<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 1, 1997
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-8344
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THE LIMITED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- ---------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Limited Parkway, P.O. Box 16000, Columbus, Ohio 43216
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-7000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.50 Par Value The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
--------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
----
Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of March 28, 1997: $5,086,697,081.
Number of shares outstanding of the registrant's Common Stock as of March 28,
1997: 271,290,511.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report to shareholders for the fiscal year
ended February 1, 1997 are incorporated by reference into Part I, Part II and
Part IV, and portions of the registrant's proxy statement for the Annual Meeting
of Shareholders scheduled for May 19, 1997 are incorporated by reference into
Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
General.
The Limited, Inc., a Delaware corporation (including its subsidiaries, the
"Company"), is principally engaged in the purchase, distribution and sale of
women's apparel, lingerie, men's apparel, personal care products, children's
apparel and a wide variety of sporting goods. The Company operates an
integrated distribution system which supports the Company's retail activities.
These activities are conducted under various trade names through the retail
stores and catalogue businesses of the Company. Merchandise is targeted to
appeal to customers in specialty markets who have distinctive consumer
characteristics. The Company's women's apparel businesses offer regular and
special-sized fashion apparel at various price levels, including shirts,
blouses, sweaters, pants, skirts, coats and dresses. In addition, the Company
offers lingerie and accessories, men's apparel, fragrances, bath, personal care
products, specialty gift items, children's apparel and a wide variety of
sporting goods.
Description of Operations.
General.
- --------
As of February 1, 1997, the Company owned the following businesses: (1) Intimate
Brands, Inc. ("IBI") (a corporation in which the Company holds an 83% interest)
which consists of three lingerie businesses, including two retail businesses and
one catalogue business (Victoria's Secret Catalogue) and two personal care
businesses, (2) Abercrombie & Fitch Co. (a corporation in which the Company
holds an 84% interest), a men's and women's apparel business, (3) five women's
retail apparel businesses, and (4) the "Emerging" businesses which consist of a
men's apparel business, one children's apparel business and one sporting goods
business. The following chart reflects the retail businesses and the number of
stores in operation for each business at February 1, 1997 and February 3, 1996.
2
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<TABLE>
<CAPTION>
RETAIL BUSINESSES NUMBER OF STORES
----------------- ----------------
February 1, February 3,
Women's 1997 1996
- ------- ----------- -----------
<S> <C> <C>
Express 753 737
Lerner New York 784 835
Lane Bryant 832 828
Limited Stores 663 689
Henri Bendel 6 4
----------- -----------
Total Women's 3,038 3,093
Emerging
- --------
Structure 542 518
The Limited Too 308 288
Galyan's Trading Co. 9 6
----------- -----------
Total Emerging 859 812
Intimate Brands, Inc.
- ---------------------
Victoria's Secret Stores 736 671
Cacique 119 120
Bath & Body Works 750 498
Penhaligon's* 4 4
----------- -----------
Total Intimate Brands, Inc. 1,609 1,293
Abercrombie & Fitch Co. 127 100
- ----------------------- ----------- -----------
Total 5,633 5,298
=========== ===========
</TABLE>
* - Penhaligon's was sold in March 1997.
The following table shows the changes in the number of retail stores operated by
the Company for the past five fiscal years:
<TABLE>
<CAPTION>
Fiscal Beginning
Year of Year Acquired Opened Closed End of Year
- -------- --------- -------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
1992 4,194 - 323 (92) 4,425
1993 4,425 - 322 (124) 4,623
1994 4,623 - 358 (114) 4,867
1995 4,867 6 504 (79) 5,298
1996 5,298 - 470 (135) 5,633
</TABLE>
The Company also owns Mast Industries, Inc., a contract manufacturer and apparel
importer, and Gryphon Development, Inc. ("Gryphon") which is a subsidiary of
IBI. Gryphon creates, develops and contract manufactures a substantial portion
of the bath and personal care products sold by the Company.
3
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During fiscal year 1996, the Company purchased merchandise from approximately
5,200 suppliers and factories located throughout the world. In addition to
purchases through Mast and Gryphon, the Company purchases merchandise in foreign
markets, with additional merchandise purchased in the domestic market, some of
which is manufactured overseas. No more than 5% of goods purchased originated
from any single manufacturer.
Most of the merchandise and related materials for the Company's stores is
shipped to the Company's distribution centers in the Columbus, Ohio area, where
the merchandise is received and inspected. The Company uses common and contract
carriers to distribute merchandise and related materials to its stores. The
Company's businesses generally have independent distribution capabilities and no
business receives priority over any other business. There are no distribution
channels between the businesses.
The Company's policy is to maintain sufficient quantities of inventory on hand
in its retail stores and distribution centers so that it can offer customers a
full selection of current merchandise. The Company emphasizes rapid turnover
and takes markdowns where required to keep merchandise fresh and current with
fashion trends.
The Company views the retail apparel market as having two principal selling
seasons, Spring and Fall. As is generally the case in the apparel industry, the
Company experiences its peak sales activity during the Fall season. This
seasonal sales pattern results in increased inventory during the Fall and
Christmas holiday selling periods. During fiscal year 1996, the highest
inventory level approximated $1.5 billion at the November 1996 month-end and the
lowest inventory level approximated $980 million at the March 1996 month-end.
Merchandise sales are paid for in cash or by personal check, credit cards issued
by third parties or credit cards issued by the Company's credit card processing
venture, Alliance Data Services ("ADS"), for customers of Express, Lerner New
York, Lane Bryant, Limited, Henri Bendel, Victoria's Secret Stores, Victoria's
Secret Catalogue , Structure and Abercrombie & Fitch. ADS was formed in part
from World Financial Network National Bank ("WFNNB"), a wholly-owned subsidiary
of the Company prior to January 1996, when a 60% interest was sold to a New York
investment firm, resulting in the formation of a venture that provides private-
label and bank card transaction processing and database management services to
retailers, including the Company's private-label credit card operations.
Further information regarding this transaction is contained in Note 2 of the
Notes to Consolidated Financial Statements included in The Limited, Inc., 1996
Annual Report to Shareholders, portions of which are annexed hereto as Exhibit
13 (the "1996 Annual Report") and is incorporated herein by reference.
The Company offers its customers a liberal return policy stated as "No Sale is
Ever Final." The Company believes that certain of its competitors offer similar
credit card and service policies.
The following is a brief description of each of the Company's operating
businesses, including their respective target markets.
4
<PAGE>
Women's
- -------
Express - A lifestyle brand offering hot new international fashion to young
women.
Lerner New York - Fashionable sportswear for the value-minded customer.
Lane Bryant - The key fashion destination for the large-size customer
(size 14 - 28); offering sportswear, suit separates, and dresses as well as
intimate apparel, hosiery and accessories.
Limited Stores - Casual American lifestyle fashion for women in their twenties
and thirties who desire great fashion and comfort.
Henri Bendel - Fashion apparel, cosmetics, accessories and gifts for today's
modern woman in her mid-thirties in a higher-income household.
Emerging
- --------
Structure - Authentic, American-style sportswear with a creative edge for men in
their mid-twenties who are urban, active, young and creative.
Limited Too - American casual lifestyle store for girls to age 14.
Galyan's - The "coolest" destination in retailing for sports enthusiasts and
"wannabes" of all ages.
Intimate Brands, Inc.
- ---------------------
Victoria's Secret Stores - The most successful brand of elegant intimate
apparel, foundations and related products for women.
Cacique - Uniquely designed, high-quality, lingerie for the elegant, intelligent
and sophisticated woman, aged twenty-five and up.
Victoria's Secret Catalogue - The industry-leading catalogue of women's
intimate and fashion apparel.
Bath & Body Works - Healthy, natural, good-for-you personal care products and
gifts from America's heartland.
Abercrombie & Fitch Co. - Quality, casual, classic American sportswear brand,
- -----------------------
targeted to the young, hip customer.
Additional information about the Company's business, including its revenues and
profits for the last three years, plus selling square footage and other
information about each of the Company's operating businesses, is set forth under
the caption "Management's Discussion and Analysis" of the 1996 Annual Report
and is incorporated herein by reference.
5
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Competition.
The sale of apparel, lingerie, personal care products and sporting goods through
retail stores is a highly competitive business with numerous competitors,
including individual and chain fashion specialty stores and department stores.
Design, price, service, selection and quality are the principal competitive
factors in retail store sales. The Company's Catalogue business competes with
numerous national and regional catalogue merchandisers. Design, price, quality
and catalogue presentation are the principal competitive factors in catalogue
sales.
The Company is unable to estimate the number of competitors or its relative
competitive position due to the large number of companies selling apparel and
personal care products at retail, both through stores and catalogues.
Associate Relations.
On February 1, 1997, the Company employed approximately 123,100 associates,
90,300 of whom were part-time. In addition, temporary associates are hired
during peak periods, such as the Christmas season.
ITEM 2. PROPERTIES.
The Company's business is principally conducted from office, distribution and
shipping facilities located in the Columbus, Ohio area. Additional facilities
are located in New York City, New York, Indianapolis, Indiana, Andover,
Massachusetts, Kettering, Ohio and London, England.
The distribution and shipping facilities owned by the Company consist of seven
buildings located in Columbus, Ohio, comprising approximately 5.2 million square
feet.
Substantially all of the retail stores owned by the Company are located in
leased facilities, primarily in shopping centers throughout the continental
United States. The leases expire at various dates principally between 1997 and
2017 and generally have renewal options.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to defray a portion of the cost of
improvements. The cost of improvements varies widely, depending on the size and
location of the store. Rental terms for new locations usually include a fixed
minimum rent plus a percentage of sales in excess of a specified amount.
Certain operating costs such as common area maintenance, utilities, insurance,
and taxes are typically paid by tenants.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in lawsuits arising in the ordinary course of
business. Although the amount of any liability that could arise with respect to
any such lawsuit cannot be accurately predicted, in the opinion of management,
the resolution of these matters is not expected to have a material adverse
effect on the financial position or results of operations of the Company.
