<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------------
Commission file number 1-8344
------
THE LIMITED, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-7000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at December 2, 1996
- --------------------- -------------------------------
$.50 Par Value 271,062,248 shares
<PAGE>
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks Ended
November 2, 1996 and October 28, 1995......................... 3
Consolidated Balance Sheets
November 2, 1996 and February 3, 1996......................... 4
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended
November 2, 1996 and October 28, 1995......................... 5
Notes to Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..................... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------- -------------------------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $1,994,986 $1,803,295 $ 5,678,530 $ 5,110,072
Cost of Goods Sold, Occupancy and
Buying Cost 1,439,612 1,350,337 4,161,706 3,830,752
---------------- ---------------- --------------- ----------------
GROSS INCOME 555,374 452,958 1,516,824 1,279,320
General, Administrative and Store
Operating Expenses (467,024) (361,597) (1,293,096) (1,011,186)
---------------- ---------------- --------------- ----------------
OPERATING INCOME 88,350 91,361 223,728 268,134
Interest Expense (20,621) (22,573) (55,902) (59,261)
Other Income, net 6,791 3,025 30,445 9,913
Minority Interest (4,574) - (17,023) -
Gain on Sale of Subsidiary Stock 118,567 613,500 118,567 613,500
---------------- ---------------- --------------- ----------------
INCOME BEFORE INCOME TAXES 188,513 685,313 299,815 832,286
Provision for Income Taxes 29,000 28,000 79,000 87,000
---------------- ---------------- --------------- ----------------
NET INCOME $ 159,513 $ 657,313 $ 220,815 $ 745,286
================ ================ =============== ================
NET INCOME PER SHARE $.59 $1.83 $.78 $2.08
================ ================ =============== ================
DIVIDENDS PER SHARE $.10 $.10 $.30 $.30
================ ================ =============== ================
WEIGHTED AVERAGE SHARES
OUTSTANDING 271,728 358,920 284,765 358,619
================ ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
November 2, 1996 February 3, 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $ 56,675 $1,645,731
Accounts Receivable 104,421 77,516
Inventories 1,361,095 958,953
Other 150,440 117,832
---------------- ----------------
TOTAL CURRENT ASSETS 1,672,631 2,800,032
PROPERTY AND EQUIPMENT, NET 1,816,772 1,741,456
RESTRICTED CASH 351,600 351,600
OTHER ASSETS 436,436 373,475
---------------- ----------------
TOTAL ASSETS $ 4,277,439 $5,266,563
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 440,541 $ 280,659
Accrued Expenses 426,233 388,818
Commercial Paper 346,900 -
Notes Payable 29,733 -
Income Taxes 31,128 47,098
---------------- ----------------
TOTAL CURRENT LIABILITIES 1,274,535 716,575
LONG-TERM DEBT 650,000 650,000
DEFERRED INCOME TAXES 167,017 250,857
OTHER LONG-TERM LIABILITIES 51,764 50,791
MINORITY INTEREST 46,884 45,699
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 142,498 137,134
Retained Earnings 3,339,908 3,200,350
---------------- ----------------
3,662,758 3,517,836
Less Treasury Stock, at Average Cost (1,927,119) (316,795)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 1,735,639 3,201,041
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,277,439 $5,266,563
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 220,815 $ 745,286
Gain on Sale of Subsidiary Stock (118,567) (613,500)
Impact of Other Operating Activities
on Cash Flows:
Depreciation and Amortization 216,086 214,893
Minority Interest, Net of Dividends Paid 1,185 -
Changes in Assets and Liabilities:
Accounts Receivable (26,905) (19,805)
Inventories (402,142) (399,829)
Accounts Payable and Accrued Expenses 197,297 68,027
Income Taxes (99,810) (241,446)
Other Assets and Liabilities (66,164) 23,339
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (78,205) (223,035)
----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (319,834) (285,576)
Business Acquired - (18,000)
----------- -----------
CASH USED FOR INVESTING ACTIVITIES (319,834) (303,576)
----------- -----------
FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper Borrowings and
Certificates of Deposit 346,900 29,000
Proceeds from Notes Payable 150,000 250,000
Repayment of Notes Payable (120,267) (250,000)
Net Proceeds from Sale of Subsidiary Stock 118,567 635,000
Dividends Paid (81,257) (107,273)
Purchase of Treasury Stock (1,615,000) (8,981)
Stock Options and Other 10,040 10,971
----------- -----------
NET CASH PROVIDED FROM (USED FOR) FINANCING
ACTIVITIES (1,191,017) 558,717
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (1,589,056) 32,106
Cash and Equivalents, Beginning of Year 1,645,731 242,780
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 56,675 $ 274,886
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Limited,
Inc. (the "Company") and all significant subsidiaries which are more than
50 percent owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
Investments in other entities (including joint ventures) which are more
than 20 percent owned are accounted for using the equity method.
The consolidated financial statements as of and for the periods ended
November 2, 1996 and October 28, 1995 are unaudited and are presented
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the consolidated financial statements should be
read in conjunction with the financial statement disclosures contained in
the Company's 1995 Annual Report. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(which are of a normal recurring nature) necessary to present fairly the
financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations
for a full fiscal year.
The consolidated financial statements as of November 2, 1996 and for the
thirteen and thirty-nine week periods ended November 2, 1996 and October
28, 1995 included herein have been reviewed by the independent public
accounting firm of Coopers & Lybrand L.L.P. and the report of such firm
follows the notes to consolidated financial statements.
2. ADOPTION OF ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company will make the
required disclosures in its 1996 Annual report.
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories
is based principally upon the lower of average cost or market determined on
a first-in, first-out basis utilizing the retail method. Inventory
valuation at the end of the first and third quarters reflects adjustments
for inventory markdowns and shrinkage estimates for the total selling
season.
6
<PAGE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
----------- -----------
<S> <C> <C>
Property and equipment, at cost $ 3,243,957 $ 3,018,757
Accumulated depreciation and amortization (1,427,185) (1,277,301)
----------- -----------
Property and equipment, net $ 1,816,772 $ 1,741,456
=========== ===========
</TABLE>
5. INCOME TAXES
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Income taxes paid during the thirty-nine weeks
ended November 2, 1996 and October 28, 1995 approximated $163.1 million
and $191.4 million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for years 1989 - 1992. The assessment was based primarily on
the treatment of transactions involving the Company's foreign operations
and construction allowances. Although a deposit has been made to mitigate
further interest being assessed, the Company strongly disagrees with the
assessment and is vigorously contesting the matter. Management believes
resolution of this matter will not have a material adverse effect on the
Company's results of operations or financial condition.
6. FINANCING ARRANGEMENTS
Unsecured long-term debt consisted of (thousands):
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
----------- -----------
<S> <C> <C>
7 1/2% Debentures due March 2023 $250,000 $250,000
7 4/5% Notes due May 2002 150,000 150,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
----------- -----------
$650,000 $650,000
=========== ===========
</TABLE>
The Company maintains a $1 billion unsecured revolving credit agreement
(the "Agreement"). Borrowings outstanding under the Agreement are due
December 14, 2000. However, the revolving term of the Agreement may be
extended an additional two years upon notification by the Company on the
second and fourth anniversaries of the effective date (December 15, 1995),
subject to the approval of the lending banks.
7
<PAGE>
The Agreement has several borrowing options, including interest rates which
are based on either the lender's "Base Rate", as defined, LIBOR, CD based
options or at a rate submitted under a bidding process. Facilities fees
payable under the Agreement are based on the Company's long-term credit
ratings, and currently approximate 1/8% of the committed amount per annum.
The Agreement contains covenants relating to the Company's working capital,
debt and net worth. No amounts were outstanding under the Agreement at
November 2, 1996.
The Agreement supports the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. Commercial paper outstanding at November 2, 1996 approximated
$347 million.
Two subsidiaries of Abercrombie & Fitch Co. ("A&F"), a consolidated
subsidiary of the Company, borrowed $150 million under a bank credit
agreement in July 1996. The borrowings are guaranteed by A&F. The LIBOR-
related interest rate at November 2, 1996 was 5.92%. The agreement places
certain limitations on A&F and contains financial covenants, including
fixed charge coverage and a maximum ratio of debt to earnings before income
taxes, depreciation and amortization. The amounts borrowed are repayable
in nine consecutive semi-annual installments, commencing on June 30, 1997.
In addition, any outstanding borrowings must be paid in full in the event
that the Company ceases to own directly at least 80% of the outstanding
stock of A&F. A&F repaid approximately $120.3 million of this borrowing
from proceeds received from its initial public offering and cash from
operations in September, 1996 leaving $29.7 million outstanding at
November 2, 1996.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
Interest paid during the thirty-nine weeks ended November 2, 1996 and
October 28, 1995 approximated $53.1 million and $66.9 million.
7. SELF-TENDER OFFER
On March 17, 1996, the Company completed the repurchase for $1.615 billion
or $19 per share of 85 million shares of its common stock under a self-
tender offer.
8. ISSUANCE OF SUBSIDIARY STOCK
Gains or losses resulting from stock issued by a subsidiary of the Company
are recognized in current year's income. In September 1996, the Company
recognized a $118.6 million gain which resulted from the initial public
offering of 15.8% of the stock (8.05 million shares) of A&F. In October
1995, the Company recognized a $613.5 million gain which resulted from the
initial public offering of 40 million shares (16% of the stock) of Intimate
Brands, Inc. ("IBI"). IBI consists of Victoria's Secret Stores, Victoria's
Secret Catalogue, Bath & Body Works, Cacique, Penhaligon's and Gryphon. An
additional 2.7 million shares (.9% of the stock) of IBI were issued in
November 1995 as a result of underwriters exercising options to purchase
additional shares which resulted in a net gain of approximately $36
million. None of the aforementioned gains recorded by the Company were
subject to tax.
8
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
The Limited, Inc.
