $16,400 $9,500 $5,500
==============================================================================
</TABLE>
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal
income tax effect 4.7 5.2 5.2
Other items, net 0.2 (0.3) (0.2)
- ------------------------------------------------------------------------------
39.9% 39.9% 40.0%
==============================================================================
</TABLE>
Income taxes payable included current deferred tax assets of $1.2 million at
February 1, 1997 and February 3, 1996.
Current income tax obligations are treated as having been settled through the
intercompany accounts as if the Company were filing its income tax returns on a
separate company basis. Such amounts were $10.6 million and $7.5 million in 1996
and 1995.
The effect of temporary differences which give rise to deferred income tax
assets was as follows (thousands):
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------
<S> <C> <C>
Fixed assets $1,480 $1,159
Accrued expenses 1,343 1,504
Other, net 270 169
- ---------------------------------------------
Total deferred income taxes $3,093 $2,832
=============================================
</TABLE>
<PAGE>
Abercrombie & Fitch Co.
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount of the
net deferred tax assets will be realized in the future.
The Internal Revenue Service has assessed The Limited for additional taxes
and interest for years 1989-1992. The portion of the assessment relating to the
Company was based on treatment of construction allowances. The Limited has made
deposits to mitigate further interest being assessed, and management believes
these deposits are sufficient to mitigate any further exposure. The Limited has
allocated a portion of the deposit to the Company which is included in deferred
tax assets.
7. LONG-TERM DEBT Long-term debt consists of a 7.80% unsecured note in the
amount of $50 million that matures May 15, 2002, and represents the Company's
proportionate share of certain long-term debt of The Limited. The interest rate
and maturity of the note parallels that of corresponding debt of The Limited.
The note is to be automatically prepaid concurrently with any prepayment of the
corresponding debt of The Limited. The note is not subject to early redemption
by The Limited.
8. RELATED PARTY TRANSACTIONS Transactions between the Company, The Limited, and
its subsidiaries and affiliates commonly occur in the normal course of business
and principally consist of the following:
Merchandise purchases
Real estate leasing
Capital expenditures
Inbound and outbound transportation
Corporate services
Information with regard to these transactions is as follows: Significant
purchases are made from Mast, a wholly-owned subsidiary of The Limited.
Purchases are also made from Gryphon, an indirect subsidiary of The Limited.
Mast is a contract manufacturer and apparel importer while Gryphon is a
developer of fragrance and personal care products and also a contract
manufacturer. Prices are negotiated on a competitive basis by merchants of the
Company with Mast, Gryphon and the manufacturers.
The Company's real estate operations, including all aspects of lease
negotiations and ongoing dealings with landlords and developers, are handled
centrally by the Real Estate Division of The Limited ("Real Estate Division").
Real Estate Division expenses are allocated to the Company based on a
combination of new and remodeled store construction projects and open selling
square feet.
The Company's store design and construction operations are coordinated
centrally by the Store Planning Division of The Limited ("Store Planning
Division"). The Store Planning Division facilitates the design and construction
of the stores and upon completion transfers the stores to the Company at actual
cost. Store Planning Division expenses are charged to the Company based on a
combination of new and remodeled store construction projects and open selling
square feet.
The Company's inbound and outbound transportation expenses are managed
centrally by Limited Distribution Services ("LDS"), a wholly-owned subsidiary of
The Limited. Inbound freight is charged to the Company based on actual receipts,
while outbound freight is charged on a percentage of cartons shipped basis.
The Limited provides certain services to the Company including, among other
things, aircraft, tax, treasury, legal, corporate secretary, accounting,
auditing, corporate development, risk management, associate benefit plan
administration, human resource and compensation, government affairs and public
relation services. Identifiable costs are charged directly to the Company. All
other services-related costs not specifically attributable to the Company
business have been allocated to the Company based upon a percentage of sales.
The Company participates in The Limited's centralized cash management system.
Under this system, cash received from the Company's operations is transferred to
The Limited's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts on a daily basis. For all periods presented,
intercompany transactions have been reported as financing activities in the
accompanying consolidated statements of cash flows. Effective July 11, 1996, the
intercompany accounts became an interest bearing liability or an interest
earning asset. Interest on the intercompany account is calculated based on the
Federal Reserve AA Composite 30-day rate.
The Company is charged rent expense, common area maintenance charges and
utilities for stores shared with other consolidated subsidiaries of The Limited.