6
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of February 1, 1997.
Leslie H. Wexner, 59, has been Chairman of the Board of Directors of the Company
for more than five years and its President and Chief Executive Officer since he
founded the Company in 1963.
Kenneth B. Gilman, 50, has been Vice Chairman and Chief Financial Officer of the
Company since June 1993. Mr. Gilman was the Executive Vice President and Chief
Financial Officer of the Company for more than five years prior thereto.
Bella Wexner, over 65 years of age, has been the Secretary of the Company for
more than five years.
Martin Trust, 62, has been President of Mast Industries, Inc., a wholly-owned
subsidiary of the Company, for more than five years.
Arnold F. Kanarick, 56, has been Executive Vice President and Chief Human
Resources Officer since October 1992.
Wade H. Buff, 62, has been Vice President, Internal Audit of the Company for
more than five years.
Alfred S. Dietzel, 65, has been Vice President, Public Affairs of the Company
for more than five years.
Daniel B. Finkelman, 41, has been Vice President, Planning of the Company since
August 1996. Mr. Finkelman was Executive Vice President of Marketing for
Cardinal Health Inc. from May 1994 to August 1996 and Principal/Partner for
McKinsey & Co., Inc. for more than five years prior thereto.
Samuel P. Fried, 45, has been Vice President and General Counsel of the Company
for more than five years.
William K. Gerber, 42, has been Vice President, Finance of the Company since
August 1993. Mr. Gerber was Vice President and Corporate Controller of the
Company for more than five years prior thereto.
Patrick C. Hectorne, 44, has been Treasurer of the Company since August 1993.
Mr. Hectorne was Assistant Treasurer of the Company for more than five years
prior thereto.
Charles W. Hinson, 60, has been President, Store Planning of the Company for
more than five years.
Peter Z. Horvath, 39, has been Vice President and Chief Financial Officer -
Apparel Merchandise since January 1997. Mr. Horvath was Vice President and
Chief Financial Officer of Structure from June 1995 to January 1997 and Vice
President and Controller of Express from June 1992 to June 1995.
7
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Kent A. Kleeberger, 45, has been Corporate Controller of the Company since July
1995. Mr. Kleeberger was Vice President and Controller at Victoria's Secret
Catalogue from February 1993 to June 1995 and Director of Accounting Operations
at Victoria's Secret Catalogue from August 1991 to January 1993 and Director of
Financial Reporting at The Limited, Inc. prior thereto.
Jack Listanowsky, 49, has been Vice President and Chief Sourcing and Production
Officer of the Company since March 1995. Mr. Listanowsky was Executive Vice
President, Manufacturing and Operations for Liz Claiborne, Inc. for more than
five years prior thereto.
Timothy B. Lyons, 50, has been Vice President, Taxes of the Company for more
than five years.
Edward G. Razek, 48, has been Vice President and Chief Marketing Officer of the
Company since November 1993. Mr. Razek was the Executive Vice President of
Marketing for Limited Stores for more than five years prior thereto.
Jon Ricker, 47, has been Vice President and Chief Information Officer of the
Company since February 1996. Mr. Ricker was Vice President and Chief
Information Officer for Bell South from mid-1993 until 1996 and Vice President,
Corporate Systems Development for Federal Express from 1990 to mid-1993.
Bruce A. Soll, 39, has been Vice President and Counsel of the Company for more
than five years.
All of the above officers serve at the pleasure of the Board of Directors of the
Company.
8
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information regarding markets in which the Company's common stock was traded
during fiscal years 1996 and 1995, approximate number of holders of common
stock, and quarterly cash dividend per share information of the Company's common
stock for the fiscal years 1996 and 1995 is set forth under the caption "Market
Price and Dividend Information" on page 42 of the 1996 Annual Report and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is set forth under the caption "Financial Summary" on
page 27 of the 1996 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is set forth under the caption "Management's Discussion and Analysis"
on pages 28 through 33 of the 1996 Annual Report and is incorporated herein by
reference.
______________________________________________________
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 is effective for the Company's 1997 annual financial statements. The Company
is in the process of evaluating the impact of SFAS No. 128 on its financial
statements and expects to disclose the impact in the first quarter 10-Q.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and subsidiaries, the Notes
to Consolidated Financial Statements and the Report of Independent Accountants
are set forth in the 1996 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
9
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company is set forth under the captions
"ELECTION OF DIRECTORS - Nominees and Directors", "- Business Experience", "-
Information Concerning the Board of Directors" and "- Security Ownership of
Directors and Management" on pages 5 and 6 of the Company's proxy statement for
the Annual Meeting of Shareholders to be held May 19, 1997 (the "Proxy
Statement") and is incorporated herein by reference. Information regarding
compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended
is set forth under the caption "EXECUTIVE COMPENSATION - Section 16(a)
Beneficial Ownership Reporting Compliance" on page 12 of the Proxy Statement and
is incorporated herein by reference. Information regarding executive officers
is set forth herein under the caption "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF
THE REGISTRANT" in Part I.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth under the caption
"EXECUTIVE COMPENSATION" on pages 9 through 12 of the Proxy Statement and is
incorporated herein by reference. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "ELECTION OF DIRECTORS - Security
Ownership of Directors and Management" on pages 1 through 6 of the Proxy
Statement and "PRINCIPAL HOLDERS OF VOTING SECURITIES" on page 17 of the Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is set
forth under the captions "ELECTION OF DIRECTORS - Business Experience" on pages
2 and 3 of the Proxy Statement and "ELECTION OF DIRECTORS - Certain
Relationships and Related Transactions" on pages 7 and 8 of the Proxy Statement
and is incorporated herein by reference.
10
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) List of Financial Statements.
-----------------------------
The following consolidated financial statements of The Limited, Inc. and
Subsidiaries and the related notes are filed as a part of this report
pursuant to ITEM 8:
Consolidated Statements of Income for the fiscal years ended February 1,
1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Shareholders' Equity for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended February
1, 1997, February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a)(2) List of Financial Statement Schedules.
--------------------------------------
The following consolidated financial statement schedule of The Limited,
Inc. and subsidiaries is filed as part of this report pursuant to ITEM
14(d):
II. Valuation and Qualifying Accounts
All other schedules are omitted because the required information is either
presented in the financial statements or notes thereto, or is not
applicable, required or material. Columns omitted from the schedule have
been omitted because the information is not applicable.
(a)(3) List of 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 (the "1990 Form 10-K").
11
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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.
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.
12
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10. Material Contracts.
10.1. The Restated 1981 Stock Option Plan of The Limited, Inc.,
incorporated by reference to Exhibit 28(b) to the Company's
Registration Statement on Form S-8 (File No. 33-18533) (the
"Form S-8").
10.2. The 1987 Stock Option Plan of The Limited, Inc., incorporated
by reference to Exhibit 28(a) to the Form S-8.
10.3. Officers' Benefits Plan incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 28, 1989 (the "1988 Form 10-K").
10.4. The Limited Deferred Compensation Plan incorporated by
reference to Exhibit 10.4 to the 1990 Form 10-K.
10.5. Form of Indemnification Agreement between the Company and the
directors and officers of the Company, incorporated by
reference to Exhibit A to the Company's definitive proxy
statement dated April 18, 1988 for the Company's 1988 Annual
Meeting of Shareholders held May 23, 1988.
10.6. Schedule of directors and officers who became parties to
Indemnification Agreements effective May 23, 1988, incorporated
by reference to Exhibit 19.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 29, 1988.
10.7. Supplemental schedule of officer who became a party to an
Indemnification Agreement effective May 23, 1988 incorporated
by reference to Exhibit 10.7 to the 1988 Form 10-K.
10.8. Supplemental schedule of directors and officers who became
parties to Indemnification Agreements incorporated by reference
to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 1, 1992.
10.9. Supplemental schedule of officer who became party to an
Indemnification Agreement effective November 16, 1992
incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended January 30, 1993.
10.10. The 1993 Stock Option and Performance Incentive Plan of the
Company, incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form S-8 (File No. 33-
49871).
13
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10.11. Supplemental schedule of director who became party to an
Indemnification Agreement effective January 27, 1996
incorporated by reference to Exhibit 10.12 to the 1995
Form 10-K.
10.12. Supplemental schedule of officer who became party to an
Indemnification Agreement effective March 20, 1996 incorporated
by reference to Exhibit 10.13 to the 1995 Form 10-K.
10.13. Contingent Stock Redemption Agreement dated as of January 26,
1996 among the Company, Leslie H. Wexner and The Wexner
Children's Trust.
10.14. Amendment dated July 19, 1996 to the Contingent Stock
Redemption Agreement dated as of January 26, 1996 among the
Company, Leslie H. Wexner and The Wexner Children's Trust.
10.15. Supplemental schedule of officer who became party to an
Indemnification Agreement effective March 7, 1996 incorporated
by reference to Exhibit 10.16 to the 1995 Form 10-K.
10.16. Supplemental schedule of officer who became party to an
Indemnification Agreement effective February 1, 1996
incorporated by reference to Exhibit 10.17 to the 1995
Form 10-K.
10.17. The 1997 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan incorporated by reference to Exhibit
B to the Company's Proxy Statement dated April 14, 1997.
10.18. The Limited, Inc. 1996 Stock Plan for Non-Associate Directors
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended November 2,
1996.
10.19. The Limited, Inc. Incentive Compensation Performance Plan
incorporated by reference to Exhibit A to the Company's Proxy
Statement dated April 14, 1997.
10.20. Supplement schedule of officer who became party to an
Indemnification Agreement effective February 3, 1997.
11. Statement re Computation of Per Share Earnings.
12. Statement re Computation of Ratio of Earnings to Fixed Charges.
13. Excerpts from the 1996 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 27 - 42.
21. Subsidiaries of the Registrant.
14
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23. Consent of Independent Accountants.