We have reviewed the condensed consolidated balance sheet of The Limited, Inc.
and Subsidiaries at November 2, 1996, and the related condensed consolidated
statements of income and cash flows for the thirteen-week and thirty-nine-week
periods ended November 2, 1996 and October 28, 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of February 3, 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
26, 1996, except for paragraph 11 in Note 1 and Note 9, as to which the date is
March 18, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of February 3, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 11, 1996
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the second half of 1995 and the first three quarters of 1996, the Company
entered into a series of transactions that affected the comparability of the
quarterly financial statements: 1) the initial public offering of a 16.9%
interest in Intimate Brands, Inc. ("IBI"); 2) the sale of a 60% interest in the
Company's previously wholly-owned credit card bank, World Financial Network
National Bank ("WFNNB"); 3) a reduction in outstanding shares reflecting the
Company's 85 million share repurchase via a self-tender consummated effective
March 17, 1996; and 4) the initial public offering of a 15.8% interest of
Abercrombie & Fitch Co. ("A&F") during the third quarter of 1996. Accordingly,
to aid in the analysis of third quarter and year-to-date 1996 financial
information as compared to the respective periods in 1995, certain pro-forma
adjustments, including the tax impact, have been made to the 1996 and 1995
results as follows: 1) the 1995 general, administrative and store operating
expenses have been adjusted for the fourth quarter 1995 sale of a 60% interest
in WFNNB, as if the sale had been consummated at the beginning of 1995; 2) the
1995 statement of income has been adjusted to reflect the minority interest
arising from the IBI transaction as if it had occurred as of the beginning of
1995; 3) weighted average shares outstanding have been reduced to reflect the 85
million share repurchase as if it occurred at the beginning of 1995; and 4) the
1996 statement of income has been adjusted to remove $10.5 million in interest
income earned in the first quarter from the temporary investment of the proceeds
from the IBI and WFNNB transactions that were used to consummate the self-tender
effective March 17, 1996.
The adjusted pro-forma summary income information is presented below (thousands
except per share data):
<TABLE>
<CAPTION>
Third Quarter 1995 Third Quarter 1996
-------------------------------------------------------------- ------------------
Adjusted
As Reported Pro-Forma Pro-Forma As Reported
October 28, 1995 Adjustments October 28, 1995 November 2, 1996
---------------- ----------- ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $1,803,295 _ $1,803,295 $1,994,986
Gross income 452,958 - 452,958 555,374
General, administrative and
store operating expenses (361,597) $(22,275) (a) (383,872) (467,024)
---------------- ----------- ---------------- ------------------
Operating income 91,361 (22,275) 69,086 88,350
Interest expense (22,573) - (22,573) (20,621)
Other income, net 3,025 - 3,025 6,791
Minority interest - (2,383) (b) (2,383) (4,574)
Gain on sale of subsidiary stock 613,500 - 613,500 118,567
---------------- ----------- ---------------- ------------------
Income before taxes 685,313 (24,658) 660,655 188,513
Provision for income taxes 28,000 (8,000) (c) 20,000 29,000
---------------- ----------- ---------------- ------------------
Net income $ 657,313 $(16,658) $ 640,655 $ 159,513
================ =========== ================ ==================
Net income per share $1.83 $2.34 (e) $.59
================ ================ ==================
Net income per share exclusive of gain
on sale of subsidiary stock $ .12 $ .10 $.15
================ ================ ==================
Weighted average shares
outstanding 358,920 273,920 (e) 271,728
================ ================ ==================
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Year - to - Date
Year - to - Date 1995 1996
------------------------------------------------------------ -------------------
Adjusted Adjusted
As Reported Pro-Forma Pro-Forma Pro-Forma
October 28, 1995 Adjustments October 28, 1995 November 2, 1996
---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 5,110,072 - $ 5,110,072 $ 5,678,530
Gross income 1,279,320 - 1,279,320 1,516,824
General, administrative and
store operating expenses (1,011,186) $(76,413) (a) (1,087,599) (1,293,096)
---------------- ----------- ---------------- ----------------
Operating income 268,134 (76,413) 191,721 223,728
Interest expense (59,261) - (59,261) (55,902)
Other income, net 9,913 - 9,913 19,945 (d)
Minority interest - (12,264) (b) (12,264) (17,023)
Gain on sale of subsidiary stock 613,500 - 613,500 118,567
---------------- ----------- ---------------- ----------------
Income before taxes 832,286 (88,677) 743,609 289,315
Provision for income taxes 87,000 (33,000) (c) 54,000 75,000 (c)
---------------- ----------- ---------------- ----------------
Net income $ 745,286 $(55,677) $ 689,609 $ 214,315
================ =========== ================ ================
Net income per share $2.08 $2.52 (e) $.79 (e)
================ ================ ================
Net income per share exclusive of
gain on sale of subsidiary stock $.37 $.28 $.35
================ ================ ================
Weighted average shares outstanding 358,619 273,619 (e) 271,709 (e)
================ ================ ================
</TABLE>
(a) Sale of a 60% interest in WFNNB as if it were consummated at the beginning
of 1995.
(b) Minority interest in IBI as if the transaction was consummated at the
beginning of 1995.
(c) Tax affect of pro-forma adjustments.
(d) Reduced 1996 interest income by $10.5 million earned from the temporary
investment of proceeds from the IBI and WFNNB transactions that were used to
consummate the self-tender.
(e) Net income per share and weighted average shares outstanding have been
adjusted for the impacted of the self-tender for 85 million shares effective
March 17, 1996 as if it were consummated at the beginning of 1995.
During the third quarter of 1996, net sales increased 11% to $1.995 billion
compared to $1.803 billion a year ago. Net income for the quarter exclusive of
gain on sale of subsidiary stock in both years, increased 51% to $40.9 million
compared to pro-forma net income of $27.2 million last year. Earnings per share
were $.15 compared to pro-forma earnings per share of $.10 in 1995.
Third quarter highlights include the following:
. Lerner New York substantially improved operating income with a comparable
store sales gain of 18%.
. Abercrombie & Fitch more than doubled its operating income while producing
a 19% comparable store sales gain.
. Structure showed substantial improvement in operating results over last
year and achieved a 6% comparable store sales gain.
. Limited Too produced a 13% comparable store sales gain.
11
<PAGE>
Sales for the thirty-nine weeks ended November 2, 1996 increased 11% to $5.679
billion compared to $5.110 billion in 1995. Pro-forma 1996 net income,
exclusive of gains on sale of subsidiary stock in both years, increased 26% to
$95.7 million from pro-forma 1995 net income of $76.1 million. Pro-forma 1996
earnings per share were $.35 compared to 1995 pro-forma earnings per share of
$.28.
Financial Summary
- -----------------
The following summarized financial data compares the thirteen and thirty-nine
week periods ended November 2, 1996 to the comparable periods for 1995:
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
------------------------------------ ------------------------------------
Change Change
From From
1996 1995 Prior Year 1996 1995 Prior Year
-------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales (millions):
Victoria's Secret Stores $ 304 $ 264 15% $ 910 $ 786 16%
Victoria's Secret Catalogue 133 132 1% 476 455 5%
Bath & Body Works 133 87 53% 378 237 59%
Cacique 20 19 5% 59 52 13%
Other 7 4 75% 13 9 44%
-------- -------- ------------ -------- -------- ------------
Total Intimate Brands, Inc. $ 597 $ 506 18% $1,836 $1,539 19%
-------- -------- ------------ -------- -------- ------------
Express 350 360 (3%) 982 977 1%
Lerner New York 257 223 15% 703 666 6%
Lane Bryant 220 219 - 646 629 3%
Limited Stores 211 214 (1%) 604 584 3%
Henri Bendel 26 24 8% 66 65 2%
-------- -------- ------------ -------- -------- ------------
Total Women's Businesses $1,064 $1,040 2% $3,001 $2,921 3%
-------- -------- ------------ -------- -------- ------------
Structure 149 128 16% 417 356 17%
Abercrombie & Fitch Co. 88 57 54% 196 129 52%
The Limited Too 73 58 26% 166 145 14%
Galyan's (since 7/2/95) 20 14 43% 57 20
Other 4 - 6 -
-------- -------- ------------ -------- -------- ------------
Total Emerging Businesses $ 334 $ 257 30% $ 842 $ 650 30%
-------- -------- ------------ -------- -------- ------------
Total Net Sales $1,995 $1,803 11% $5,679 $5,110 11%
======== ======== ============ ======== ======== ============
Operating income (millions):
Intimate Brands, Inc. $53 $45 18% $189 $159 19%
Women's Businesses 22 21 5% 7 29 (76%)
Emerging Businesses 13 3 * 333% 28 4 * 600%
-------- -------- ------------ -------- -------- ------------
Total Operating Income $88 $69 * 28% $224 $192 * 17%
======== ======== ============ ======== ======== ============
</TABLE>
* Reflects adjusted pro-forma results. Historical operating income for the
Emerging Businesses (including WFNNB) was $25 million and $80 million in the
third quarter and year-to-date period of 1995 and total operating income was
$91 million and $268 million in the same periods.