The charges are based on
28
<PAGE>
Abercrombie & Fitch Co.
square footage and represent the proportionate share of the underlying leases
with third parties.
The Company is also charged rent expense and utilities for the distribution
and home office space occupied (which approximates fair market value).
The Company and The Limited have entered into intercompany agreements which
establish the provision of services in accordance with the terms described
above. The prices charged to the Company for services provided under these
agreements may be higher or lower than prices that may be charged by third
parties. It is not practicable, therefore, to estimate what these costs would be
if The Limited were not providing these services and the Company was required to
purchase these services from outsiders or develop internal expertise. Management
believes the charges and allocations described above are fair and reasonable.
The following table summarizes the related party transactions between the
Company and The Limited and its subsidiaries, for the years indicated
(thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mast and Gryphon purchases $61,776 $35,167 $25,325
Capital expenditures 20,839 20,280 10,519
Inbound and outbound transportation 3,326 2,869 2,153
Corporate charges 3,989 4,019 2,865
Store leases and other occupancy 1,509 1,397 380
Distribution center, MIS and home
office expenses 2,696 2,564 1,676
Centrally managed benefits 1,722 2,417 1,289
Interest charges 2,190 - -
- -------------------------------------------------------------------------------
$98,047 $68,713 $44,207
===============================================================================
</TABLE>
The Company has no arrangements with The Limited which result in the
Company's guarantee, pledge of assets or stock to provide security for The
Limited's debt obligations.
9. STOCK OPTIONS AND RESTRICTED STOCK The Company has established a stock plan
for officers and key associates. The stock plan provides for awards with respect
to a maximum of 3,500,000 shares of Class A Common Stock during the term of the
stock plan. No associate may be granted in any calendar year awards covering
more than 400,000 shares of Class A Common Stock.
In 1996, certain executive officers and key associates received options, with
a maximum term of ten years, to purchase an aggregate of up to 240,000 shares of
the Company's Class A Common Stock under the stock plan. Options generally vest
in annual increments of 25% commencing on various dates beginning with the first
anniversary of the grant date. The exercise price of these options is equal to
the IPO price of $16 per share.
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation expense in accordance with APB Opinion No. 25.
Accordingly, no compensation expense for stock options has been recognized. If
compensation expense had been determined based on the estimated fair value of
options granted in 1996, consistent with the methodology in SFAS 123, the pro-
forma effects on the Company's net income and net income per share for the four
months the options were outstanding would have been immaterial.
Certain officers and key associates were granted restricted stock under The
Limited's stock plans, of which approximately 61,000 shares remain outstanding.
An additional 36,000 restricted shares of the Company's Class A Common Stock
were granted based on the Company's performance in the Fall season of 1996.
These restricted shares generally vest on a graduated scale over four years.
Additionally, in consideration for the cancellation of certain previously
granted restricted shares of The Limited's common stock, certain executive
officers and key associates were granted an aggregate of 49,500 restricted
shares of the Company's Class A Common Stock under the stock plan. These
restricted shares vest on the fifth anniversary of their original issuance.
Compensation expense related to restricted awards has been reflected in the
financial statements and amounted to $547 thousand in 1996, $437 thousand in
1995 and $224 thousand in 1994.
<PAGE>
Abercrombie & Fitch Co.
10. RETIREMENT BENEFITS The Company participates in a defined contribution
retirement plan sponsored by The Limited. 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. The
Company's contributions to this plan are based on a percentage of associates'
annual compensation. The cost of this plan was $706 thousand in 1996, $549
thousand in 1995 and $343 thousand in 1994.
11. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial results
for 1996 and 1995 follow (thousands except per share amounts):
<TABLE>
<CAPTION>
1996 Quarter First Second Third Fourth
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $51,020 $57,431 $87,688 $139,233
- --------------------------------------------------------------------------------
Gross income 14,894 18,052 30,957 59,863
- --------------------------------------------------------------------------------
Net income (loss) (199) 374 3,982 20,517
- --------------------------------------------------------------------------------
Net income (loss) per share $ .00 $ .01 $ .09 $ .40
- --------------------------------------------------------------------------------
1995 Quarter
- --------------------------------------------------------------------------------
Net sales $33,377 $38,668 $57,222 $106,392
- --------------------------------------------------------------------------------
Gross income 8,428 12,023 19,503 39,840
- --------------------------------------------------------------------------------
Net income (loss) (1,169) 250 2,583 12,634
- --------------------------------------------------------------------------------
Net income (loss) per share $ (.03) $ .01 $ .06 $ .29
- --------------------------------------------------------------------------------
</TABLE>
MARKET PRICE INFORMATION The following is a summary of market price since the
Company was originally listed on the New York Stock Exchange ("ANF") on
September 26, 1996:
<TABLE>
<CAPTION>
Market Price
------------------------------------------------
High Low
------------------------------------------------
Fiscal Year End 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
4th Quarter $23 3/4 $12 5/8
3rd Quarter $26 1/4 $21 3/4
</TABLE>
On February 1, 1997, there were approximately 1,000 shareholders of record.