24. Powers of Attorney.
27. Financial Data Schedule.
99. Annual Report of The Limited, Inc. Savings and Retirement Plan.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the fourth quarter of fiscal
year 1996.
(c) Exhibits.
---------
The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedule
----------------------------
The financial statement schedule filed with this report is listed in
section (a) (2) of Item 14 above.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 29, 1997
THE LIMITED, INC.
(registrant)
By /s/ KENNETH B. GILMAN
----------------------
Kenneth B. Gilman,
Vice Chairman and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on May 1, 1996:
Signature Title
--------- -----
/s/ LESLIE H. WEXNER* Chairman of the Board of Directors,
- --------------------------- President and Chief Executive Officer
Leslie H. Wexner
/s/ KENNETH B. GILMAN Director, Vice Chairman,
- --------------------------- Chief Financial Officer and
Kenneth B. Gilman Principal Accounting Officer
/s/ BELLA WEXNER* Director
- ---------------------------
Bella Wexner
/s/ MARTIN TRUST* Director
- ---------------------------
Martin Trust
/s/ EUGENE M. FREEDMAN* Director
- ---------------------------
Eugene M. Freedman
/s/ E. GORDON GEE* Director
- ---------------------------
E. Gordon Gee
/s/ DAVID T. KOLLAT* Director
- ---------------------------
David T. Kollat
/s/ CLAUDINE MALONE* Director
- ---------------------------
Claudine Malone
16
<PAGE>
/s/ LEONARD A. SCHLESINGER* Director
- ---------------------------
Leonard A. Schlesinger
/s/ DONALD B. SHACKELFORD* Director
- ---------------------------
Donald B. Shackelford
/s/ ALLAN R. TESSLER* Director
- ---------------------------
Allan R. Tessler
/s/ RAYMOND ZIMMERMAN* Director
- ---------------------------
Raymond Zimmerman
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-indicated directors of the registrant pursuant to
powers of attorney executed by such directors.
By /s/ KENNETH B. GILMAN
---------------------------------
Kenneth B. Gilman
Attorney-in-fact
17
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
The Limited, Inc.
We have audited the consolidated financial statements of The Limited, Inc. and
Subsidiaries as of February 1, 1997 and February 3, 1996, and for each of the
three fiscal years in the period ended February 1, 1997, which financial
statements are included on pages 34 through 41 of the 1996 Annual Report to
shareholders of The Limited, Inc. and incorporated by reference herein. We have
also audited the financial statement schedule for each of the two fiscal years
in the period ended February 3, 1996, listed in Item 14(a)(2) of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Limited, Inc.
and Subsidiaries as of February 1, 1997 and February 3, 1996, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule for each of the two fiscal years in the period
ended February 3, 1996 referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 24, 1997
<PAGE>
Schedule II
-----------
THE LIMITED, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED
FEBRUARY 3, 1996 and JANUARY 28, 1995
(THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and Sale of End of
Fiscal Year Expenses Deductions WFNNB Fiscal Year
------------ ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Fiscal year ended February 3, 1996 $44,946 91,424 (90,134)(A) (46,236)(B) $ -
============ ========== ========== ======= ===========
Fiscal year ended January 28, 1995 $34,897 72,725 (62,676)(A) $44,946
============ ========== ========== ======= ===========
</TABLE>
(A) - Write-offs, net of recoveries
(B) - The Company sold a 60% interest in WFNNB in
1995; therefore, it is no longer a consolidated
subsidiary of the Company. See Note 2 to the
Consolidated Financial Statements for further
information.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- ----------------------------------
10.13. Contingent Stock Redemption Agreement dated as of January 26,
1996 among the Company, Leslie H. Wexner and The Wexner
Children's Trust.
10.14. Amendment dated July 19, 1996 to the Contingent Stock Redemption
Agreement dated as of January 26, 1996 among the Company, Leslie
H. Wexner and The Wexner Children's Trust.
10.20. Supplemental schedule of officer who became party to an
Indemnification Agreement effective February 3, 1997.
11 Statement re Computation of
Per Share Earnings.
12 Statement re Computation of Ratio of
Earnings to Fixed Charges.
13 Excerpts from the 1996 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 27 through 42.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Annual Report of The Limited, Inc. Savings and
Retirement Plan.
<PAGE>
CONFORMED COPY EXHIBIT 10.13
-------------
CONTINGENT
STOCK REDEMPTION AGREEMENT
dated as of
January 26, 1996
among
THE LIMITED, INC.,
LESLIE H. WEXNER
and
THE WEXNER CHILDREN'S TRUST
<PAGE>
CONTINGENT STOCK REDEMPTION AGREEMENT
-------------------------------------
THIS CONTINGENT STOCK REDEMPTION AGREEMENT (the "Agreement") is made and
entered into as of January 26, 1996 among The Limited, Inc., a Delaware
corporation (the "Company"), Leslie H. Wexner, in his individual capacity, (in
such capacity, the "Principal Stockholder"), and Leslie H. Wexner, as Trustee
(in such capacity, the "Trustee") of The Wexner Children's Trust under a Trust
Agreement dated January 24, 1996 (the "Trust").
ARTICLE I
DEFINITIONS
-----------
Section 1.01. Definitions. (a) The following terms, as used herein, have
-----------
the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person.
For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Business Day" means each day other than Saturdays, Sundays and days when
commercial banks are authorized or required to be closed for business in New
York City, New York.
"Closing" means any closing of a redemption of Subject Shares pursuant to
Section 2.01 or 2.02 hereof, as the case may be.
"Common Stock" means the common stock, par value $.50 per share, of the
Company (or any successor thereto).
"Credit Agreement" means any credit or similar agreement providing for the
making of loans or other financial accommodations to a Holder of the Section
2.01 Redemption Right or any portion thereof.
<PAGE>
"Effective Date" means the earlier to occur of (i) the day immediately
preceding the date of the commencement of the Tender Offer or (ii) February 2,
1996.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Guaranty" means any guaranty of the obligations of the Company hereunder
entered into pursuant to Section 3.06.
"Holder" means the Trust, any Permitted Transferee and any other Person to
whom rights or obligations under this Agreement have been transferred in
accordance with the terms hereof.
"Immediate Family" shall be defined as in Rule 16a-1(e) under the Exchange
Act.
"Permitted Transferee" means (i) the Principal Stockholder, (ii) any member
of the Immediate Family of the Principal Stockholder, (iii) any corporation,
partnership, trust or other entity all of the stockholders, partners, owners or
beneficiaries of which are the Principal Stockholder, members of the Immediate
Family of the Principal Stockholder or any Person qualified as tax-exempt under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, and (iv) the
estate or personal representative of (A) the Principal Stockholder or (B) any
member of the Immediate Family of the Principal Stockholder.
"Person" means an individual or a corporation, partnership, trust, or any
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Redemption Price" means the price per share, as adjusted from time to time
in accordance with the terms of Sections 2.07 and 2.08 hereof, at which the
Subject Shares may be redeemed in accordance with the terms and conditions of
this Agreement.
"Subject Shares" means (i) as of the Effective Date, 18,750,000 shares of
Common Stock, and (ii) as of any subsequent date, the number of shares of Common
Stock (and the number of shares, units or amounts of each such other security or
other property, which, as of such date, is a Subject Share in accordance with
the terms and provisions hereof) which are subject to redemption hereunder
(either pursuant to Section 2.01 or 2.02), as adjusted from time to time in
accordance with the terms hereof.
2
<PAGE>
"Tender Offer" means the offer by the Company to purchase up to 85 million
shares of Common Stock to be commenced on or about February 1, 1996.
"Transferee" means a Person to whom a Transfer has been made.
"Trust Agreement" means the Declaration of Trust made as of January 24,
1996 by Leslie H. Wexner, as Settlor and as Trustee.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Aggregate Common Stock Component 2.07(c)
Cash Collateral 3.05(a)
Constituent Person 2.09
Current Market Price
Per Common Share 2.07(d)
Custodian 3.04(a)
Custodian's Notice 3.05(a)
Custody Account 3.04
DGCL 2.03(c)
Daily Price 2.07(d)
Determination Date 2.07(c)
Designated Subject Shares 2.07(a)(ii)
Distributee Company 2.06(a)
Extraordinary Dividend 2.07(b)
Minimum Required Amount 3.05
Pledge Agreement 3.04(a)
Permitted Pledgee 2.04(c)
Pre-Distribution
Subject Shares 2.07(a)(i)(c)
Redemption Notice 2.01 and 2.02
Relevant Distribution 2.06(a)
Replaced Shares 2.04(d)
Repurchased Designated
Common Stock 2.07(c)
Rights 2.07(a)
Section 2.01 Redemption Right 2.01
Section 2.02 Redemption Right 2.02
Specified Number 2.07(a)(i)(A)
Subject Share Shortfall 2.07(a)(iii)
Transfer 2.04(a)
Transferee Agreement 2.04(b)
Withdrawn Shares 3.05(a)
</TABLE>
3
<PAGE>
ARTICLE II
REDEMPTION RIGHTS
-----------------
Section 2.01. Redemption Right of the Holder. Subject to the final
------------------------------
sentence of this Section 2.01, from time to time during the period commencing
upon the second annual anniversary of the Effective Date and ending on the day
prior to the fifth annual anniversary of the Effective Date, a Holder shall be
entitled to require the Company to redeem Subject Shares, in whole or in part,
subject to the terms and conditions hereof, if, and only if, during such period
such Holder gives written notice (a "Redemption Notice") to the Company stating
the number of Subject Shares to be redeemed (the "Section 2.01 Redemption
Right"). In such event, the Redemption Price shall be a price equal to $18.75
per share in cash, as adjusted from time to time in accordance with Sections
2.07 and 2.08 hereof. The Company shall not be required to redeem a number of
Subject Shares pursuant to this Section 2.01 having an aggregate Redemption
Price of less than $200 million, unless all other Subject Shares shall have been
previously, or shall be simultaneously, redeemed by the Company pursuant to the
terms of this Agreement. The number of Subject Shares from time to time subject
to the Section 2.01 Redemption Right shall be reduced by the number of Subject
Shares theretofore redeemed pursuant to this Section 2.01.