12
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
------------------------------------ ------------------------------------
Change Change
From From
1996 1995 Prior Year 1996 1995 Prior Year
-------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in comparable store sales:
Victoria's Secret Stores 6% (6%) 6% (1%)
Bath & Body Works 2% 26% 8% 26%
Cacique 0% (18%) 9% (23%)
-------- -------- -------- --------
Total Intimate Brands, Inc. 5% (2%) 6% 2%
-------- -------- -------- --------
Express (7%) (3%) (3%) 2%
Lerner New York 18% (4%) 8% (1%)
Lane Bryant 0% (9%) 1% (8%)
Limited Stores 0% 4% 5% (6%)
Henri Bendel (6%) 3% (2%) 7%
-------- -------- -------- --------
Total Women's Businesses 2% (3%) 2% (2%)
-------- -------- -------- --------
Structure 6% (7%) 7% (5%)
Abercrombie & Fitch Co. 19% 9% 17% 6%
The Limited Too 13% (10%) (2%) 1%
Galyan's (since 7/2/95) 16% N/A 13% N/A
-------- -------- -------- --------
Total Emerging Businesses 11% (5%) 7% (2%)
-------- -------- -------- --------
Total comparable store sales
increase (decrease) 4% (3%) 4% (2%)
======== ======== ======== ========
Retail sales increase
attributable to new and
remodeled stores 7% 5% 8% 6%
Retail sales per average
selling square foot $65.69 $62.25 6% $185.35 $176.91 5%
Retail sales per average
store (thousands) $ 333 $ 325 2% $ 947 $ 926 2%
Average store size at end of
quarter (square feet) 5,055 5,201 (3%)
Retail selling square feet
(thousands) 28,589 27,116 5%
Number of stores:
Beginning of period 5,454 5,048 5,298 4,867
Opened 213 187 421 385
Acquired - - - 6
Closed (11) (21) (63) (44)
-------- -------- -------- --------
End of period 5,656 5,214 5,656 5,214
======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
----------------------------------------- ------------------------------------------
Change Change
November 2, October 28, From November 2, October 28, From
1996 1995 Prior Year 1996 1995 Prior Year
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 726 659 67 3,282 2,941 341
Bath & Body Works 737 450 287 1,313 748 565
Cacique 121 119 2 371 363 8
Penhaligon's 4 4 0 2 2 0
----- ----- --- ------ ------ -----
Total Intimate Brands, Inc. 1,588 1,232 356 4,968 4,054 914
----- ----- --- ------ ------ -----
Express 758 734 4 4,752 4,552 200
Lerner New York 811 843 (32) 6,168 6,489 (321)
Lane Bryant 830 824 6 3,982 3,933 49
Limited Stores 683 702 (19) 4,099 4,269 (170)
Henri Bendel 6 4 2 113 88 25
----- ----- --- ------ ------ -----
Total Women's Businesses 3,088 3,107 (19) 19,114 19,331 (217)
----- ----- --- ------ ------ -----
Structure 543 499 44 2,116 1,916 200
Abercrombie & Fitch Co. 119 86 3 934 689 245
The Limited Too 309 284 25 969 887 82
Galyan's 9 6 3 488 239 249
----- ----- --- ------ ------ -----
Total Emerging Businesses 980 875 105 4,507 3,731 776
----- ----- --- ------ ------ -----
Total stores and selling
square feet 5,656 5,214 442 28,589 27,116 1,473
===== ===== === ====== ====== =====
</TABLE>
Net Sales
- ---------
Net sales for the third quarter of 1996 increased 11% over third quarter 1995
primarily as a result of the 4% increase in comparable store sales and the net
addition of new and remodeled stores. During the third quarter of this year,
the Company opened 213 new stores and closed 11 stores.
Consistent with the third quarter, the year-to-date 1996 sales increase of 11%
was a result of the 4% increase in comparable store sales and the net addition
of 442 stores since the third quarter of 1995.
Sales at the Intimate Brands, Inc. businesses for the third quarter of 1996
increased 18% over the same period last year. This increase was attributable to
the net addition of 356 new stores and a 5% increase in comparable store sales.
Year-to-date Intimate Brands, Inc. sales increased 19% over the same period in
1995, due to the net addition of new and remodeled stores, a 6% increase in
comparable store sales and a 5% increase in catalogue net sales.
Sales at the women's businesses for the third quarter and year-to-date period of
1996 increased slightly compared to the same periods in 1995, primarily due to
the 2% increases in comparable store sales for the third quarter and year.
Disappointing results at the Express division, which experienced declines of 7%
and 3% in comparable store sales for the third quarter and year-to-date
periods, were offset by improved results at Lerner New York, which sales
increased by 15% in the third quarter and 6% year-to-date despite having fewer
stores throughout the period.
14
<PAGE>
In addition, the overall sales increase for the Company included strong sales
increases at Structure and Abercrombie & Fitch, bolstered by third quarter
comparable stores sales increases of 6% and 19%, respectively. In addition,
these divisions experienced 7% and 17% increases, respectively, in comparable
store sales for the year-to-date period.
Gross Income
- ------------
Gross income increased as a percentage of sales to 27.8% for the third quarter
1996 from 25.1% for the same period in 1995. The merchandise margin rate,
expressed as a percentage of sales, increased 1.5% due principally to improved
initial mark-up which more than offset a slight increase in the markdown rate.
Buying and occupancy costs decreased 1.2% as a percentage of sales, primarily
due to the sales productivity associated with the 4% increase in comparable
store sales.
The 1996 year-to-date gross income rate increased 1.7% to 26.7% as compared to
1995. Merchandise margins, expressed as a percentage of sales, increased .8%
due to improved initial mark-up partially offset by a slight increase in the
markdown rate. Buying and occupancy costs decreased .9% as a percentage of
sales, primarily due to sales productivity associated with the 4% increase in
comparable store sales.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses increased as a percentage
of sales to 23.4% in the third quarter of 1996 compared to 21.3% on an adjusted
pro-forma basis in the third quarter of 1995. This increase as a percentage of
sales was attributable to a 3.4% rate increase at the IBI businesses sales
performance at Express and a slight decline in sales at Limited Stores. IBI's
increase is primarily the result of the disproportionate growth of Bath & Body
Works in the overall mix of net sales for the Company and investments made in
store staffing and management for the personal care portion of Victoria's Secret
Stores. Due to the emphasis on point of sale marketing and sales floor coverage,
these IBI businesses have higher general, administrative and store operating
expenses as a percentage of net sales, which have been more than offset by
higher gross margins.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 22.8% in 1996 compared to 21.3% on an adjusted pro-forma
basis in 1995. This increase was primarily due to the reasons discussed above.
During the fourth quarter of 1995, the Company recognized a special and
nonrecurring charge of approximately $45.6 million related to the planned
closing and downsizing of stores. The Company expects to have taken action on
virtually all of the planned closing and downsizings by the end of 1996.
Operating Income
- ----------------
Third quarter and year-to-date operating income, as a percentage of sales, was
4.4% and 3.9% respectively, versus 3.8% on an adjusted pro-forma basis for the
comparable periods in 1995. This increase was due to increases in gross income,
which more than offset the general, administrative and store operating expense
rate increases.
15
<PAGE>
Gain on Sale of Subsidiary Stock
- --------------------------------
The 1996 third quarter results include a $118.6 million gain from the September,
1996 initial public offering of a 15.8% interest (8.05 million shares of common
stock) in A&F (see Note 8). The 1995 third quarter results include a $613.5
million dollar gain which resulted from the October, 1995 initial public
offering of a 16% interest in IBI. These gains were not subject to tax.
Interest Expense
- ----------------
<TABLE>
<CAPTION>
Third Quarter Year-to-Date
-------------- --------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average Borrowings (millions) $1,110 $1,051 $939 $915
Average Effective Interest Rate 7.43% 8.59% 7.94% 8.64%
</TABLE>
Interest expense decreased in the third quarter and year-to-date periods of 1996
as compared to the comparable periods of 1995 primarily due to lower average
effective interest rates, which more than offset a slight increase in average
borrowings.
Other Income
- ------------
The $3.8 million increase in other income in the third quarter of 1996 over 1995
is primarily attributable to interest income associated with the investment of
$351.6 million restricted cash. The $20.5 million increase in year-to-date
other income over 1995 is attributable to the investment of restricted cash and
approximately $10.5 million of interest income arising from $1.6 billion of
funds temporarily invested that were used to consummate the Company's self-
tender in mid-March of this year.
16
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities, commercial paper backed by funds
available under committed long-term credit agreements and the Company's capital
structure continue to provide the resources to support operations, including
projected growth, seasonal requirements and capital expenditures. A summary of
the Company's working capital position and capitalization follows (thousands):
<TABLE>
<CAPTION>
Adjusted
November 2, February 3, February 3,
1996 1996 1996*
----------- ----------- -----------
<S> <C> <C> <C>
Working Capital $ 398,096 $2,083,457 $ 468,457
Capitalization:
Long-term debt $ 650,000 $ 650,000 $ 650,000
Deferred income taxes 167,017 250,857 250,857
Shareholders' equity 1,735,639 3,201,041 1,586,041
---------- ---------- ----------
Total Capitalization $2,552,656 $4,101,898 $2,486,898
========== ========== ==========
Additional amounts available under
committed long-term credit
agreements (see note 5) $1,000,000 $1,000,000 $1,000,000
========== ========== ==========
</TABLE>
* Adjusted February 3, 1996 reflects the impact of the March 17, 1996 repurchase
of 85 million shares of the Company's common stock for $1.615 billion.
Net cash used for operating activities totaled $78.2 million for the thirty-nine
weeks ended November 2, 1996 versus $223 million in the same period of 1995.
Lower amounts of cash were required to fund inventories due to an increase in
accounts payable and accrued expenses primarily resulting from increases in
merchandise payables related to holiday inventory purchases. Cash used for
income taxes is due principally to the timing of payment of taxes on the prior
year's fourth quarter earnings. Cash required for other assets and liabilities
includes additional investments in joint ventures.
Investing activities included capital expenditures, primarily for new and
remodeled stores. In addition, 1995 included the acquisition of Galyan's for
$18 million in cash and stock.
17
<PAGE>
Financing activities include proceeds from and the partial repayment of $150
million in short-term debt borrowed by A&F and net proceeds of $118.6 million
from A&F's initial public offering (see Note 8). Financing activities also
included $1.615 billion used to repurchase 85 million shares of the Company's
common stock (see Note 7). Financing activities in 1995 include proceeds from
and the repayment of $250 million in short-term debt borrowed by IBI and net
proceeds of $635 million from the initial public offering of IBI.
Capital Expenditures
- --------------------
Capital expenditures totaled $319.8 million during the thirty-nine weeks ended
November 2, 1996, compared to $285.6 million for the comparable period of 1995.