<PAGE>
Abercrombie & Fitch Co.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF ABERCROMBIE & FITCH CO.
We have audited the accompanying consolidated balance sheets of Abercrombie and
Fitch Co. and subsidiaries as of February 1, 1997 and February 3, 1996 and the
related consolidated statements of income, shareholders' equity (deficit) and
cash flows for each of the three fiscal years in the period ended February 1,
1997 (appearing on pages 21 through 30). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Abercrombie &
Fitch Co. and subsidiaries as of February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 24, 1997
COMPANY INFORMATION
COMPANY INFORMATION
Abercrombie & Fitch
Four Limited Parkway East
Reynoldsburg, Ohio 43068
(614) 577-6500
www.abercrombie.com
ANNUAL MEETING
The First Annual Meeting of Shareholders is scheduled for
9:30 A.M., Tuesday, May 20, 1997 at Abercrombie & Fitch,
Four Limited Parkway East, Reynoldsburg, Ohio 43068.
STOCK EXCHANGE LISTING
New York Stock Exchange (Trading Symbol "ANF"),
commonly listed in newspapers as AberFit.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., Columbus, Ohio
10-K REPORT
A copy of form 10-K is available without charge upon written
request to Tom Katzenmeyer, Director of Investor Relations,
Abercrombie & Fitch, Four Limited Parkway East,
Reynoldsburg, Ohio 43068.
STOCK TRANSFER AGENT, REGISTRAR AND
DIVIDEND AGENT
First Chicago Trust Company of New York
P.O. Box 2500, Jersey City, New Jersey 07303-2500
INFORMATION REQUESTS
Please call (614) 577-6500 or write Tom Katzenmeyer at the
Company Offices address listed above.
ABERCROMBIE & FITCH
Initial Public Offering: September 26, 1996
Number of Associates: 4,900
Approximate Shareholder Base: 1,000
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Subsidiaries (a) of Incorporation
------------ ----------------
Abercrombie & Fitch Service Corporation (b) Delaware
Abercrombie & Fitch Stores, Inc. (b) Delaware
(a) The names of certain subsidiaries are omitted since such unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary as of February 1, 1997.
(b) Wholly-owned subsidiary of Abercrombie & Fitch Holding Corporation, a
Delaware corporation and a wholly-owned subsidiary of the registrant.
<PAGE>
EXHIBIT 23
----------
[LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Abercrombie & Fitch Co. on Form S-8, Registration Nos. 333-15941, 333-15943 and
333-15945 of our report dated February 24, 1997, on our audits of the
consolidated financial statements of Abercrombie & Fitch Co. and Subsidiaries as
of February 1, 1997, and February 3, 1996, and for the fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 25, 1997
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S.
Jeffries, and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ LESLIE H. WEXNER
--------------------
Leslie H. Wexner
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S.
Jeffries, and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ KENNETH B. GILMAN
---------------------
Kenneth B. Gilman
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S.
Jeffries and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ MICHAEL S. JEFFRIES
-----------------------
Michael S. Jeffries
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S.
Jeffries, and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ ROGER D. BLACKWELL
----------------------
Roger D. Blackwell
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S.
Jeffries and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ E. GORDON GEE
-----------------
E. Gordon Gee
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
ABERCROMBIE & FITCH CO.
The undersigned officer and/or director of Abercrombie & Fitch Co., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman, and Michael S.