Section 2.02. Redemption Right of the Company. Subject to the final
-------------------------------
sentence of this Section 2.02, from time to time during the period commencing
upon the 66th monthly anniversary of the Effective Date and ending on the day
prior to the 72nd monthly anniversary of the Effective Date, the Company shall
have the right to redeem Subject Shares from a Holder that holds such Subject
Shares (or has withdrawn Subject Shares from the Custody Account in accordance
with Section 3.05) subject to the Section 2.02 Redemption Right, in whole or in
part, subject to the terms and conditions hereof, if, and only if, during such
period the Company gives written notice (a "Redemption Notice") to such Holder
stating the number of Subject Shares to be redeemed (the "Section 2.02
Redemption Right"). In such event, the Redemption Price shall be a price equal
to $25.07 per share in cash, as adjusted from time to time in accordance with
Sections 2.07 and 2.08 hereof. The Company shall not be entitled to redeem a
number of Subject Shares pursuant to this Section 2.02 having an aggregate
Redemption Price of less than $200 million unless all other Subject Shares shall
have been previously, or shall be simultaneously, redeemed by the Company
pursuant to the
4
<PAGE>
terms of this Agreement. The number of Subject Shares from time to time subject
to the Section 2.02 Redemption Right shall be reduced by the number of Subject
Shares theretofore redeemed pursuant to either the Section 2.01 Redemption Right
or the Section 2.02 Redemption Right.
Section 2.03. Closing. (a) Any Closing shall occur no later than
-------
five Business Days following the receipt by the Company or the Holder, as the
case may be, of a Redemption Notice. A Closing shall be permitted to occur
following the periods specified in Section 2.01 and 2.02 provided that the
Redemption Notice shall have been given prior to the expiration of the
applicable period.
(b)(i) At any Closing, the relevant Holder shall deliver, or cause to
be delivered, to the Company a certificate or certificates representing the
securities included in the Subject Shares to be redeemed at such Closing, duly
endorsed for transfer or accompanied by duly executed instruments of transfer,
in each case, with signature guaranteed, against payment therefor pursuant to
paragraph (ii) below. If less than all the securities included in the Subject
Shares represented by any such certificate or certificates are being redeemed,
the Company shall, at any such Closing (or, to the extent that the applicable
Subject Shares are not shares of Common Stock, as soon as practicable
thereafter), deliver to the Custodian, Trust or other Holders, as applicable,
new certificates representing the securities included in the Subject Shares
equal to the difference between the securities included in the Subject Shares
represented by the certificate(s) delivered to the Company and the securities
included in the Subject Shares redeemed. To the extent Subject Shares to be
redeemed at any Closing include property other than securities, title to such
property shall be conveyed, and possession of such property surrendered, to the
Company in a manner appropriate for such property. In the event any Closing
shall occur following a record date for a distribution with respect to any
security constituting a part of the Subject Shares, but prior to such
distribution, the relevant Holder shall not be required to deliver the security
or other property to be distributed in such distribution but, instead, shall be
obligated to deliver an instrument assigning such Holder's right to receive such
security or other property in such distribution with respect to the Subject
Shares so delivered.
(ii) At any Closing, the Company shall deliver to the relevant Holder,
against receipt of the Subject Shares being redeemed at such Closing in
accordance with paragraph (i) above, the aggregate Redemption Price for the
Subject Shares
5
<PAGE>
to be redeemed from such Holder at such Closing by wire transfer of immediately
available funds to such bank account as such Holder shall have specified in
writing no later than two Business Days prior to the Closing.
(c) Notwithstanding any provision of this Agreement to the contrary,
the Company's obligation to effect any Closing shall be subject to the following
conditions: (i) as of the date of the Closing, the relevant Holder (A) has the
legal capacity to deliver for redemption the Subject Shares and (B) owns the
Subject Shares (or is a Permitted Pledgee), and is delivering such shares to the
Company, free and clear of (x) in the case of any pledgee to whom any Section
2.01 Redemption Right and related Subject Shares shall have been pledged in
accordance with Section 2.04(c) hereof, or any other Holder following a Transfer
contemplated by clause (ii), (iii) or (iv) of such Section 2.04(c), all claims,
charges, encumbrances, or security interests created by or arising or attaching
through such pledgee or Holder and (y) in the case of any other Holder, all
claims, charges, encumbrances or security interests of any nature whatsoever,
except, in each case, a pledge or security interest granted pursuant to Section
3.04 hereof; (ii) as of the date of the Closing, the Company is not prohibited
from redeeming the Subject Shares by reason of clause (a)(1) of Section 160 of
the Delaware General Corporation Law ("DGCL"); (iii) no preliminary or permanent
injunction or other order by any court of competent jurisdiction prohibiting the
consummation of the transaction shall be in effect and (iv) the relevant Holder
shall have confirmed in writing to the Company as of the Closing Date the
accuracy of the matters referred to in clause (i) of this Section 2.03(c).
Section 2.04. Transfer of the Section 2.01 Redemption Right and the
-----------------------------------------------------
Subject Shares. (a) Any Holder shall have the right to transfer, sell, assign,
- --------------
bequeath or otherwise dispose of (together, "Transfer"), from time to time, in
whole or in part, the Section 2.01 Redemption Right to any Permitted Transferee;
provided the Transferee of the Section 2.01 Redemption Right, at the time of the
- --------
Transfer and at all times during which such Transferee holds the Section 2.01
Redemption Right, holds the number of Subject Shares from time to time required
to exercise the Section 2.01 Redemption Right in full (it being understood that
such Subject Shares need not have been owned by the Transferor of the Section
2.01 Redemption Right), and provided further, that as a condition to such
-------- -------
Transfer, such Transferee shall enter into a written agreement reasonably
satisfactory to the Company to the effect that such Transferee shall be bound by
the terms and provisions of this Agreement applicable to Holders of a Section
2.01 Redemption Right,
6
<PAGE>
including, without limitation, the terms of the immediately foregoing proviso.
(b) Each of the Trust and any Permitted Transferee shall have the
right to Transfer at any time following the third annual anniversary of the
Effective Date, in whole or, subject to the final sentence of this Section
2.04(b), in part, the Section 2.01 Redemption Right, to any Person other than a
Permitted Transferee, provided that (A) the number of Subject Shares to which
-------- ----
the Transferred Section 2.01 Redemption Right relates shall be Transferred
together with such Section 2.01 Redemption Right and (B) as a condition to such
Transfer, the Transferee shall enter into a written agreement reasonably
satisfactory to the Company to the effect that such Transferee shall (i) be a
"Holder" hereunder, (ii) be bound by the terms and provisions of this Agreement
applicable to Holders, (iii) hold such Section 2.01 Redemption Right (or portion
thereof) (and the related Subject Shares) for investment purposes only, (iv) not
engage (and shall not permit any other Person to engage) in any options,
hedging, derivatives or similar transactions or arrangements with respect to
such Section 2.01 Redemption Right (or portion thereof) or the Subject Shares
related thereto and (v) not Transfer such Section 2.01 Redemption Right (or
portion thereof) or Subject Shares except in accordance with this Section 2.04
(such agreement, a "Transferee Agreement"). Unless such Transferee shall
continue to hold Subject Shares subject to the Section 2.02 Redemption Right,
upon expiration or termination of the Section 2.01 Redemption Right, any
Transferee Agreement relating thereto shall also expire or terminate. In the
case of a partial Transfer of the Section 2.01 Redemption Right pursuant to this
Section 2.04(b), such Transfer shall be made only with respect to a portion of
such Section 2.01 Redemption Right in respect of Subject Shares having an
aggregate Redemption Price at least equal to $200 million, unless the number of
Subject Shares which have not been previously or simultaneously redeemed
pursuant to this Agreement shall have an aggregate Redemption Price of less than
$200 million (in which case the Section 2.01 Redemption Right may be Transferred
only in its entirety).
(c) The Trust or any Permitted Transferee shall have the right to
pledge the Section 2.01 Redemption Right (and related Subject Shares), from time
to time, in whole or in part, to any financial institution reasonably
satisfactory to the Company to secure such Holder's obligations under a Credit
Agreement; provided that, as a condition to such pledge, the pledgee shall enter
--------
into a written agreement reasonably satisfactory to the Company intended to
protect the Company's rights under this Agreement. Any such pledgee
7
<PAGE>
is referred to herein as a "Permitted Pledgee". Notwithstanding any contrary
provision of Section 2.01, the Section 2.01 Redemption Right shall be
exercisable beginning on the first annual anniversary of the Effective Date by a
Permitted Pledgee following the occurrence of a default under the applicable
Credit Agreement or by any Holder of the Section 2.01 Redemption Right and
related Subject Shares following a Transfer thereof pursuant to an exercise of
remedies by a Permitted Pledgee (whether by foreclosure of its pledge or the
exercise of other legal or equitable remedies) or pursuant to a Transfer made in
lieu of foreclosure following a default under the applicable Credit Agreement.