The Company anticipates spending approximately $380 - $390 million for capital
expenditures in 1996 of which approximately $240 - $250 million will be for new
stores, the remodeling of existing stores, and fixturing and related
improvements for the retail businesses.
The Company presently anticipates that substantially all 1996 capital
expenditures will be funded by net cash provided from operating activities. In
addition, the Company presently has available $1 billion under committed,
unsecured long-term credit agreements and has the ability to offer up to $250
million in additional debt securities and warrants to purchase debt securities
under its shelf registration statement (see Note 5).
Safe Harbor Statement under the Private Securities Litigation Reform Act of
- ---------------------------------------------------------------------------
1995
- ----
All forward-looking statements made by the Company involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors include, but are
not limited to, 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 on appropriate terms, ability to develop new merchandise and
ability to hire and train associates, and other factors that may be described in
the Company's filings with the Securities and Exchange Commission. The Company
does not undertake to publicly update or revise its forward-looking statements
even if experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3. Articles of Incorporation and Bylaws
3.1 Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3.4 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1988.
3.2 Restated Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991.
4. Instruments Defining the Rights of Security Holders
4.1 Copy of the form of Global Security representing the Company's
7 1/2% Debentures due 2023, incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K dated
March 4, 1993.
4.2 Conformed copy of the Indenture dated as of March 15, 1988
between the Company and The Bank of New York, incorporated by
reference to Exhibit 4.1(a) to the Company's Current Report on
Form 8-K dated March 21, 1989.
4.3 Copy of the form of Global Security representing the Company's
8 7/8% Notes due August 15, 1999 incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
August 14, 1989.
4.4 Copy of the form of Global Security representing the Company's
9 1/8% Notes due February 1, 2001 incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated
February 6, 1991.
4.5 Copy of the form of Global Security representing the Company's
7.80% Notes due May 15, 2002, incorporated by reference to the
Company's Current Report on Form 8-K dated February 27, 1992.
19
<PAGE>
4.6 Proposed form of Debt Warrant Agreement for Warrants attached to
Debt Securities, with proposed form of Debt Warrant Certificate
incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (File no. 33-53366) originally
filed with the Securities and Exchange Commission (the
"Commission") on October 16, 1992 as amended by Amendment No. 1
thereto, filed with the Commission on February 23, 1993 (the
"1993 Form S-3").
4.7 Proposed form of Debt Warrant Agreement for Warrants not attached
to Debt Securities, with proposed form of Debt Warrant
Certificate incorporated by reference to Exhibit 4.3 to the 1993
Form S-3.
4.8 Credit Agreement dated as of December 15, 1995 among the Company,
Morgan Guaranty Trust Company of New York and the banks listed
therein, incorporated by reference to Exhibit 4.8 to the
Company's 1995 Annual Report on Form 10-K.
4.9 Credit Agreement dated as of June 28, 1996 among Abercrombie &
Fitch Stores, Inc., Abercrombie & Fitch Trademark, Inc., the
banks listed therein and Chase Manhattan Bank, N.A. as Agent,
incorporated by reference to Exhibit 4.9 to the Company's
quarterly report on Form 10-Q for the quarter ended August 3,
1996.
10. Material Contracts
10.1 The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan (1996 Amendment and Restatement).
10.2 The Limited, Inc. 1996 Stock Plan for Non-Associate Directors.
10.3 The Limited, Inc. Incentive Compensation Plan
11. Statement re: Computation of Per Share Earnings
12. Statement re: Computation of Ratio of Earnings to Fixed Charges
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent
Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
20
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LIMITED, INC.
(Registrant)
By /s/ Kenneth B. Gilman
----------------------------------
Kenneth B. Gilman
Vice Chairman and Chief
Financial Officer*
Date: December 13, 1996
- ----------------------------------
* Mr. Gilman is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
21
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- --------
10.1 The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan (1996 Amendment and Restatement).
10.2 The Limited, Inc. 1996 Stock Plan for Non-Associate Directors.
10.3 The Limited, Inc. Incentive Compensation Plan
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Information re:
Incorporation of Report of Independent Accountants.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Amendment and Restatement)
(Amended and Restated as of November 1, 1996)
<PAGE>
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Amendment and Restatement)
TABLE OF CONTENTS
-----------------
ARTICLE ONE
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date................................. 1
1.2 Purpose.......................................................... 1
ARTICLE TWO
AWARDS
2.1 Form of Awards................................................... 1
2.2 Maximum Shares Available......................................... 2
2.3 Return of Prior Awards........................................... 2
ARTICLE THREE
ADMINISTRATION
3.1 Committee........................................................ 2
3.2 Powers of Committee.............................................. 2
3.3 Delegation....................................................... 3
3.4 Interpretations.................................................. 3
3.5 Liability; Indemnification....................................... 3
ARTICLE FOUR
ELIGIBILITY 4
i
<PAGE>
ARTICLE FIVE
STOCK OPTIONS
5.1 Grant of Options................................................. 4
5.2 Option Price..................................................... 4
5.3 Term of Options.................................................. 4
5.4 Exercise of Options.............................................. 5
5.5 Cancellation of Stock Appreciation Rights........................ 5
ARTICLE SIX
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder.......................................... 5
6.2 Limitation on Grants............................................. 5
6.3 Limitations on Time of Grant..................................... 5
ARTICLE SEVEN
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights.............................. 6
7.2 Limitations on Exercise.......................................... 6
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights........ 6
7.4 Exercise of Nontandem Stock Appreciation Rights.................. 6
7.5 Settlement of Stock Appreciation Rights.......................... 7
7.6 Cash Settlement.................................................. 7
ARTICLE EIGHT
NONTRANSFERABILITY OF OPTIONS AND
STOCK APPRECIATION RIGHTS 7
ARTICLE NINE
TERMINATION OF EMPLOYMENT
ii
<PAGE>
9.1 Exercise after Termination of Employment........................ 8
9.2 Total Disability................................................ 8
9.3 Disability or Cessation of Director's Term...................... 8
ARTICLE TEN
DEATH OF ASSOCIATE 8
ARTICLE ELEVEN
RESTRICTED SHARES
11.1 Grant of Restricted Shares..................................... 9
11.2 Restrictions................................................... 9
11.3 Restricted Stock Certificates.................................. 9
11.4 Rights of Holders of Restricted Shares......................... 9
11.5 Forfeiture..................................................... 9
11.6 Delivery of Restricted Shares.................................. 10
11.7 Performance-Based Objectives................................... 10
ARTICLE TWELVE
PERFORMANCE SHARES
12.1 Award of Performance Shares.................................... 10
12.2 Performance Period............................................. 10
12.3 Right to Payment of Performance Shares......................... 10
12.4 Payment for Performance Shares................................. 11
12.5 Voting and Dividend Rights..................................... 11
ARTICLE THIRTEEN
PERFORMANCE UNITS
13.1 Award of Performance Units..................................... 12
13.2 Right to Payment of Performance Units.......................... 12
13.3 Payment for Performance Units.................................. 12
iii
<PAGE>
ARTICLE FOURTEEN
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares.................................. 13
14.2 Delivery of Unrestricted Shares............................... 13
ARTICLE FIFTEEN
TAX OFFSET PAYMENTS 13
ARTICLE SIXTEEN
ADJUSTMENT UPON CHANGES IN CAPITALIZATION 13
ARTICLE SEVENTEEN
ADJUSTMENT UPON CHANGES IN CAPITALIZATION 14
ARTICLE EIGHTEEN
WRITTEN AGREEMENT 14
ARTICLE NINETEEN
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value............................................. 15
19.2 Tax Withholding............................................... 15
19.3 Compliance With Section 16 and Section 162(m)................. 15
19.4 Successors.................................................... 15
19.5 General Creditor Status....................................... 16
19.6 No Right to Employment........................................ 16
iv
<PAGE>
19.7 Other Plans................................................... 16
19.8 Notices....................................................... 16
19.9 Severability.................................................. 16
19.10 Governing Law................................................. 17
19.11 Term of Plan.................................................. 17
v
<PAGE>
THE LIMITED, INC.
1993 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Amendment and Restatement)
ARTICLE ONE
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. The Limited, Inc., a Delaware
corporation (the "Company"), hereby establishes a stock incentive plan to be
known as "The Limited, Inc. 1993 Stock Option and Performance Incentive Plan
(1996 Amendment and Restatement)" (the "Plan"). The Plan shall become effective
on May 20, 1996, subject to the approval of the Company's stockholders at the
1996 Annual Meeting. Upon approval by the Board of Directors of the Company
(the "Board"), awards may be made as provided herein, subject to subsequent
stockholder approval. In the event that such stockholder approval is not
obtained, any such awards shall be cancelled and all rights of associates with
respect to such award shall thereupon cease.
1.2 Purpose. The Company desires to attract and retain the best
available executive and key management associates for itself and its
subsidiaries and to encourage the highest level of performance by such
associates in order to serve the best interests of the Company and its
stockholders. The Plan is expected to contribute to the attainment of these
objectives by offering eligible associates the opportunity to acquire stock
ownership interests in the Company, and other rights with respect to stock of
the Company, and to thereby provide them with incentives to put forth maximum
efforts for the success of the Company and its subsidiaries.
ARTICLE TWO
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any one or
all of the following forms: (i) incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) nonstatutory stock options ("Nonstatutory
Stock Options") (unless otherwise indicated, references in the Plan to Options
shall include both Incentive Stock Options and Nonstatutory Stock Options);
(iii) stock appreciation rights ("Stock Appreciation Rights"), as described in
Article 7, which may be awarded either in tandem with Options ("Tandem Stock
Appreciation Rights") or on a stand-alone basis ("Nontandem Stock Appreciation
Rights"); (iv) shares of common stock of the Company ("Common Stock") which are
restricted as provided in Article
1
<PAGE>
11 ("Restricted Shares"); (v) units representing shares of Common Stock, as
described in Article 12 ("Performance Shares"); (vi) units which do not
represent shares of Common Stock but which may be paid in the form of Common
Stock, as described in Article 13 ("Performance Units"); (vii) shares of
unrestricted Common Stock ("Unrestricted Shares"); and (viii) tax offset
payments ("Tax Offset Payments"), as described in Article 15.