Jeffries and each of them, with full powers of substitution and resubstitution,
as attorney to sign for the undersigned in any and all capacities such Annual
Report on Form 10-K and any and all amendments thereto, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report on Form 10-K with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, as fully to all intents and purposes as
the undersigned could do if personally present. The undersigned hereby ratifies
and confirms all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ DONALD B. SHACKELFORD
-------------------------
Donald B. Shackelford
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ABERCROMBIE & FITCH CO. AND SUBSIDIARIES
FOR THE YEAR ENDED FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 1,945
<SECURITIES> 0
<RECEIVABLES> 2,102
<ALLOWANCES> 0
<INVENTORY> 34,943
<CURRENT-ASSETS> 44,878
<PP&E> 101,919
<DEPRECIATION> 42,927
<TOTAL-ASSETS> 105,761
<CURRENT-LIABILITIES> 43,590
<BONDS> 50,000
0
0
<COMMON> 511
<OTHER-SE> 10,727
<TOTAL-LIABILITY-AND-EQUITY> 105,761
<SALES> 335,372
<TOTAL-REVENUES> 335,372
<CGS> 211,606
<TOTAL-COSTS> 211,606
<OTHER-EXPENSES> 77,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,919
<INCOME-PRETAX> 41,074
<INCOME-TAX> 16,400
<INCOME-CONTINUING> 24,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,674
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
<PAGE>
EXHIBIT 99
----------
[LETTERHEAD OF ARY, EARMAN AND ROEPCKE APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Plan Administrator of The Limited,
Inc. Savings and Retirement Plan:
We have audited the accompanying statements of net assets available for
benefits of The Limited, Inc. Savings and Retirement Plan (the "Plan") as of
December 31, 1996 and 1995, and the related statements of changes in net assets
available for benefits for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1996 and 1995, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 20, 1997.
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1996
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
TOTAL Stock Fund Income Fund Fund
ASSETS -------------- ------------- ----------- --------------
- ------
<S> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ 60,824,705 $60,824,705 $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) 976,468 - - -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) 82,389,513 - 82,389,513 -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) 53,136,984 - - 53,136,984
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - - -
Vanguard Wellington Fund
(Cost $9,986,245) 10,453,023 - - -
Temporary Investments (Cost
Approximates Fair Value) 30,946 873 18,039 5,684
------------ ----------- ----------- -----------
Total Investments 254,080,299 60,825,578 82,407,552 53,142,668
Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265
Receivable from Employers for Withheld
Participants' Contributions 1,183,352 118,433 391,432 298,971
Due from Brokers 311,530 311,530 - -
Interfund Transfers - 4,686 (12,473) 12,645
Accrued Interest and Dividends 4,553 1,089 1,772 847
------------ ----------- ----------- -----------
Total Assets 276,283,800 63,409,086 89,978,656 58,591,396
------------ ----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers 122,686 - - -
Administrative Fees Payable 278,885 114,176 29,286 15,828
------------ ----------- ----------- -----------
Total Liabilities 401,571 114,176 29,286 15,828
------------ ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
ASSETS ------------ ----------- ---------------
- ------
<S> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ - $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) - - 976,468
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) - - -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) - - -
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - -
Vanguard Wellington Fund
(Cost $9,986,245) - 10,453,023 -
Temporary Investments (Cost
Approximates Fair Value) 3,824 329 2,197
----------- ----------- -----------
Total Investments 46,272,484 10,453,352 978,665
Contribution Receivable from Employers 4,396,598 1,667,242 165,818
Receivable from Employers for Withheld
Participants' Contributions 255,519 108,647 10,350
Due from Brokers - - -
Interfund Transfers (4,213) (2,507) 1,862
Accrued Interest and Dividends 682 131 32
----------- ----------- -----------
Total Assets 50,921,070 12,226,865 1,156,727
----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers - - 122,686
Administrative Fees Payable 109,033 10,562 -
----------- ----------- -----------
Total Liabilities 109,033 10,562 122,686
----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-1
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1995
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
TOTAL Stock Fund Income Fund Fund Fund Fund
ASSETS ------------ ------------- ------------- ------------- ----------- ------------
- ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $36,237,327) $ 69,418,465 $ 69,418,465 $ - $ - $ - $ -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $70,972,869) 70,972,869 - 70,972,869 - - -