In the event of any default under a Credit Agreement entitling a Permitted
Pledgee to exercise or Transfer the Section 2.01 Redemption Right, then such
Permitted Pledgee shall have the right to:
(i) exercise the Section 2.01 Redemption Right at any time prior to
effecting any Transfer thereof, by foreclosure or otherwise;
(ii) effect a Transfer of the Section 2.01 Redemption Right (and
related Subject Shares), by foreclosure or otherwise, to a Permitted
Transferee, but in such event the Section 2.01 Redemption Right shall not
be exercisable prior to the second annual anniversary of the Effective Date
(except in accordance with this Section 2.04(c) if pledged by such
Permitted Transferee to another Permitted Pledgee);
(iii) effect a Transfer of the Section 2.01 Redemption Right (and
related Subject Shares), by foreclosure or otherwise, to any Person
(including, without limitation, itself); provided that the Transferee
--------
executes and delivers a Transferee Agreement and holds the Section 2.01
Redemption Right (and related Subject Shares) subject to the terms thereof;
or
(iv) effect a Transfer of the Section 2.01 Redemption Right (and
related Subject Shares), by foreclosure or otherwise, to any Person
(including, without limitation, itself) other than in accordance with the
foregoing clauses, but in such event the Section 2.01 Redemption Right so
Transferred shall terminate 15 Business Days after the date of consummation
of such Transfer unless such Person is a Permitted Pledgee (or an affiliate
thereof) and executes an agreement whereby such Person agrees not to
Transfer the Section 2.01 Redemption Right (and related Subject Shares)
other than in accordance with clause
8
<PAGE>
(ii) or (iii) above, in which case the Section 2.01 Redemption Right so
Transferred shall terminate 15 Business Days after the later to occur of
(A) the date of consummation of such Transfer and (B) the first annual
anniversary of the Effective Date.
A Transfer may be made as contemplated by clause (ii), (iii) or (iv)
above only if the Person to whom such Transfer is made assumes the obligations
of a Holder hereunder with respect to the Section 2.02 Redemption Right to the
extent of the Subject Shares Transferred; provided that such assumption shall
--------
not be required if such Subject Shares constitute Withdrawn Shares, or Replaced
Shares, at the time of such Transfer.
In addition to the foregoing, following the expiration of the Section
2.01 Redemption Right, the Trust or any Permitted Transferee shall be permitted
to pledge the Subject Shares, subject to the Section 2.02 Redemption Right, on
the same terms as are applicable to a pledge of the Section 2.01 Redemption
Right (and the related Subject Shares) under this Section 2.04(c).
(d) No Holder shall be permitted to Transfer any Subject Shares except (i)
in connection with a Transfer of the Section 2.01 Redemption Right in accordance
with Section 2.04(a), (b) or (c) or (ii) Withdrawn Shares or Replaced Shares.
All Subject Shares (other than Withdrawn Shares or Replaced Shares) Transferred
in accordance with Section 2.04(a), (b) or (c) shall at all times remain subject
to the Section 2.02 Redemption Right. Notwithstanding the foregoing, the Trust
shall be entitled from time to time to deposit into the Custody Account (or to
establish a separate Custody Account and deposit therein) additional Subject
Shares which shall immediately become subject to the Section 2.02 Redemption
Right (or cash in the Minimum Required Amount) in lieu of an equivalent number
of Subject Shares then held by another Holder (designated by the Trustee)
("Replaced Shares"), and (i) the Company shall thereupon issue or, to the extent
possible, cause to be issued to such Holder new certificates representing the
Replaced Shares without the legend referred to in Section 2.04(f) and (ii) such
Replaced Shares shall no longer be subject to the Section 2.02 Redemption Right.
(e) Except as expressly permitted by Section 2.04(a), (b), and (c), a
Section 2.01 Redemption Right may not be Transferred by any Holder; provided
--------
that, notwithstanding any contrary provision in this Section 2.04, it is
understood that any Transfer of Subject Shares and the Section 2.01 Redemption
Right pursuant to enforcement of the
9
<PAGE>
Guaranty (or any drawing under a letter of credit issued to support obligations
under the Guaranty) shall not be prohibited by any provision of this Agreement.
(f) All Subject Shares from time to time subject to the Section 2.02
Redemption Right shall bear a legend to such effect.
Section 2.05. Transfer of Section 2.02 Redemption Right. The Company
-----------------------------------------
shall have the right to transfer, from time to time, in whole or in part, the
Section 2.02 Redemption Right to any Affiliate, including, without limitation to
a Distributee Company in connection with any Relevant Distribution; provided,
--------
however, that (i) no such transfer shall relieve the Company of its obligation
to pay the aggregate Redemption Price in respect of the Section 2.01 Redemption
Right, unless the Distributee Company shall have assumed such obligation, and
(ii) the Guaranty and all other credit support referred to in Section 3.06
hereof shall remain in effect.
Section 2.06. Certain Adjustments to the Subject Shares. (a) In the
-----------------------------------------
event the Company shall fix a record date for the distribution to holders of
Common Stock of any security representing an interest in any business
theretofore owned or controlled by the Company, immediately following the
effective date of such distribution (a "Relevant Distribution"), each Subject
Share shall be deemed to consist of the share or shares of Common Stock and
other securities and other assets, if any, which, as of the date immediately
prior to such distribution, constituted a Subject Share, plus such security, or
portion thereof, to be received by the holders of Common Stock in such
distribution in respect of the share or shares of Common Stock included in one
Subject Share immediately prior to such distribution. If, in connection with
any such distribution, the Company's obligations under the Section 2.01
Redemption Right and the Company's rights under the Section 2.02 Redemption
Right are transferred to the entity the stock of which is being distributed to
holders of Common Stock (the "Distributee Company"), (i) an adjustment in the
number and type of securities included in one Subject Share shall be made in
accordance with the first sentence of this Section 2.06(a), (ii) the Distributee
Company shall be deemed the successor to the Company for all purposes of this
Agreement and (iii) without limiting the generality of the foregoing, for
purposes of determining whether any adjustment is required pursuant to Section
2.06, 2.07, 2.08 or 2.09 as a result of any action taken or event occurring
after the date of such distribution, all references to the Company shall be
deemed to be references to the Distributee Company and all
10
<PAGE>
references to Common Stock shall be deemed to be references to the common stock
of the Distributee Company received in the Relevant Distribution. The foregoing
adjustments shall be made successively whenever a record date is fixed and, in
the event that such distribution is not so made, the composition of the Subject
Shares shall again be adjusted to be such Subject Shares which would then be in
effect if such record date had not been fixed.
(b) In case the Company shall at any time after the date hereof (i)
declare a dividend, or make a distribution on Common Stock, payable in Common
Stock, (ii) subdivide or split the outstanding Common Stock, (iii) combine or
reclassify the outstanding Common Stock into a smaller number of shares, or (iv)
issue any shares of its capital stock in a reclassification of Common Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing corporation), each Subject Share
shall thereafter consist of (x) the number of shares of Common Stock or portions
thereof resulting from such dividend, distribution, subdivision, split,
combination or reclassification in respect of the number of shares of Common
Stock or portions thereof thereto fore contained in a Subject Share and (y) all
other assets and property theretofore contained in a Subject Share. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(c) All calculations required by this Section 2.06 shall be made to the
nearest one hundredth of a share.
Section 2.07. Certain Additional Adjustments. (a)(i) In case the
------------------------------
Company shall fix a record date for the issuance to all holders of Common Stock
of rights, options, warrants, convertible securities or other securities
entitling such holders to subscribe for or purchase shares of Common Stock (or
securities convertible into shares of Common Stock) (collectively, "Rights") and
the price per share of Common Stock (or the conversion price per share of Common
Stock, if a security convertible into shares of Common Stock) to be paid upon
exercise or conversion thereof is less than the Current Market Price Per Common
Share on such record date, then:
(A) unless the relevant Holder elects to have the provisions of clause
(iii) of this Section 2.07(a) apply, the Specified Number of shares of
Common Stock theretofore withdrawn from the Custody Account as a result of
the substitution of Cash Collateral shall be replaced in the Custody
Account at least two Business Days prior to the record date for such
issuance and
11
<PAGE>
such replacement shares of Common Stock shall remain in the Custody Account
through such record date (For purposes of this clause (A), the term
"Specified Number" means a number of shares of Common Stock equal to the
excess, if any, of (1) the number of shares of Common Stock then required
(together with all other assets comprising Subject Shares) to satisfy the
Section 2.02 Redemption Right in full over (2) the sum of the number of
----
shares of Common Stock then subject to a security interest of Permitted
Pledgees and the number of shares of Common Stock subject to the Section
2.02 Redemption Right but not subject to such security interest.);
(B) all Rights received in respect of Common Stock constituting a part
of the Designated Subject Shares, from and after the distribution thereof,
may not be Transferred (other than in connection with a Transfer of Subject
Shares);
(C) until such time as such Rights included in the Designated Subject
Shares expire or are exercised or converted, each Subject Share shall be
deemed to consist of each share of Common Stock included in a Subject Share
in respect of which such Rights were issued and such other securities and
other assets, if any, which, as of such record date constituted a Subject
Share (together, a "Pre-Distribution Subject Share") plus the number of
Rights determined by dividing (1) the total number of unexercised or
unconverted Rights included in the Designated Subject Shares, by (2) the
number of Subject Shares;
(D) to the extent such Rights included in the Designated Subject
Shares are exercised or converted, from and after the time of such exercise
or conversion each Subject Share shall be deemed to consist of a Pre-
Distribution Subject Share plus any unexpired, unexercised and unconverted
Rights included therein pursuant to clause (C) above, plus (x) a number of
shares of Common Stock with a Current Market Price Per Common Share
(measured as of the record date) equal to the difference between (1) the
aggregate Current Market Price Per Common Share (determined as aforesaid)
of the shares of Common Stock received upon such exercise or conversion of
Rights included in the Designated Subject Shares minus (2) the aggregate
-----
price paid by the relevant Holder upon such exercise or conversion divided
by (y) the number of Subject Shares.
12
<PAGE>
(ii) For purposes hereof, "Designated Subject Shares" means, at any
time, particular Subject Shares equal to the total number of Subject Shares at
the time, determined by reference to (A) first, to the extent that any Subject
Shares have been pledged, together with related Section 2.01 Redemption Rights,
to a Permitted Pledgee, the number of Subject Shares so pledged and (B) second,
to the extent that the total number of Subject Shares at the time exceeds the
Designated Subject Shares specified in clause (A) of this Section 2.07(a)(ii),
the Subject Shares in the Custody Account.