2.2 Maximum Shares Available. The maximum aggregate number of shares
of Common Stock available for award under the Plan is 17,298,225 subject to
adjustment pursuant to Article 16. In addition, Tax Offset Payments which may
be awarded under the Plan will not exceed the number of shares available for
issuance under the Plan.] Shares of Common Stock issued pursuant to the Plan
may be either authorized but unissued shares or issued shares reacquired by the
Company. In the event that prior to the end of the period during which Options
may be granted under the Plan, any Option or any Nontandem Stock Appreciation
Right under the Plan expires unexercised or is terminated, surrendered or
cancelled (other than in connection with the exercise of a Stock Appreciation
Right) without being exercised in whole or in part for any reason, or any
Restricted Shares, Performance Shares or Performance Units are forfeited, or if
such awards are settled in cash in lieu of shares of Common Stock, then such
shares or units may, at the discretion of the Committee to the extent
permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Act"), be made available for subsequent awards under the Plan, upon such terms
as the Committee may determine.
2.3 Return of Prior Awards. As a condition to any subsequent award,
the Committee shall have the right, at its discretion, to require associates to
return to the Company awards previously granted under this Plan. Subject to the
provisions of this Plan, such new award shall be upon such terms and conditions
as are specified by the Committee at the time the new award is granted.
ARTICLE THREE
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee (the
"Committee") appointed by the Board and consisting of not less than two (2)
members of the Board. Each member of the Committee shall be an "outside
director" (within the meaning of Section 162(m) of the Code) and a "non-employee
director" (within the meaning of Rule 16b-3(b)(3)(i) under the Act).
3.2 Powers of Committee. Subject to the express provisions of the
Plan, the Committee shall have the power and authority (i) to grant Options and
to determine the purchase price of the Common Stock covered by each Option, the
term of each Option, the number of shares of Common Stock to be covered by each
Option
2
<PAGE>
and any performance objectives or vesting standards applicable to each Option;
(ii) to designate Options as Incentive Stock Options or Nonstatutory Stock
Options and to determine which Options, if any, shall be accompanied by Tandem
Stock Appreciation Rights; (iii) to grant Tandem Stock Appreciation Rights and
Nontandem Stock Appreciation Rights and to determine the terms and conditions of
such rights; (iv) to grant Restricted Shares and to determine the term of the
restricted period and other conditions and restrictions applicable to such
shares; (v) to grant Performance Shares and Performance Units and to determine
the performance objectives, performance periods and other conditions applicable
to such shares or units; (vi) to grant Unrestricted Shares; (vii) to determine
the amount of, and to make, Tax Offset Payments; and (viii) to determine the
associates to whom, and the time or times at which, Options, Stock Appreciation
Rights, Restricted Shares, Performance Shares, Performance Units and
Unrestricted Shares shall be granted.
3.3 Delegation. The Committee may delegate to one or more of its
members or to any other person or persons such ministerial duties as it may deem
advisable; provided, however, that the Committee may not delegate any of its
responsibilities hereunder if such delegation will cause (i) transactions under
the Plan to fail to comply with Section 16 of the Act or (ii) the Committee to
fail to qualify as "outside directors" under Section 162(m) of the Code. The
Committee may also employ attorneys, consultants, accountants or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary
authority to interpret the terms of the Plan, to adopt and revise rules,
regulations and policies to administer the Plan and to make any other factual
determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Company, all associates who have received awards under the Plan and all
other interested persons.
3.5 Liability; Indemnification. No member of the Committee, nor any
associate to whom ministerial duties have been delegated, shall be personally
liable for any action, interpretation or determination made with respect to the
Plan or awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Company with respect to any liability he or she
may incur with respect to any such action, interpretation or determination, to
the extent permitted by applicable law and to the extent provided in the
Company's Certificate of Incorporation and Bylaws, as amended from time to time.
3
<PAGE>
ARTICLE FOUR
ELIGIBILITY
Awards shall be limited to executive and key management associates who
are regular, full-time associates of the Company and its present and future
subsidiaries. In determining the associates to whom awards shall be granted and
the number of shares to be covered by each award, the Committee shall take into
account the nature of the services rendered by such associates, their present
and potential contributions to the success of the Company and its subsidiaries
and such other factors as the Committee in its sole discretion shall deem
relevant. Notwithstanding the foregoing, the Committee may also grant awards to
non-associate directors of the Company and its present and future subsidiaries.
Unless otherwise specified, references to associates herein shall mean both
associates and non-associate directors who have received grants under this Plan.
As used in this Plan, the term "subsidiary" shall mean any corporation which at
the time qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" set forth in Section 424(f) of the Code, or any similar
provision hereafter enacted. No associate may be granted in any calendar year
awards covering more than 400,000 shares of Common Stock.
ARTICLE FIVE
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under this Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the Committee
shall from time to time determine.
5.2 Option Price. The option price of each Option to purchase Common
Stock shall be determined by the Committee at the time of the grant, but shall
not be less than 100 percent of the fair market value of the Common Stock
subject to such Option on the date of grant. The option price so determined
shall also be applicable in connection with the exercise of any Tandem Stock
Appreciation Right granted with respect to such Option.
5.3 Term of Options. The term of each Nonstatutory Stock Option
granted under the Plan shall not exceed ten (10) years and one day from the date
of grant, subject to earlier termination as provided in Articles 9 and 10.
Except as otherwise provided in Section 6.1 with respect to ten (10) percent
stockholders of the Company, the term of each Incentive Stock Option shall not
exceed ten (10) years from the date of grant, subject to earlier termination as
provided in Articles 9 and 10.
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5.4 Exercise of Options. An Option may be exercised, in whole or in
part, at such time or times as the Committee shall determine. The Committee
may, in its discretion, accelerate the exercisability of any Option at any time.
Options may be exercised by an associate by giving written notice to the
Committee stating the number of shares of Common Stock with respect to which the
Option is being exercised and tendering payment therefor. Payment for the
Common Stock issuable upon exercise of the Option shall be made in full in cash
or by certified check or, if the Committee, in its sole discretion, permits, in
shares of Common Stock (valued at fair market value on the date of exercise).
As soon as reasonably practicable following such exercise, a certificate
representing the shares of Common Stock purchased, registered in the name of the
associate, shall be delivered to the associate. Notwithstanding the foregoing,
an associate may not exercise an Option prior to the approval of the Plan by the
stockholders.
5.5 Cancellation of Stock Appreciation Rights. Upon exercise of all or
a portion of an Option, the related Tandem Stock Appreciation Rights shall be
cancelled with respect to an equal number of shares of Common Stock.
ARTICLE SIX
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder. Notwithstanding any other provision of
this Plan to the contrary, no associate may receive an Incentive Stock Option
under the Plan if such associate, at the time the award is granted, owns (after
application of the rules contained in Section 424(d) of the Code) stock
possessing more than ten (10) percent of the total combined voting power of all
classes of stock of the Company or its subsidiaries, unless (i) the option price
for such Incentive Stock Option is at least 110 percent of the fair market value
of the Common Stock subject to such Incentive Stock Option on the date of grant
and (ii) such Option is not exercisable after the date five (5) years from the
date such Incentive Stock Option is granted.
6.2 Limitation on Grants. The aggregate fair market value (determined
with respect to each Incentive Stock Option at the time such Incentive Stock
Option is granted) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an associate during any
calendar year (under this Plan or any other plan of the Company or a subsidiary)
shall not exceed $100,000.
6.3 Limitations on Time of Grant. No grant of an Incentive Stock
Option shall be made under this Plan more than ten (10) years after the earlier
of the date of adoption of the Plan by the Board or the date the Plan is
approved by stockholders.
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ARTICLE SEVEN
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation
Rights may be awarded by the Committee in connection with any Option granted
under the Plan, either at the time the Option is granted or thereafter at any
time prior to the exercise, termination or expiration of the Option. Nontandem
Stock Appreciation Rights may also be granted by the Committee at any time. At
the time of grant of a Nontandem Stock Appreciation Right, the Committee shall
specify the number of shares of Common Stock covered by such right and the base
price of shares of Common Stock to be used in connection with the calculation
described in Section 7.4 below. The base price of a Nontandem Stock
Appreciation Right shall be not less than 100 percent of the fair market value
of a share of Common Stock on the date of grant. Stock Appreciation Rights
shall be subject to such terms and conditions not inconsistent with the other
provisions of this Plan as the Committee shall determine.
7.2 Limitations on Exercise. A Tandem Stock Appreciation Right shall
be exercisable only to the extent that the related Option is exercisable and
shall be exercisable only for such period as the Committee may determine (which
period may expire prior to the expiration date of the related Option). Upon the
exercise of all or a portion of Tandem Stock Appreciation Rights, the related
Option shall be cancelled with respect to an equal number of shares of Common
Stock. Shares of Common Stock subject to Options, or portions thereof,
surrendered upon exercise of a Tandem Stock Appreciation Right, shall not be
available for subsequent awards under the Plan. A Nontandem Stock Appreciation
Right shall be exercisable during such period as the Committee shall determine.
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights. A
Tandem Stock Appreciation Right shall entitle the associate to surrender to the
Company unexercised the related option, or any portion thereof, and to receive
from the Company in exchange therefor that number of shares of Common Stock
having an aggregate fair market value equal to (A) the excess of (i) the fair
market value of one (1) share of Common Stock as of the date the Tandem Stock
Appreciation Right is exercised over (ii) the option price per share specified
in such Option, multiplied by (B) the number of shares of Common Stock subject
to the Option, or portion thereof, which is surrendered. Cash shall be
delivered in lieu of any fractional shares.