Vanguard Index - 500
Portfolio (Cost $28,215,245) 36,781,237 - - 36,781,237 - -
Vanguard U.S. Growth
Portfolio (Cost $22,450,170) 28,568,077 - - - 28,568,077 -
Vanguard Wellington Fund
(Cost $2,688,763) 2,810,545 - - - - 2,810,545
Determined By Contract Value:
Guaranteed Investment Contracts:
Metropolitan Life Insurance 7,064,772 - 7,064,772 - - -
Temporary Investments (Cost
Approximates Fair Value) 29,917 209 29,708 - - -
------------ ------------ ------------ ------------ ------------ ------------
Total Investments 215,645,882 69,418,674 78,067,349 36,781,237 28,568,077 2,810,545
Contribution Receivable from Employers 21,814,605 3,121,459 10,109,934 4,317,439 3,491,987 773,786
Receivable from Employers for Withheld
Participants' Contributions 1,417,497 227,262 522,163 331,820 263,791 72,461
Due from Brokers 46,096 46,096 - - - -
Interfund Transfers - (122,205) (6,207) (50,186) 33,824 144,774
Accrued Interest and Dividends 3,174 541 1,760 421 418 34
Other Assets 976 - - 424 483 69
------------ ------------ ------------ ------------ ------------ ------------
Total Assets 238,928,230 72,691,827 88,694,999 41,381,155 32,358,580 3,801,669
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES
- -----------
Other Liabilities 26,894 - 26,894 - - -
Administrative Fees Payable 392,065 129,381 141,144 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 418,959 129,381 168,038 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
Total Stock Fund Income Fund Fund
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 5,826,139 $(3,507,840) $ - $ 5,621,065
Realized Gain on Sale of Securities 14,208,839 9,385,783 - 2,732,990
Interest 4,977,925 17,980 4,888,501 6,109
Dividends 1,400,891 1,395,032 - -
Mutual Funds' Earnings 5,229,593 - - 1,139,142
------------ ----------- ----------- -----------
Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306
------------ ----------- ----------- -----------
Contributions:
Employers 30,145,525 3,087,453 10,664,673 7,443,415
Participants 16,172,183 1,802,993 5,382,468 4,063,595
------------ ----------- ----------- -----------
Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010
------------ ----------- ----------- -----------
Interfund Transfers - (13,040,074) (3,485,681) 5,016,481
------------ ----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351)
------------ ----------- ----------- -----------
Administrative Expense (935,202) (258,452) (320,918) (125,949)
------------ ----------- ----------- -----------
Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433)
------------ ----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064
Beginning Net Assets Available for
Benefits 238,509,271 72,562,446 88,526,961 41,314,504
------------ ----------- ----------- -----------
Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
----------- ------------ ------------
<S> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 3,428,551 $ 344,996 $ (60,633)
Realized Gain on Sale of Securities 2,001,323 90,165 (1,422)
Interest 4,933 60,295 107
Dividends - - 5,859
Mutual Funds' Earnings 3,420,290 670,161 -
----------- ----------- -----------
Total Investment Income (Loss) 8,855,097 1,165,617 (56,089)
----------- ----------- -----------
Contributions:
Employers 6,287,166 2,489,055 173,763
Participants 3,449,162 1,412,169 61,796
----------- ----------- -----------
Total Contributions 9,736,328 3,901,224 235,559
----------- ----------- -----------
Interfund Transfers 6,476,961 4,164,295 868,018
----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (2,040,825) (204,747) -
----------- ----------- -----------
Administrative Expense (207,292) (22,591) -
----------- ----------- -----------
Benefits to Participants (4,315,844) (585,243) (13,447)
----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 18,504,425 8,418,555 1,034,041
Beginning Net Assets Available for
Benefits 32,307,612 3,797,748 -
----------- ----------- -----------
Ending Net Assets Available for Benefits $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
Total Stock Fund Income Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 7,426,953 $ (5,714,880) $ - $ 7,535,683 $ 5,484,368 $ 121,782
Realized Gain on Sale of Securities 3,567,665 1,581,946 - 1,096,390 877,023 12,306
Interest 4,771,693 10,190 4,752,866 4,761 3,726 150
Dividends 1,632,728 1,632,728 - - - -
Mutual Funds' Earnings 2,054,249 - - 832,487 1,151,646 70,116
------------ ------------ ------------ ------------ ------------ ------------
Total Investment Income (Loss) 19,453,288 (2,490,016) 4,752,866 9,469,321 7,516,763 204,354
------------ ------------ ------------ ------------ ------------ ------------
Contributions:
Employers 29,943,002 4,142,615 13,472,869 6,246,002 4,928,087 1,153,429
Participants 13,909,162 2,380,938 4,899,509 3,466,763 2,694,626 467,326
------------ ------------ ------------ ------------ ------------ ------------
Total Contributions 43,852,164 6,523,553 18,372,378 9,712,765 7,622,713 1,620,755
------------ ------------ ------------ ------------ ------------ ------------