(iii) For purposes of this Section 2.07(a), if on any record date
referred to in clause (i) of this Section 2.07(a), the aggregate number of
Designated Subject Shares shall be less than the aggregate number of Subject
Shares (such shortfall, the "Subject Share Shortfall") each Subject Share shall
be adjusted pursuant to clause (i)(D) of this Section 2.07(a) as if, in addition
to the Rights actually exercised in respect of actual Designated Subject Shares,
all Rights in respect of a number of Designated Subject Shares equal to the
Subject Share Shortfall had been exercised on such record date.
(iv) The adjustments set forth above shall be made successively
whenever a record date is fixed or any Right is exercised or converted, as the
case may be; and in the event that such Rights are not so issued or expire
unexercised, each Subject Share shall again be adjusted to be such Subject
Shares which would then be in effect if such record date had not been fixed.
(b) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, assets or other property
(other than (w) distributions payable in Common Stock or Rights referred to in,
and for which an adjustment is made pursuant to, Section 2.07(a) hereof, (x)
distributions referred to in, and for which an adjustment is made pursuant to
Section 2.06, (y) any regular quarterly or semi-annual dividend payable in cash
or (z) any dividend payable in cash other than a regular quarterly or semi-
annual dividend (an "Extraordinary Dividend") which, individually or together
with all other Extraordinary Dividends paid in such fiscal year, does not exceed
50% of the aggregate amount of any regular quarterly or semi-annual dividend or
dividends paid in the preceding fiscal year) then (i) in the case of any
distribution of cash, the Redemption Price to be in effect after such record
date
13
<PAGE>
shall be reduced by the amount of cash distributed in respect of the number of
shares of Common Stock included in one Subject Share and (ii) in the case of a
distribution of evidences of indebtedness, assets or other property (other than
cash), from and after such record date, each Subject Share shall be deemed to
consist of such number of shares of Common Stock included in one Subject Share
as of such record date, and such other securities and other assets, if any,
which, as of such record date, constituted one Subject Share, plus such
evidences of indebtedness, assets or other property received by the Holder in
respect of such number of shares of Common Stock in such distribution. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, each Redemption Price or the
composition of the Subject Shares, as the case may be, shall again be adjusted
to be such Redemption Price or such Subject Shares, as the case may be, which
would then be in effect if such record date had not been fixed.
(c) In case at any time or from time to time the Company or any subsidiary
thereof shall repurchase, by self tender offer (excluding for this purpose, open
market purchases), any shares of Common Stock of the Company included in any
Designated Subject Shares at a weighted average purchase price in excess of the
Current Market Price Per Common Share on the Business Day immediately prior to
the earliest date of such repurchase, the commencement of an offer to repurchase
or the public announcement of either (such date being referred to as the
"Determination Date"), (i) each Subject Share shall thereafter consist of (A)
all property and assets other than shares of Common Stock included in one
Subject Share on the Determination Date and (B) a number of shares of Common
Stock equal to the number of shares of Common Stock included in one Subject
Share on the Determination Date multiplied by a fraction the numerator of which
is (I) the aggregate number of shares of Common Stock included in the total
number of Subject Shares on the Determination Date (such aggregate number of
shares of Common Stock, the "Aggregate Common Stock Component") less (II) the
number of shares of Common Stock included in all Designated Subject Shares on
the Determination Date that are purchased pursuant to such repurchase (the
"Repurchased Designated Common Stock") and the denominator of which is the
Aggregate Common Stock Component as of the Determination Date and (ii) each
Redemption Price shall be adjusted to equal the amount determined by dividing
(x) the difference between (A) the product of the number of Subject Shares
outstanding on the Determination Date multiplied by the Redemption Price
theretofore in effect minus (B) the number of shares of Repurchased Designated
Common Stock multiplied
14
<PAGE>
by the purchase price per share of Repurchased Designated Common Stock paid by
the Company or any subsidiary in such repurchase by (y) the total number of
Subject Shares. For purposes of this Section 2.07(c), if on any Determination
Date in respect of any self tender offer there shall exist a Subject Share
Shortfall, the adjustments set forth in the foregoing sentence shall be made as
if the number of shares of Repurchased Designated Common Stock included, in
addition to any shares of Common Stock included in any Designated Subject Shares
actually purchased pursuant to such repurchase, a number of Shares of Common
Stock equal to the number that would have been purchased had a number of shares
of Common Stock equal to the number of shares included in a number of Subject
Shares equal to the Subject Share Shortfall been tendered and purchased on the
basis of the maximum proration possible in respect of such tender offer. In
addition, for purposes of this Section 2.07(c), neither (A) the Tender Offer,
(B) the exercise of the Section 2.01 Redemption Right or the Section 2.02
Redemption Right nor (C) the repurchase or repurchases by the Company or any
subsidiary thereof within any 12 month period of not more than 15% of the shares
of Common Stock outstanding as of the first date of such period, at a price not
in excess of 115% of the Current Market Price Per Common Share as of the
Determination Date of any such repurchase, shall be deemed to constitute a
repurchase to which this Section 2.07(c) applies. An adjustment made pursuant
to this Section 2.07(c) shall become effective immediately after the effective
date of such repurchase.
(d) For the purpose of any computation under Sections 2.07(a), (b) or (c)
hereof, on any Determination Date the "Current Market Price Per Common Share"
shall be deemed to be the average (weighted by daily trading volume) of the
Daily Prices (as defined below) per share of the applicable class of Common
Stock for the 20 consecutive trading days immediately prior to such date.
"Daily Price" means the closing price on such day as reported on the New York
Stock Exchange, Inc. Composite Transactions Tape.
(e) No adjustment in the Redemption Price shall be required unless such
adjustment would require an adjustment of at least one percent in such price;
provided that any adjustments which by reason of this Section 2.07(e) are not
- --------
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 2.07 shall be made
to the nearest one tenth of a cent.
2.08. Other Adjustments. In the event that the Subject Shares shall
-----------------
include any shares of capital stock of
15
<PAGE>
the Company other than Common Stock or any shares of capital stock of any other
Person, the number of such other shares and/or the applicable Redemption Price
shall thereafter be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained in
Sections 2.06, 2.07 and 2.09 hereof. In addition, if (i) the Company effects
any distribution or similar transaction to or in respect of holders of Common
Stock involving any securities representing an interest in any business
theretofore owned by the Company and (ii) the effect of such distribution or
similar transaction on the composition of the Subject Shares is not addressed in
Section 2.06, 2.07 or 2.09 hereof, the composition of the Subject Shares shall
thereafter be adjusted in an equitable manner to reflect both the nature of the
distribution or transaction and the purposes of the provisions of Sections 2.06,
2.07 and 2.08.
2.09. Merger, Consolidation or Sale of Assets. In case of any
---------------------------------------
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock) or any sale or transfer of all or
substantially all of the assets of the Company or of the Person formed by such
consolidation or resulting from such merger or which acquires such assets, as
the case may be, the portion of one Subject Share consisting of Common Stock
shall thereafter be the kind and amount of securities receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock equal to the number of shares of Common Stock included in one
Subject Share immediately prior to such consolidation, merger, sale or transfer,
assuming (i) such holder of Common Stock is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
Person"), or an Affiliate of a Constituent Person and (ii) in the case of a
consolidation, merger, sale or transfer which includes an election as to the
consideration to be received by the holders, (A) such holder made the election
actually made in respect of the Designated Subject Shares and (B) if there is a
Subject Share Shortfall at the time at which any such election is to be made, no
election was made in respect of a number of Subject Shares equal to such Subject
Share Shortfall, (provided that in the case of this clause (B), if the kind or
amount of securities and other property receivable upon such consolidation,
merger, sale or transfer is not the same for each share of Common Stock held
immediately prior to such consolidation, merger, sale or
16
<PAGE>
transfer by other than a Constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised ("non-
electing share"), then for the purpose of clause (B) of this Section 2.09 the
kind and amount of securities and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Adjustments for events subsequent to the effective date
of such a consolidation, merger and sale of assets shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Agreement. In the
event the Company is not the surviving entity, this Agreement shall be assumed
by the Person with whom such transaction is effected and any such resulting or
surviving corporation shall expressly assume the obligation to deliver, upon
exercise of the Section 2.01 Redemption Right and the Section 2.02 Redemption
Right, the aggregate Redemption Price. The provisions of this Section 2.09
shall similarly apply to successive consolidations, mergers, sales, leases or
transfers.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
Section 3.01. Representations and Warranties of the Company. The
---------------------------------------------
Company represents and warrants to the Principal Stockholder and the Trust that
(a) the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, (b) the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, and (c) this Agreement has been duly executed and delivered by the
Company and, assuming this Agreement constitutes a valid and binding obligation
of the Principal Stockholder and the Trust, constitutes a valid and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and the availability of equitable
remedies may be limited by equitable principles of general applicability.
17
<PAGE>
Section 3.02. Representations and Warranties of the Trustee. The
---------------------------------------------
Trustee represents and warrants to the Company that (i) the Trust has been duly
constituted and is validly existing under the laws of the State of Ohio, and has
the requisite power and authority to enter into this Agreement and to carry out
its obligations hereunder, (ii) the execution and delivery of this Agreement by
the Trustee and the consummation by the Trustee and/or its successors in trust
of the transactions contemplated hereby have been duly authorized by all
necessary action under the Trust Agreement and no other proceedings on the part
of the Trustee or any other Person are necessary to authorize this Agreement or
any of the transactions contemplated hereby, and (iii) this Agreement has been
duly executed and delivered by the Trustee and, assuming this Agreement
constitutes a valid and binding obligation of the Company and the Principal
Stockholder, constitutes a valid and binding obligation of the Trustee and/or
its successors in trust, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
the availability of equitable remedies may be limited by equitable principles of
general applicability.