7.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of a
Nontandem Stock Appreciation Right shall entitle the associate to receive from
the Company that number of shares of Common Stock having an aggregate fair
market value equal to (A) the excess of (i) the fair market value of one (1)
share of Common Stock as of the date on which the Nontandem Stock Appreciation
Right is exercised
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over (ii) the base price of the shares covered by the Nontandem Stock
Appreciation Right, multiplied by (B) the number of shares of Common Stock
covered by the Nontandem Stock Appreciation Right, or the portion thereof being
exercised. Cash shall be delivered in lieu of any fractional shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably
practicable after the exercise of a Stock Appreciation Right, the Company shall
(i) issue, in the name of the associate, stock certificates representing the
total number of full shares of Common Stock to which the associate is entitled
pursuant to Section 7.3 or 7.4 hereof and cash in an amount equal to the fair
market value, as of the date of exercise, of any resulting fractional shares,
and (ii) if the Committee causes the Company to elect to settle all or part of
its obligations arising out of the exercise of the Stock Appreciation Right in
cash pursuant to Section 7.6, deliver to the associate an amount in cash equal
to the fair market value, as of the date of exercise, of the shares of Common
Stock it would otherwise be obligated to deliver.
7.6 Cash Settlement. The Committee, in its discretion, may cause the
Company to settle all or any part of its obligation arising out of the exercise
of a Stock Appreciation Right by the payment of cash in lieu of all or part of
the shares of Common Stock it would otherwise be obligated to deliver in an
amount equal to the fair market value of such shares on the date of exercise.
ARTICLE EIGHT
NONTRANSFERABILITY OF OPTIONS AND
STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Right may be transferred, assigned,
pledged or hypothecated (whether by operation of law or otherwise), except as
provided by will or the applicable laws of descent and distribution, and no
Option or Stock Appreciation Right shall be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of an Option or a Stock Appreciation Right not specifically
permitted herein shall be null and void and without effect. An Option or Stock
Appreciation Right may be exercised by an associate only during his or her
lifetime, or following his or her death pursuant to Article 10.
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ARTICLE NINE
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment. In the event that the
employment of an associate to whom an Option or Stock Appreciation Right has
been granted under the Plan shall be terminated (for reasons other than death or
total disability), such Option or Stock Appreciation Right may be exercised (to
the extent that the associate was entitled to do so at the termination of his
employment) at any time within three (3) months after such termination of
employment.
9.2 Total Disability. In the event that an associate to whom an Option
or Stock Appreciation Right has been granted under the Plan shall become totally
disabled, such Option or Stock Appreciation Right may be exercised at any time
during the first nine (9) months that the associate receives benefits under The
(illegible) Long-Term Disability Plan (the "Disability Plan"). For purposes
hereof, "total disability" shall have the definition set forth in the Disability
Plan, which definition is hereby incorporated by reference.
9.3 Disability or Cessation of Director's Term. A non-associate
director shall be entitled to exercise Options or Stock Appreciation Rights only
during his or her term as director and for a period of three (3) months
thereafter; provided, however, that a non-associate director shall be entitled
to exercise awards for a period of nine (9) months following the total
disability of such non-associate director.
ARTICLE TEN
DEATH OF ASSOCIATE
If an associate to whom an Option or Stock Appreciation Right has been
granted under the Plan shall while employed by the Company or one of its
subsidiaries or within three (3) months after the termination of such employment
or cessation of director's term, such Option or Stock Appreciation Right may be
exercised to the extent that the associate was entitled to do so at the time of
his or her death, by the associate's estate or by the person who acquires the
right to exercise such Option or Stock Appreciation Right (illegible) his or her
death by bequest or inheritance. Such exercise may occur at any time within one
(1) year (illegible) the date of the associate's death, but in no case later
than the date on which the Option or Stock Appreciation Right terminates.
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ARTICLE ELEVEN
RESTRICTED SHARES
11.1 Grant of Restricted Shares. The Committee may from time to time
cause the Company to grant Restricted Shares under the Plan to associates,
subject to such restrictions, conditions and other terms as the Committee may
determine.
11.2 Restrictions. At the time a grant of Restricted Shares is made,
the Committee shall establish a period of time (the "Restricted Period")
applicable to such Restricted Shares. Each grant of Restricted Shares may be
subject to a different Restricted Period. The Committee may, in its sole
discretion, at the time a grant is made, prescribe restrictions in addition to
or other than the expiration of the Restricted Period, including the
satisfaction of corporate or individual performance objectives, which shall be
applicable to all or any portion of the Restricted Shares. The Committee may
also, in its sole discretion, shorten or terminate the Restricted Period or
waive any other restrictions applicable to all or a portion of such Restricted
Shares. None of the Restricted Shares may be sold, transferred, assigned,
pledged or otherwise encumbered or disposed of during the Restricted Period or
prior to the satisfaction of any other restrictions prescribed by the Committee
with respect to such Restricted Shares.
11.3 Restricted Stock Certificates. The Company shall issue, in the
name of each associate to whom Restricted Shares have been granted, stock
certificates representing the total number of Restricted Shares granted to the
associate, as soon as reasonably practicable after the grant. The Secretary of
the Company shall hold such certificates, properly endorsed for transfer, for
the associate's benefit until such time as the Restricted Shares are forfeited
to the Company, or the restrictions lapse.
11.4 Rights of Holders of Restricted Shares. Holders of Restricted
Shares shall not have the right to vote such shares or the right to receive any
dividends with respect to such shares. All distributions, if any, received by
an associate with respect to Restricted Shares as a result of any stock split-
up, stock distribution, a combination of shares, or other similar transaction
shall be subject to the restrictions of this Article 11.
11.5 Forfeiture. Any Restricted Shares granted to an associate
pursuant to the Plan shall be forfeited if the associate terminates employment
with the Company or its subsidiaries (or if a non-associate director ceases to
be a director of the Company or one of its subsidiaries) prior to the expiration
or termination of the Restricted Period and the satisfaction of any other
conditions applicable to such Restricted Shares. Upon such forfeiture, the
Secretary of the Company shall either cancel or retain in its treasury the
Restricted Shares that are forfeited to the Company. If the associate's
employment (or director's term) terminates as a result of his or her
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death or total disability (as defined in Article 9), Restricted Shares of such
associate shall be forfeited, unless the Committee, in its sole discretion,
shall determine otherwise.
11.6 Delivery of Restricted Shares. Upon the expiration or termination
of the Restricted Period and the satisfaction of any other conditions prescribed
by the Committee, the restrictions applicable to the Restricted Shares shall
lapse and a stock certificate for the number of Restricted Shares with respect
to which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the associate or the associate's beneficiary or estate, as the
case may be.
11.7 Performance-Based Objectives. At the time of the grant of
Restricted Shares to an associate, and prior to the beginning of the performance
period to which performance objectives relate, the Committee may establish
performance objectives based on operating income and/or gross margin objectives
of the Company or any subsidiary or division thereof. These objectives shall be
based on an analysis of historical performance and growth expectations for the
relevant business unit, financial results of other comparable businesses both
inside and outside the Company, and progress towards achieving the long-range
strategic plan for that business unit. These objectives and determination of
results shall be based entirely on such financial measures, and the Committee
shall have no discretion to modify such results.
ARTICLE TWELVE
PERFORMANCE SHARES
12.1 Award of Performance Shares. For each Performance Period (as
defined in Section 12.2), Performance Shares may be granted under the Plan to
such associates of the Company and its subsidiaries as the Committee shall
determine. Each Performance Share shall be deemed to be equivalent to one (1)
share of Common Stock. Performance Shares granted to an associate shall be
credited to an account (a "Performance Share Account") established and
maintained for such associate.
12.2 Performance Period. "Performance Period" shall mean such period
of time as shall be determined by the Committee in its sole discretion.
Different Performance Periods may be established for different associates
receiving Performance Shares. Performance Periods may run consecutively or
concurrently.
12.3 Right to Payment of Performance Shares. With respect to each
award of Performance Shares under this Plan, the Committee shall specify
performance objectives (the "Performance Objectives") which must be satisfied in
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order for the associate to vest in the Performance Shares which have been
awarded to him or her for the Performance Period. If the Performance Objectives
established for an associate for the Performance Period are partially but not
fully met, the Committee may, nonetheless, in its sole discretion, determine
that all or a portion of the Performance Shares have vested. If the Performance
Objectives for a Performance Period are exceeded, the Committee may, in its sole
discretion, grant additional, fully vested Performance Shares to the associate.
The Committee may also determine, in its sole discretion, that Performance
Shares awarded to an associate shall become partially or fully vested upon the
associate's death, total disability (as defined in Article 9) or retirement, or
upon the termination of the associate's employment (or director's term) prior to
the end of the Performance Period.
12.4 Payment for Performance Shares. As soon as practicable following
the end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 12.3). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Shares shall be granted to the
associate pursuant to Section 12.3. As soon as reasonably practicable after
such determinations, or at such later date as the Committee shall determine at
the time of grant, the Company shall pay to the associate an amount with respect
to each vested Performance Share equal to the fair market value of a share of
Common Stock on such payment date or, if the Committee shall so specify at the
time of grant, an amount equal to (i) the fair market value of a share of Common
Stock on the payment date less (ii) the fair market value of a share of Common
Stock on the date of grant of the Performance Share. Payment shall be made
entirely in cash, entirely in Common Stock (including Restricted Shares) or in
such combination of cash and Common Stock as the Committee shall determine.
12.5 Voting and Dividend Rights. Except as the Committee may otherwise
provide, no associate shall be entitled to any voting rights, to receive any
dividends, or to have his or her Performance Share Account credited or increased
as a result of any dividends or other distribution with respect to Common Stock.
Notwithstanding the foregoing, within sixty (60) days from the date of payment
of a dividend by the Company on its shares of Common Stock, the Committee, in
its discretion, may credit an associate's Performance Share Account with
additional Performance Shares having an aggregate fair market value equal to the
dividend per share paid on the Common Stock multiplied by the number of
Performance Shares credited to his or her account at the time the dividend was
declared.