Interfund Transfers - (775,658) (1,604,380) (28,051) 378,900 2,029,189
------------ ------------ ------------ ------------ ------------ ------------
Administrative Expense (1,017,651) (384,338) (357,753) (153,254) (117,880) (4,426)
------------ ------------ ------------ ------------ ------------ ------------
Benefits to Participants (24,679,806) (7,721,019) (9,758,147) (3,959,696) (3,188,820) (52,124)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 37,607,995 (4,847,478) 11,404,964 15,041,085 12,211,676 3,797,748
Beginning Net Assets Available for
Benefits 200,901,276 77,409,924 77,121,997 26,273,419 20,095,936 -
------------ ------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth
Total Stock Fund Income Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 1,716,786 $ 1,918,510 $ - $ (568,121) $ 366,397
Realized Gain on Sale of Securities 3,033,768 2,781,458 - 206,695 45,615
Interest 4,123,855 9,181 4,110,632 2,223 1,819
Dividends 1,575,897 1,575,897 - - -
Mutual Funds' Earnings 864,642 - - 661,477 203,165
------------ ------------ ------------ ------------ ------------
Total Investment Income 11,314,948 6,285,046 4,110,632 302,274 616,996
------------ ------------ ------------ ------------ ------------
Contributions:
Employers 23,236,673 4,220,346 11,221,074 4,509,396 3,285,857
Participants 10,745,605 2,466,228 3,919,556 2,532,832 1,826,989
------------ ------------ ------------ ------------ ------------
Total Contributions 33,982,278 6,686,574 15,140,630 7,042,228 5,112,846
------------ ------------ ------------ ------------ ------------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (37,482) (14) (37,468) - -
------------ ------------ ------------ ------------ ------------
Interfund Transfers - (1,149,559) 231,825 879,225 38,509
------------ ------------ ------------ ------------ ------------
Administrative Expense (755,565) (335,032) (270,359) (84,273) (65,901)
------------ ------------ ------------ ------------ ------------
Benefits to Participants (29,091,678) (13,430,138) (11,480,188) (2,305,551) (1,875,801)
------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 15,412,501 (1,943,123) 7,695,072 5,833,903 3,826,649
Beginning Net Assets Available for
Benefits 185,488,775 79,353,047 69,426,925 20,439,516 16,269,287
------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $200,901,276 $ 77,409,924 $ 77,121,997 $ 26,273,419 $ 20,095,936
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) DESCRIPTION OF THE PLAN
-----------------------
General
-------
The Limited, Inc. Savings and Retirement Plan (the "Plan") is a defined
contribution plan covering certain employees of The Limited, Inc. and
its affiliates (the "Employers") who are at least 21 years of age and
have completed 1,000 or more hours of service during their first
consecutive twelve months of employor any calendar year beginning in or
after their first consecutive twelve months of employment. Certain
employees of the Employers, who are covered by a collective bargaining
agreement, are not eligible to participate in the Plan. At December 31,
1996, there were 25,392 participants in the Plan.
On August 31, 1993, The Limited, Inc. sold 60% of its interest in Brylane,
Inc. and transferred the assets and liabilities allocated to the
employees of Brylane, Inc. and its affiliates to the Brylane L.P.
Savings and Retirement Plan.
On January 31, 1996, The Limited, Inc. sold 60% of its interest in World
Financial Network National Bank and transferred the assets and
liabilities allocated to the employees of World Financial Network
National Bank and its affiliates to the World Financial Network National
Bank Savings and Retirement Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA) as amended.
Amendments
----------
During 1994, the Plan was amended and restated effective as of January 1,
1992 to, among other things, (1) make certain changes in the design of
the Plan to comply with the Internal Revenue code of 1986, as amended,
and the Employee Retirement Income Security Act of 1974, as amended and
(2) incorporate amendments previously made.
Contributions
-------------
Employer Contributions:
The Employers may provide a non-service related retirement contribution of
4% of annual compensation up to the Social Security wage base and 7% of
annual compensation after that and a service related retirement
contribution of 1% of annual compensation for participants who have
completed five or more years of vesting service as of the last day of
the Plan year. Participants who complete 500 hours of service during the
Plan year and are participants on the last day of the Plan year are
eligible. The annual compensation of each participant taken into account
under the Plan is limited to the maximum amount permitted under Section
401(a)(17) of the Internal Revenue Code. The annual compensation limit
for the Plan year ended December 31, 1996, was $150,000. The limit
increases to $160,000 for 1997.
The Employers may provide a matching contribution of 100% of the
participant's voluntary contributions up to 3% of the participant's
total annual compensation.