Section 3.03. Covenants of the Principal Stockholder. The Principal
--------------------------------------
Stockholder agrees that he (a) will not, and will cause all members of his
Immediate Family who reside in his household and all other non-natural Persons
referred to in the definition of Permitted Transferees over which he exercises
control not to, tender any shares of Common Stock in the Tender Offer, and (b)
will cause the Trust to comply with all of its obligations under this Agreement.
Section 3.04. Certain Other Covenants. (a) The Trust agrees that it
-----------------------
will (i) not tender any shares of Common Stock in the Tender Offer, (ii) on the
Effective Date, own not less than 18,750,000 shares of Common Stock and deposit
the certificate or certificates representing such Shares in a custody account
(the "Custody Account") with a financial or similar institution (the
"Custodian") in the manner contemplated in the Pledge Agreement referred to
below; (iii) deposit any certificate or certificates representing any shares of
capital stock or other securities which hereinafter become Subject Shares in the
Custody Account as soon as practicable following the date on which such
securities become Subject Shares, (iv) upon any exercise of the Section 2.02
Redemption Right unless such Section 2.02 Redemption Right shall have been
assumed by another Holder in accordance with the terms hereof, will
18
<PAGE>
deliver all the Subject Shares being redeemed free and clear of all liens,
charges, encumbrances, or security interests of any nature whatsoever, (v) at
the Effective Date, own the Subject Shares free and clear of any claims,
charges, encumbrances or security interests other than those created under the
Pledge Agreement or those securing a Credit Agreement as permitted under Section
2.04(c) and (vi) on or prior to the Effective Date, (A) execute a pledge or
similar agreement (the "Pledge Agreement") in form and substance reasonably
satisfactory to the Trust and the Company pursuant to which the Trust shall
grant to the Company and its permitted assigns a security interest in the
Subject Shares and any Cash Collateral that may be collateral after the date
hereof, (B) to the fullest extent permitted by applicable law, give, execute,
file and record any notice, financing statement, continuation statement or other
instrument, document or agreement that the Company may reasonably consider
necessary or desirable to create, perfect, continue or validate such security
interest or to exercise or enforce the Company's rights with respect to such
security interest and (C) appoint the Company as its attorney-in-fact to
execute, file and record any such documents. The Company hereby acknowledges
and agrees that, in the event the Trust shall enter into a Credit Agreement
containing an obligation on the part of the Trust for borrowed money for which
any Subject Shares shall be pledged as security, the security interest referred
to in this Section 3.04(a)(vi) shall be subordinated to any security interest in
such Subject Shares required by and granted to any lender (or agent thereof) in
connection with any such borrowing.
(b) Upon any exercise of the Section 2.02 Redemption Right, each
Holder (other than the Trust (the obligations of which are set forth in Section
3.04(a)) and a Permitted Pledgee (the obligations of which will be set forth in
agreements to be entered into between the Company and such Permitted Pledgee)
shall deliver the Subject Shares being redeemed free and clear of (x) in the
case of any pledgee to whom the Subject Shares shall have been pledged in
accordance with Section 2.04(c) hereof, or any other Holder following a Transfer
contemplated by clause (ii), (iii) or (iv) of such Section 2.04(c), all claims,
charges, encumbrances or security interests created by or arising or attaching
through such pledgee or Holder and (y) in the case of any other Holder, all
claims, charges, encumbrances or security interests of any nature whatsoever.
Section 3.05. Substitution of Collateral. (a) The Trust shall be
--------------------------
permitted, from time to time, to withdraw Subject Shares from the Custody
Account and the security
19
<PAGE>
interest under the Pledge Agreement, provided, however, that the Trust shall
--------
substitute therefor, in a manner and pursuant to agreements and arrangements
reasonably satisfactory to the Company under which the Company shall have a
perfected security interest therein subject to no prior liens or security
interests other than liens and security interests theretofore applicable to the
Subject Shares withdrawn prior to or concurrently with any such withdrawal,
either (i) an amount in cash (the "Cash Collateral") at least equal to the
Minimum Required Amount or (ii) an equal number of Subject Shares (the number of
Subject Shares from time to time so withdrawn, "Withdrawn Shares"). The
"Minimum Required Amount" means 120% of the product of the fair market value of
the assets comprising a Subject Share and the number of Withdrawn Shares. For
purposes of the preceding sentence, the fair market value (i) of a share of
Common Stock shall be the Current Market Price Per Common Share as of the
Determination Date or (ii) of any other publicly traded securities shall be
deemed to be the average (weighted by trading volume) of the daily closing
prices (as reported in The Wall Street Journal or other recognized source of
-----------------------
financial information) of such securities on the principal securities exchange
on which, or the principal securities market in which, such securities are
traded during the 20 consecutive trading days immediately prior to such date and
(iii) of any other assets, as determined in good faith by the Board of Directors
of the Company. The required amount of Cash Collateral shall be recalculated
weekly by the Custodian, which shall deliver promptly (by telecopier in
accordance with Section 4.05) a written notice of such recalculation to the
Trust (a "Custodian's Notice"). Cash Collateral shall be remitted by the
Custodian to, or additional Cash Collateral (or Subject Shares) which may be
required shall be deposited in the Custody Account by, the Trust based upon the
most recent Custodian's Notice, to the extent, but only to the extent, the value
of the Cash Collateral is greater or less than, as the case may be, the then
current Minimum Required Amount. Any payment by or to the Trust shall be made
on the second Business Day after the date of the Custodian's Notice. Any income
in respect of the Cash Collateral shall be paid to the Trust; provided that any
--------
such income shall be retained by the Custodian to the extent necessary to bring
the Trust into compliance with the provisions of this Section 3.05. Cash
Collateral may be invested only in U.S. Government debt securities having a
maturity of less than 90 days.
(b) If the Company exercises its Section 2.02 Redemption Right, or the
Trust fails to satisfy its obligations pursuant to Section 3.05(a), upon the
Company's
20
<PAGE>
instruction the Custodian shall utilize the Cash Collateral to purchase (within
three Business Days after the Redemption Notice in respect of the Section 2.02
Redemption Right shall have been given) such number of Subject Shares as are
required to satisfy the Trust's obligations in respect of the Section 2.02
Redemption Right so exercised.
Section 3.06. Covenants of the Company. The Company agrees that it
------------------------
shall, prior to the Effective Date (or as promptly as practicable thereafter),
provide credit support in respect of its obligations hereunder on terms
reasonably satisfactory to the Company and the Trust which may include, among
other things, the creation of a bankruptcy remote vehicle, the funding of such
vehicle and the provision by such vehicle of guarantees of or collateral to
support such obligations of the Company, letters of credit to support such
guarantees or obligations and/or reimbursement obligations in respect of such
letters of credit.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.01. Expenses. (a) Except as otherwise agreed by the
--------
parties and except as provided in Section 4.01(b) hereof, each party hereto will
pay all of its own expenses in connection with the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of its
counsel and other advisers, whether or not the transactions contemplated herein
are consummated. Any fees, commissions, and other payments owing to a party's
financial advisors in connection with this Agreement shall be borne solely by
that party.
(b) The Company shall pay any transfer taxes incurred by the Holder as a
result of the exercise of the Section 2.01 Redemption Right or the Section 2.02
Redemption Right, provided, however, that if the Holder shall request the
--------
Company to pay any portion of the aggregate Redemption Price to a Person other
than the registered holder of the Subject Shares represented by the certificate
or certificates surrendered in exchange therefor, it shall be a condition to
such payment that the Holder shall pay to the Company any transfer taxes
required to be paid as a result of such payment to a Person other than the
registered holder of such Subject Shares or establish to the satisfaction of the
Company that such tax has been paid or is not payable.
21
<PAGE>
Section 4.02. Public Announcements. Except as required by applicable
--------------------
law or regulations, the Principal Stockholder and the Company shall jointly
approve any public announcements relating to the transactions described herein.
Each party agrees to cooperate with the other in the preparation of any
governmental filing relating to the transactions contemplated hereby.
Section 4.03. Mutual Cooperation. Each of the parties hereto hereby
------------------
agrees to reasonably cooperate with each other party in seeking the successful
consummation of the transactions contemplated herein and to use its or his best
efforts promptly to take all such actions as may be necessary or appropriate to
consummate the transactions contemplated herein.
Section 4.04. Amendment; Assigns. This Agreement may not be
------------------
modified, amended, altered or supplemented except by an agreement in writing
executed by each of the parties hereto. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 4.05. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be either (i) hand-
delivered, (ii) delivered by reputable overnight courier delivery or (iii) sent
by telecopy (with receipt confirmed) and shall be deemed given upon delivery
when hand-delivered, or one business day after having been deposited with the
overnight courier service or upon receipt of confirmation of telecopier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
If to the Principal Stockholder:
Leslie H. Wexner
c/o The Limited, Inc.
Three Limited Parkway
P. O. Box 1600
Columbus, Ohio 43216
Facsimile: (614) 479-7208
22
<PAGE>
If to the Trust:
The Wexner Children's Trust
c/o The Limited, Inc.
Three Limited Parkway
P. O. Box 1600
Columbus, Ohio 43216
Attn: Leslie H. Wexner, Trustee
Facsimile: (614) 479-7208
With a copy to:
Weil Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attn: Dennis J. Block
Facsimile: (212) 310-8007
If to the Company:
The Limited, Inc.
Three Limited Parkway
P.O. Box 1600
Columbus, Ohio 43216
Attn: Samuel P. Fried
Facsimile: (614) 479-7188
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attn: David L. Caplan
Facsimile: (212) 450-4800
Section 4.06. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same document.
Section 4.07. Governing Law. This Agreement shall be governed by,
-------------
and construed and interpreted in accordance with, the laws of the State of New
York.
Section 4.08. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
23
<PAGE>
effect and shall in no way be affected, impaired or invalidated.
Section 4.09. Third Party Beneficiaries. Nothing in this Agreement,
-------------------------
expressed or implied, shall be construed to give any person other than the
parties hereto and their successors and permitted assigns any legal or equitable
right, remedy or claim under or by reason of this Agreement or any provision
contained herein.