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ARTICLE THIRTEEN
PERFORMANCE UNITS
13.1 Award of Performance Units. For each Performance Period (as
defined in Section 12.2), Performance Units may be granted under the Plan to
such associates of the Company and its subsidiaries as the Committee shall
determine. The award agreement covering such Performance Units shall specify a
value for each Performance Unit or shall set forth a formula for determining the
value of each Performance Unit at the time of payment (the "Ending Value"). If
necessary to make the calculation of the amount to be paid to the associate
pursuant to Section 13.3, the Committee shall also state in the award agreement
the initial value of each Performance Unit (the "Initial Value"). Performance
Units granted to an associate shall be credited to an account (a "Performance
Unit Account") established and maintained for such associate.
13.2 Right to Payment of Performance Units. With respect to each award
of Performance Units under this Plan, the Committee shall specify Performance
Objectives which must be satisfied in order for the associate to vest in the
Performance Objectives established for an associate for the Performance Period
are partially but not fully met, the Committee may, nonetheless, in its sole
discretion, determine that all or a portion of the Performance Units have
vested. If the Performance Objectives for a Performance Period are exceeded,
the Committee may, in its sole discretion, grant additional, fully vested
Performance Units to the associate. The Committee may also determine, in its
sole discretion, total disability (as defined in Article 9) or retirement, or
upon the termination of employment of the associate by the Company.
13.3 Payment for Performance Units. As soon as practicable following
the end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 13.2). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Units shall be granted to the associate
pursuant to Section 13.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine at the
time of grant, the Company shall pay to the associate an amount with respect to
each vested Performance Unit equal to the Ending Value of the Performance Unit
or, if the Committee shall so specify at the time of grant, an amount equal to
(i) the Ending Value of the Performance Unit less (ii) the Initial Value of the
Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine.
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ARTICLE FOURTEEN
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares. The Committee may cause the Company
to grant Unrestricted Shares to associates at such time or times, in such
amounts and for such reasons as the Committee, in its sole discretion, shall
determine. No payment shall be required for Unrestricted Shares.
14.2 Delivery of Unrestricted Shares. The Company shall issue, in the
name of each associate to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares granted to the
associate, and shall deliver such certificates to the associate as soon as
reasonably practicable after the date of grant or on such later date as the
Committee shall determine at the time of grant.
ARTICLE FIFTEEN
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under
this Plan or anytime thereafter to make Tax Offset Payments to assist associates
in paying income taxes incurred as a result of their participation in this Plan.
The Tax Offset Payments shall be determined by multiplying a percentage
established by the Committee times all or a portion (as the Committee shall
determine) of the taxable income recognized by an associate upon (i) the
exercise of a Nonstatutory Stock Option or a Stock Appreciation Right, (ii) the
disposition of shares received upon exercise of an Incentive Stock Option, (iii)
the lapse of restrictions on Restricted Shares, (iv) the award of Unrestricted
Shares, or (v) payments for Performance Shares or Performance Units. The
percentage shall be established, from time to time, by the Committee at that
rate which the Committee, in its sole discretion, determines to be appropriate
and in the best interests of the Company to assist associates in paying income
taxes incurred as a result of the events described in the preceding sentence.
Tax Offset Payments shall be subject to the restrictions on transferability
applicable to Options and Stock Appreciation Rights under Article 8.
ARTICLE SIXTEEN
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may at
any time make or provide for such adjustments to the Plan, to the number and
class
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of shares available thereunder or to any outstanding Options, Stock Appreciation
Rights, Restricted Shares or Performance Shares as it shall deem appropriate to
prevent dilution or enlargement of rights, including adjustments in the event of
changes in the number of shares of outstanding Common Stock by reason of stock
dividends, extraordinary cash dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like.
ARTICLE SEVENTEEN
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
The Board may suspend, terminate, modify or amend the Plan, provided
that any amendment that would (i) materially increase the aggregate number of
shares which may be issued under the Plan; (ii) materially increase the benefits
accruing to associates under the Plan; or (iii) materially modify the
requirements as to eligibility for participation in the Plan, shall be subject
to the approval of the Company's stockholders, except that any such increase or
modification that may result from adjustments authorized by Article 16 does not
require such approval. If the Plan is terminated, the terms of the Plan shall,
notwithstanding such termination, continue to apply to awards granted prior to
such termination. No suspension, termination, modification or amendment of the
Plan may, without the consent of the associate to whom an award shall
theretofore have been granted, adversely affect the rights of such associate
under such award.
ARTICLE EIGHTEEN
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement, executed by the associate
and the Company, and containing such restrictions, terms and conditions, if any,
as the Committee may require. In the event of any conflict between a written
agreement and the Plan, the terms of the Plan shall govern.
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ARTICLE NINETEEN
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value. "Fair market value" for purposes of this Plan
shall be the closing price of the Common Stock as reported on the principal
exchange on which the shares are listed for the date on which the grant,
exercise or other transaction occurs, or if there were no sales on such date,
the most recent prior date on which there were sales.
19.2 Tax Withholding. The Company shall have the right to require
associates or their beneficiaries or legal representatives to remit to the
Company an amount sufficient to satisfy Federal, state and local withholding tax
requirements, or to deduct from all payments under this Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax requirements.
Whenever payments under the Plan are to be made to an associate in cash, such
payments shall be net of any amounts sufficient to satisfy all Federal, state
and local withholding tax requirements. The Committee may, in its discretion,
permit an associate to satisfy his or her tax withholding obligation either by
(i) surrendering shares owned by the associate or (ii) having the Company
withhold from shares otherwise deliverable to the associate. Shares surrendered
or withheld shall be valued at their fair market value as of the date on which
income is required to be recognized for income tax purposes. In the case of an
award of Incentive Stock Options, the foregoing right shall be deemed to be
provided to the associate at the time of such award.
19.3 Compliance With Section 16 and Section 162(m). In the case of
associates who are or may be subject to Section 16 of the Act, it is the intent
of the corporation that any award granted hereunder satisfy and be interpreted
in a manner that satisfies the applicable requirements of Rule 16b-3, so that
such persons will be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Act and will not be subjected to liability
thereunder. If any provision of the Plan or any award would otherwise conflict
with the intent expressed herein, that provision, to the extent possible, shall
be interpreted and deemed amended so as to avoid such conflict. To the extent
of any remaining irreconcilable conflict with such intent, such provision shall
be deemed void as applicable to associates who are or may be subject to Section
16 of the Act. If any award hereunder is intended to qualify as performance-
based for purposes of Section 162(m) of the Code, the Committee shall not
exercise any discretion to increase the payment under such award except to the
extent permitted by Section 162(m) and the regulations thereunder.
19.4 Successors. The obligations of the Company under the Plan shall
be binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and businesses
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of the Company. In the event of any of the foregoing, the Committee may, at its
discretion prior to the consummation of the transaction, cancel, offer to
purchase, exchange, adjust or modify any outstanding awards, at such time and in
such manner as the Committee deems appropriate and in accordance with applicable
law.
19.5 General Creditor Status. Associates shall have no right, title,
or interest whatsoever in or to any investments which the Company may make to
aid it in meeting its obligations under the Plan. Nothing contained in the
Plan, and no action taken pursuant to its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship between the
Company and any associate or beneficiary or legal representative of such
associate. To the extent that any person acquires a right to receive payments
from the Company under the Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company. All payments to be made
hereunder shall be paid from the general funds of the Company and no special or
separate fund shall be established and no segregation of assets shall be made to
assure payment of such amounts except as expressly set forth in the Plan.
19.6 No Right to Employment. Nothing in the Plan or in any written
agreement entered into pursuant to Article 18, nor the grant of any award, shall
confer upon any associate any right to continue in the employ of the Company or
a subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such written agreement or interfere with or limit the right of the
Company or a subsidiary to modify the terms of or terminate such associate's
employment at any time.
19.7 Other Plans. Effective upon the adoption of the Plan by the
stockholders, no further awards shall be made under The Limited, Inc. 1987 Stock
Option Plan (as amended as of April 20, 1992) (the "Prior Plan"). Thereafter,
all awards made under the Prior Plan prior to adoption of this Plan by the
stockholders shall continue in accordance with the terms of the Prior Plan.
19.8 Notices. Notices required or permitted to be made under the Plan
shall be sufficiently made if sent by registered or certified mail addressed (a)
to the associate at the associate's address set forth in the books and records
of the Company or its subsidiaries, or (b) to the Company or the Committee at
the principal office of the Company.
19.9 Severability. In the event that any provision of the Plan shall
be held illegal or invalid for any reason, such illegality or invalidity shall
not affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
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19.10 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
19.11 Term of Plan. Unless earlier terminated pursuant to Article 17
hereof, the Plan shall terminate on the tenth (10th) anniversary of the date of
adoption of the Plan by the stockholders.
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EXHIBIT 10.2
THE LIMITED, INC.
1996 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
1. Purpose
The purpose of The Limited, Inc. 1996 Stock Plan for Non-Associate
Directors (the "Plan") is to promote the interests of The Limited, Inc. (the
"Company") and its stockholders by increasing the proprietary interest of non-
associate directors in the growth and performance of the Company by granting
such directors options to purchase shares of common stock (the "Shares") of the
Company and by awarding Shares to such directors in respect of a portion of the
Retainer (as defined in Section 6(b)) payable to such directors.
2. Administration
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be authorized
to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan; provided, however, that the
Board shall have no discretion with respect to the selection of directors to
receive options, the number of Shares subject to any such options, the purchase
price thereunder or the timing of grants of options under the Plan. The
determinations of the Board in the administration of the Plan, as described
herein, shall be final and conclusive. The Secretary of the Company shall be
authorized to implement the Plan in accordance with its terms and to take such
actions of a ministerial nature as shall be necessary to effectuate the intent
and purposes thereof. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware.
3. Eligibility
The class of individuals eligible to receive grants of options and awards
of Shares in respect of the Retainer under the Plan shall be directors of the
Company who are not associates of the Company or its affiliates ("Eligible
Directors"). Any holder of an option or Shares granted hereunder shall
hereinafter be referred to as a "Participant".