F-6
<PAGE>
Participant Voluntary Contributions:
A participant may elect to make a voluntary tax-deferred contribution of 1%
to 6% of his or her annual compensation up to the maximum permitted
under Section 402(g) of the Internal Revenue Code adjusted annually
($9,500 at December 31, 1996). This voluntary tax-deferred contribution
may be limited by Section 401(k) of the Internal Revenue Code.
A participant earning annually more than $66,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, may be limited to
voluntary contributions to the Plan of less than 6% due to requirements
of Section 401(k) of the Internal Revenue Code based on the current
levels of participant voluntary contributions.
Vesting
-------
A participant is fully and immediately vested for voluntary and rollover
contributions. A summary of vesting percentages in the Employers'
contributions follows:
<TABLE>
<CAPTION>
Years of Vested Service Percentage
-------------------------- -----------
<S> <C>
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
</TABLE>
Payment Of Benefits
-------------------
The full value of participants' accounts becomes payable upon retirement,
disability, or death. Upon termination of employment for any other
reason participants' accounts, to the extent vested, become payable.
Those participants with vested account balances greater than $3,500 have
the option of leaving their accounts invested in the Plan until age 65.
All benefits will be paid as a lump-sum distribution. Those participants
holding between five and one hundred shares of Employer Securities will
have the option to receive such amount in whole shares of Employer
Securities and cash for any fractional shares. Those participants
holding more than one hundred shares of Employer Securities will receive
whole shares of Employer securities and cash for any fractional shares.
Participants have the option of having their benefit paid directly to an
eligible retirement plan specified by the participant.
A participant who is fully vested in his or her account and who has
participated in the Plan for at least five years may obtain an in-
service withdrawal from their account based on the percentage amounts
designated by the Plan. A participant may also request a hardship
distribution due to an immediate and heavy financial need based on the
terms of the Plan.
Amounts Allocated Participants Withdrawn from the Plan
------------------------------------------------------
The vested portion of net assets available for benefits allocated to
participants withdrawn from the plan as of December 31, 1996 and 1995,
is set forth below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Limited Stock Fund $ 914,636 $ 54,393
Fixed Income Fund 1,171,143 301,337
Index-500 Fund 371,539 128,645
U.S. Growth Fund 338,708 138,247
Wellington Fund 77,814 11,908
Intimate Brands Stock Fund 165 -
---------- --------
$2,874,005 $634,530
========== ========
</TABLE>
F-7
<PAGE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1996, 1995 and 1994, are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Limited Stock Fund $ 309,429 $ 268,411 $ 536,323
Fixed Income Fund 3,178,025 1,691,327 2,804,818
Index-500 Fund 743,916 352,056 268,212
U.S. Growth Fund 692,299 295,948 241,890
Wellington Fund 36,468 - -
Intimate Brands Stock Fund - - -
---------- ---------- ----------
$4,960,137 $2,607,742 $3,851,243
========== ========== ==========
</TABLE>
Expenses
--------
Brokerage fees, transfer taxes, and other expenses incurred in connection
with the investment of the Plan's assets will be added to the cost of
such investments or deducted from the proceeds thereof, as the case may
be. Administrative expenses of the Plan will be paid from the Plan from
earnings not allocated to partici pants' accounts. The remainder will be
paid by the Employers, unless the Employers elect to pay more or all of
such costs.
Tax Determination
-----------------
The Plan obtained its latest determination letter on January 30, 1995, in
which the Internal Revenue Service stated that the Plan, as amended and
restated January 1, 1992 was in compliance with the applicable
requirements of the Internal Revenue Code. Accordingly, the following
Federal income tax rules will apply to the Plan:
Voluntary tax-deferred contributions made under the Plan by a
participant and contributions made by the Employers to participant
accounts are generally not taxable until such amounts are
distributed.
The participants are not subject to Federal income tax on interest,
dividends, or gains in their particular accounts until distributed.
The foregoing is only a brief summary of certain tax implications and
applies only to Federal tax regulations currently in effect.
(2) SUMMARY OF ACCOUNTING POLICIES
------------------------------
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. If available,
quoted market prices are used to value investments. The amounts for
investments that have no quoted market price are shown at their
estimated fair value, which is determined based on yields equivalent for
such securities or for securities of comparable maturity, quality, and
type as obtained from market makers. Guaranteed investment contracts
issued by insurance companies are valued at contract value. Contract
value represents contributions made under the contract, and interest at
the contract rate, less Plan withdrawals and administration expenses
charged by the insurance companies.
Realized gains or losses on the distribution or sale of securities
represent the difference between the average cost of such securities
held and the fair value on the date of distribution or sale.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results may differ from those
estimates.
F-8
<PAGE>
INVESTMENTS
-----------
Net unrealized appreciation, equal to the difference between cost and fair
value of all investments held at the applicable valuation dates, is
recognized in determining the value of each fund. The unrealized
appreciation (depreciation) as of December 31, 1996, 1995 and 1994 is
set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Limited Stock Fund $26,715,998 $33,181,138 $42,740,905
Fixed Income Fund - - -
Index-500 Fund 14,187,057 8,565,992 1,030,309
U.S. Growth Fund 9,546,458 6,117,907 633,539
Wellington Fund 466,778 121,782 -
Intimate Brands Stock Fund (60,633) - -
----------- ----------- -----------
$50,855,658 $47,986,819 $44,404,753
=========== =========== ===========
</TABLE>
The following is a summary of the net gain (loss) on securities sold during
the periods ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Realized
Proceeds Cost Gain (Loss)
----------- ----------- ------------
<S> <C> <C> <C>
Period Ended December 31, 1996
Limited Stock Fund $18,722,433 $ 9,336,650 $ 9,385,783
Fixed Income Fund 31,802,226 31,802,226 -
Index-500 Fund 11,800,336 9,067,346 2,732,990
U.S. Growth Fund 8,582,452 6,581,129 2,001,323
Wellington Fund 1,842,744 1,752,579 90,165
Intimate Brands Stock Fund 11,229 12,651 (1,422)
----------- ----------- -----------
$72,761,420 $58,552,581 $14,208,839
=========== =========== ===========
Period Ended December 31, 1995
Limited Stock Fund $ 2,804,851 $ 1,222,905 $ 1,581,946
Fixed Income Fund 21,155,451 21,155,451 -
Index-500 Fund 6,616,037 5,519,647 1,096,390
U.S. Growth Fund 4,986,144 4,109,121 877,023
Wellington Fund 266,558 254,252 12,306
----------- ----------- -----------
$35,829,041 $32,261,376 $ 3,567,665
=========== =========== ===========
Period Ended December 31, 1994
Limited Stock Fund $ 4,926,530 $ 2,145,072 $ 2,781,458
Fixed Income Fund 14,779,530 14,779,530 -
Index-500 Fund 3,511,736 3,305,041 206,695
U.S. Growth Fund 3,139,753 3,094,138 45,615
----------- ----------- -----------
$26,357,549 $23,323,781 $ 3,033,768
=========== =========== ===========
</TABLE>
Contributions under the Plan are invested in one of six investment funds:
(1) The Limited Stock Fund, consisting of common stock of The Limited,
Inc., a Delaware corporation (the "Issuer") and parent company of the
Employers, (2) the Fixed Income Fund, which is invested in the Vanguard
Investment Contract Trust, and prior to January 1996, was also invested
in other guaranteed investment con tracts issued by insurance companies,
(3) the Index-500 Fund, which is invested in the Vanguard Index - 500
Portfolio, (4) the U.S. Growth Fund, which is invested in the Vanguard
U.S. Growth Portfolio, (5) the Wellington Fund, which is invested in the
Vanguard Wellington Fund. Prior to July 1, 1995 the Wellington Fund was
not an investment option, and (6) the Intimate Brands Stock Fund,
consisting of common stock of Intimate Brands, Inc., a Delaware
corporation and an eighty-three percent owned subsidiary of The Limited,
Inc. Prior to October 1, 1996 the Intimate Brands Stock Fund was not an
investment option.
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant. There are
5,584 participants in the Limited Stock Fund, 17,644 in the Fixed Income
Fund, 8,941 in the Index-500 Fund, 8,160 in the U.S. Growth Fund, 5,350
in the Wellington Fund, and 641 in the Intimate Brands Stock Fund at
December 31, 1996.
F-9
<PAGE>
(4) PLAN ADMINISTRATION
-------------------
The Plan is administered by a Committee, the members of which are appointed
by the Board of Directors of the Employers.
(5) PLAN TERMINATION
----------------
Although the Employers have not expressed any intent to do so, the
Employers have the right under the Plan to discontinue their
contributions at any time. The Limited, Inc. has the right at any time,
by action of its Board of Directors, to terminate the Plan subject to
provisions of ERISA. Upon Plan termination or partial termination,
participants will become fully vested in their accounts.
F-10