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4. Shares Subject to the Plan
Subject to adjustment as provided in Section 7, an aggregate of 100,000
Shares shall be available for issuance under the Plan. The Shares deliverable
upon the exercise of options or in respect of the Retainer may be made available
from authorized but unissued Shares or treasury Shares. If any option granted
under the Plan shall terminate for any reason without having been exercised, the
Shares subject to, but not delivered under, such option shall be available for
issuance under the Plan.
5. Grant, Terms and Conditions of Options
(a) Subject to the approval by the Company's shareholders of this Plan,
each Eligible Director on the date of such approval will be granted on such date
an option to purchase 1,000 Shares.
(b) Each Eligible Director on the first business day of a fiscal year of
the Company beginning thereafter, will be granted on such a day an option to
purchase 1,000 Shares.
(c) The options granted will be nonstatutory stock options not intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and shall have the following terms and conditions:
(i) Price. The purchase price per Share deliverable upon the
exercise of each option shall be 100% of the Fair Market Value per Share on
the date the option is granted. For purposes of the Plan, Fair Market
Value shall be the closing price of the Shares as reported on the principal
exchange on which the shares are listed for the date in question, or if
there were no sales on such date, the most recent prior date on which there
were sales.
(ii) Payment. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash.
(iii) Exercisability and Term of Options. Options shall become
exercisable in four equal annual installments commencing on the first
anniversary of the date of grant, provided the holder of such Option is an
Eligible Director on such anniversary, and shall be exercisable until the
earlier of ten years from the date of grant and the expiration of the one
year period provided in paragraph (iv) below.
(iv) Termination of Service as Eligible Director. Upon termination
of a Participant's service as a director of the Company for any reason, all
outstanding options held by such Eligible Director, to the extent then
exercisable, shall be exercisable in whole or in part for a period of one
year
2
<PAGE>
from the date upon which the Participant ceases to be a Director, provided
that in no event shall the options be exercisable beyond the period
provided for in paragraph (iii) above.
(v) Nontransferability of Options. No option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the
foregoing, options may be transferred pursuant to a qualified domestic
relations order.
(vi) Option Agreement. Each option granted hereunder shall be
evidenced by an agreement with the Company which shall contain the terms
and provisions set forth herein and shall otherwise be consistent with the
provisions of the Plan.
6. Grant of Shares
(a) From and after the approval of the Plan by the Company's
shareholders, 50% of the Retainer of each Eligible Director shall be paid in a
number of Shares equal to the quotient of (i) 50% of the Retainer divided by
(ii) the Fair Market Value on the Retainer Payment Date. Cash shall be paid to
an Eligible Director in lieu of a fractional Share.
(b) For purposes of this Plan "Retainer" shall mean the annual
retainer payable to an Eligible Director (as defined in Section 3) for any
fiscal quarter of the Company, the amount of which Retainer may not be changed
for purposes of this Plan more often than once every six months and
"Retainer Payment Date" shall mean the first business day of the
Company's calendar quarter.
7. Adjustment of and Changes in Shares
In the event of a stock split, stock dividend, extraordinary cash
dividend, subdivision or combination of the Shares or other change in corporate
structure affecting the Shares, the number of Shares authorized by the Plan
shall be increased or decreased proportionately, as the case may be, and the
number of Shares subject to any outstanding option shall be increased or
decreased proportionately, as the case may be, with appropriate corresponding
adjustment in the purchase price per Share thereunder.
3
<PAGE>
8. No Rights of Shareholders
Neither a Participant nor a Participant's legal representative shall
be, or have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
9. Plan Amendments
The Plan may be amended by the Board as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of shareholders
of the Company: (i) increase the number of Shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, except
as permitted by Section 7, (ii) change the requirement of Section 5(b) that
option grants be priced at Fair Market Value, except as permitted by Section 7,
(iii) modify in any respect the class of individuals who constitute Eligible
Directors or (iv) materially increase the benefits accruing to Participants
hereunder. The provisions of Sections 3, 5 and/or 6 may not be amended more
often than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules under either such statute.
10. Listing and Registration
Each Share shall be subject to the requirement that if at any time the
Board shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Shares, no such Share may be disposed of unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Board.
11. Effective Date and Duration of Plan
The Plan shall become effective on the date the Company's shareholders
approve the Plan. The Plan shall terminate the day following the tenth Annual
Shareholders Meeting at which Directors are elected succeeding such approval,
unless the Plan is extended or terminated at an earlier date by Shareholders or
is terminated by exhaustion of the Shares available for issuance hereunder.
4
<PAGE>
Exhibit 10.3
THE LIMITED, INC.
Incentive Compensation Plan
The Limited, Inc. Incentive Compensation Plan (the "Incentive Plan") is
intended to satisfy the applicable provisions of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Incentive Plan shall be
administered by the Compensation Committee (the "Committee") of the Board of
Directors of The Limited, Inc. (the "Company"). The Committee shall determine
which key executives of the Company with significant operating and financial
responsibility will be eligible to earn seasonal cash incentive compensation
payments to be paid twice each year under the Incentive Plan.
Prior to the beginning of each spring and fall selling season, the
Committee may establish operating income and/or gross margin and/or sales
objectives for the Company. These objectives must assume an increased
performance level, and be based on an analysis of historical performance and
growth expectations for the business, financial results of other comparable
businesses, and progress towards achieving the long-range strategic plan for the
business. These objectives and determination of results are based entirely on
financial measures, and the Committee may not use any discretion to modify award
results.
Annual incentive compensation targets may be established for eligible
executives ranging from 10% to 100% of base salary, as established under the
Company's pay guidelines. Executives may earn their target incentive
compensation if the business achieves the established operating income and/or
gross margin and/or sales objectives. The target incentive compensation
percentage for each executive will be based on the level and functional
responsibility of his or her position, size of the business for which the
executive is responsible, and competitive practices, in that order of priority.
The annual incentive compensation targets for the Company's eligible executive
officers required to be named in the Company's proxy statement may range from
50% to 100% of base salary. The amount of incentive compensation paid to
participating executives may range from zero to double their targets, based upon
the extent to which operating income and/or gross
<PAGE>
margin and/or sales objectives are achieved or exceeded. The minimum level at
which a participating executive will earn any incentive payment, and the level
at which an executive will earn the maximum incentive payment of double the
target, must be established by the Committee prior to the commencement of each
bonus period. Actual payouts must be based on a straight-line interpolation
based on these minimum and maximum levels and the target operating income and/or
gross margin and/or sales objectives.
The maximum dollar amount to be paid for any year under the Incentive Plan
to any participant may not exceed $2,300,000.
<PAGE>
EXHIBIT 11
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Net income $ 159,513 $657,313
========= ========
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 736 787
Weighted average treasury shares (108,462) (21,321)
--------- --------
Weighted average used to calculate net
income per share 271,728 358,920
========= ========
Net income per share $.59 $1.83
========= ========
</TABLE>
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
--------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Net income $220,815 $745,286
======== ========
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 855 961
Weighted average treasury shares (95,544) (21,796)
-------- --------
Weighted average used to calculate net
income per share 284,765 358,619
======== ========
Net income per share $.78 $2.08
======== ========
</TABLE>
Note: Exercise of the Wexner Agreement (which cannot occur prior to February 1,
1998) was determined not to dilute reported earnings per share.
<PAGE>
EXHIBIT 12
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
--------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Adjusted Earnings
- -----------------
Income before income taxes $299,815 $ 832,286
Portion of minimum rent ($546,176 in 1996 and
$503,679 in 1995) representative of interest 182,059 167,893
Interest on indebtedness 55,902 59,261
Minority interest 17,023 -
-------- ----------
Total earnings as adjusted $554,799 $1,059,440
======== ==========
Fixed Charges
- -------------
Portion of minimum rent representative of interest $182,059 $ 167,893
Interest on indebtedness 55,902 59,261
-------- ----------
Total fixed charges $237,961 $ 227,154
======== ==========
Ratio of earnings to fixed charges 2.33x 4.66x
======== ==========
</TABLE>
<PAGE>
EXHIBIT 15
[LETTERHEAD OF COOPERS & LYBRAND]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated December 11, 1996, on our review of the
interim consolidated financial information of The Limited, Inc. and Subsidiaries
for the thirteen-week and thirty-nine-week periods ended November 2, 1996 and
included in this Form 10-Q is incorporated by reference in the Company's
registration statements on Form S-8, Registration Nos. 33-18533, 33-25005, 2-
92277, 33-24829, 33-24507, 33-24828, 2-95788, 2-88919, 33-24518, 33-6965, 33-
14049, 33-22844, 33-44041, 33-49871, 333-04927, 333-04941, and the registration
statements on Form S-3, Registration Nos. 33-20788, 33-31540, 33-43832, and 33-
53366. Pursuant to Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements (unaudited) of The Limited, Inc. and
Subsidiaries for the quarter ended November 2, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 56,675
<SECURITIES> 0
<RECEIVABLES> 104,421
<ALLOWANCES> 0
<INVENTORY> 1,361,095
<CURRENT-ASSETS> 1,672,631
<PP&E> 3,243,957
<DEPRECIATION> 1,427,185
<TOTAL-ASSETS> 4,277,439
<CURRENT-LIABILITIES> 1,274,535
<BONDS> 650,000
0
0
<COMMON> 180,352
<OTHER-SE> 1,555,287
<TOTAL-LIABILITY-AND-EQUITY> 4,277,439
<SALES> 5,678,530
<TOTAL-REVENUES> 5,678,530
<CGS> 4,161,706
<TOTAL-COSTS> 4,161,706
<OTHER-EXPENSES> 1,293,096
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,902
<INCOME-PRETAX> 299,815
<INCOME-TAX> 79,000
<INCOME-CONTINUING> 220,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,815
<EPS-PRIMARY> $.78
<EPS-DILUTED> $.78
</TABLE>