Section 4.10. Entire Agreement. This Agreement and any documents
----------------
delivered by the parties pursuant hereto, constitutes the entire understanding
and agreement of the parties hereto with regard to the subject matter hereof and
thereof, and supersedes all prior agreements and understandings, written or
oral, between the parties relating to the subject matter hereof.
Section 4.11. Injunctive Relief. Each of the parties hereto
-----------------
acknowledges and agrees that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that,
to the fullest extent permitted under applicable law, the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specific performance of the terms
and provisions hereof in any court of the United States of America or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or in equity.
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
THE LIMITED, INC.
By: /s/
--------------------------
Name: Kenneth B. Gilman
Title: Vice Chairman
LESLIE H. WEXNER
/s/
-----------------------------
/s/
-----------------------------
LESLIE H. WEXNER,
as Trustee of The
Wexner Children's Trust
25
<PAGE>
EXHIBIT 10.14
-------------
AMENDMENT
to
CONTINGENT STOCK REDEMPTION AGREEMENT
-------------------------------------
AMENDMENT dated as of July 19, 1996 ("Amendment") to the CONTINGENT STOCK
REDEMPTION AGREEMENT (the "Agreement") dated as of January 26, 1996 among The
Limited, Inc., a Delaware corporation (the "Company"), Leslie H. Wexner, in his
individual capacity, (in such capacity, the "Principal Stockholder"), and Leslie
H. Wexner, as Trustee (in such capacity, the "Trustee") of The Wexner Children's
Trust under a Trust Agreement dated January 24, 1996 (the "Trust").
WHEREAS, the Company, the Principal Stockholder and the Trustee desire to
amend the Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings given them in the Agreement, and each reference in the
Agreement to "this Agreement", "hereof", "herein", "hereunder", or "hereby" and
each other similar reference shall be deemed to refer to the Agreement as
amended hereby. All references to the Agreement in any other agreement between
the parties hereto relating to the transactions contemplated by the Agreement
shall be deemed to refer to the Agreement as amended hereby.
2. The first sentence of Section 2.01 of the Agreement is hereby amended
by deleting the phrase "upon the second annual anniversary of the Effective
Date" and inserting in its place the date "January 31, 1998", and by deleting
the phrase "the day prior to the fifth annual anniversary of the Effective Date"
and inserting in its place the date "January 30, 2006". The first sentence of
Section 2.02 of the Agreement is hereby amended by deleting the phrase "upon the
66th monthly anniversary of the Effective Date" and inserting in its place the
date "July 31, 2006", and by deleting the phrase "the day prior to the 72nd
monthly anniversary of the Effective Date" and inserting in its place the date
"January 30, 2007".
<PAGE>
3. This Amendment shall be construed in accordance with and governed by
the law of the State of New York (without regard to principles of conflict of
laws).
4. This Amendment may be signed in any number of counterparts, each of
which shall be an original with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Amendment shall become effective
when each party hereto shall have received counterparts hereof signed by all of
the other parties hereto.
5. Except as expressly amended hereby, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first above written.
THE LIMITED, INC.
By: /s/ Kenneth B. Gilman
---------------------------------
Name: Kenneth B. Gilman
Title: Vice Chairman
LESLIE H. WEXNER
/s/ Leslie H. Wexner
-------------------------------------
/s/ Leslie H. Wexner
-------------------------------------
LESLIE H. WEXNER,
as Trustee of The
Wexner Children's Trust
-2-
<PAGE>
EXHIBIT 10.20
-------------
SUPPLEMENTAL SCHEDULE OF EXECUTIVE OFFICER WHO BECAME
A PARTY TO AN INDEMNIFICATION AGREEMENT
EFFECTIVE FEBRUARY 3, 1997
Signatory Capacity
- --------- --------
Peter Z. Horvath Executive Officer
<PAGE>
EXHIBIT 11
----------
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
February 1, February 3,
1997 1996
------------ ------------
<S> <C> <C>
Net income $ 213,393 $216,225
============ ============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,033 229
Weighted average treasury shares (108,389) (22,057)
------------ ------------
Weighted average used to calculate
net income per share 272,098 357,626
============ ============
Net income per share $ 0.78 $ 0.60
============ ============
<CAPTION>
Year Ended
--------------------------
February 1, February 3,
1997 1996
------------ ------------
<S> <C> <C>
Net income $ 434,208 $961,511
============ ============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 1,354 779
Weighted average treasury shares (98,755) (21,862)
------------ ------------
Weighted average used to calculate
net income per share 282,053 358,371
============ ============
Net income per share $ 1.54 $ 2.68
============ ============
</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)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------
February 1, 1997 February 3, 1996 January 28, 1995 January 29, 1994 January 30, 1993
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Adjusted Earnings
- -----------------
Pretax earnings $ 675,208 $1,184,511 $ 744,343 $644,999 $745,497
Portion of minimum rent ($714,482 in 1996, 238,161 223,100 204,716 190,759 170,181
$669,301 in 1995, $614,147 in 1994,
$572,278 in 1993 and $510,544 in 1992)
representative of interest
Interest on indebtedness 75,363 77,537 65,381 63,865 62,398
Minority interest 45,646 22,374 - - _
----------- ----------- ----------- --------- ---------
Total earnings as adjusted $1,034,378 $1,507,522 $1,014,440 $899,623 $978,076
=========== =========== =========== ========= =========
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $ 238,161 $ 223,100 $ 204,716 $190,759 $170,181
Interest on indebtedness 75,363 77,537 65,381 63,865 62,398
----------- ----------- ----------- --------- ---------
Total fixed charges $ 313,524 $ 300,637 $ 270,097 $254,624 $232,579
=========== =========== =========== ========= =========
Ratio of earnings to fixed charges 3.30x 5.01x 3.76x 3.53x 4.21x
=========== =========== =========== ========= =========
</TABLE>
<PAGE>
limited EXHIBIT 13
----------
96 financials
FINANCIAL SUMMARY
- --------------------------------------------------------------------------------
Thousands except per share amounts, ratios and store and associate data
<TABLE>
<CAPTION>
SUMMARY OF 1996 (a,b,c)1995 1994 (a)1993 1992 (b)1991
OPERATIONS --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $8,644,791 $7,881,437 $7,320,792 $7,245,088 $6,944,296 $6,149,218
Gross Income $2,496,579 $2,087,532 $2,114,363 $1,958,835 $1,990,740 $1,793,543
Operating Income $636,067 $613,349 $798,989 $701,556 $788,698 $712,700
Operating Income as a
Percentage of Sales 7.4% 7.8% 10.9% 9.7% 11.4% 11.6%
Income Before Income Taxes $675,208 $1,184,511 $744,343 $644,999 $745,497 $660,302
Net Income $434,208 $961,511 $448,343 $390,999 $455,497 $403,302
Net Income (Excluding Gain on
Sale of Subsidiary Stock) $316,030 $312,044 $448,343 $390,999 $446,380 $403,302
Net Income as a Percentage
of Sales (d)3.7% (d)4.0% 6.1% 5.4% (d)6.4% 6.6%
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE RESULTS
Net Income $1.54 $2.68 $1.25 $1.08 $1.25 $1.11
Net Income (Excluding Gain on
Sale of Subsidiary Stock) $1.12 $ .87 $1.25 $1.08 $1.23 $1.11
Dividends $ .40 $ .40 $ .36 $ .36 $ .28 $ .28
Book Value $7.09 $9.01 $7.72 $6.82 $6.25 $5.19
Weighted Average Shares
Outstanding 282,053 358,371 358,601 363,234 363,738 363,594
- ----------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
Total Assets $4,120,002 $5,266,563 $4,570,077 $4,135,105 $3,846,450 $3,418,856
Return on Average Assets (d)7% (d)6% 10% 10% (d)12% 13%
Working Capital $638,204 $2,018,960 $1,750,111 $1,513,181 $1,063,352 $1,084,205
Current Ratio 1.7 3.5 3.2 3.1 2.5 3.1
Capital Expenditures $409,260 $374,374 $319,676 $295,804 $429,545 $523,082
Long-Term Debt $650,000 $650,000 $650,000 $650,000 $541,639 $713,758
Debt-to-Equity Ratio 34% 20% 24% 27% 24% 38%
Shareholders' Equity $1,922,582 $3,201,041 $2,760,956 $2,441,293 $2,267,617 $1,876,792
Return on Average
Shareholders' Equity (d)16% (d)10% 17% 17% (d)22% 23%
Comparable Store Sales
Increase (Decrease) 3% (2%) (3%) (1%) 2% 3%
- ----------------------------------------------------------------------------------------------------------------------------
STORES AND ASSOCIATES AT
END OF YEAR
Total Number of Stores Open 5,633 5,298 4,867 4,623 4,425 4,194
Selling Square Feet 28,405,000 27,403,000 25,627,000 24,426,000 22,863,000 20,355,000
Number of Associates 123,100 106,900 105,600 97,500 100,700 83,800
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUMMARY OF (b)1990 (a,c)1989 (b)1988 1987 1986
OPERATIONS ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $5,253,509 $4,647,916 $4,070,777 $3,527,941 $3,142,696
Gross Income $1,630,439 $1,446,635 $1,214,703 $992,775 $961,827
Operating Income $697,537 $625,254 $467,418 $408,872 $438,229
Operating Income as a
Percentage of Sales 13.3% 13.5% 11.5% 11.6% 13.9%
Income Before Income Taxes $653,438 $573,926 $396,136 $378,188 $394,780
Net Income $398,438 $346,926 $245,136 $235,188 $227,780
Net Income (Excluding Gain on
Sale of Subsidiary Stock) $398,438 $346,926 $245,136 $235,188 $227,780
Net Income as a Percentage
of Sales 7.6% 7.5% 6.0% 6.7% 7.2%
- -----------------------------------------------------------------------------------------------------------
PER SHARE RESULTS
Net Income $1.10 $.96 $.68 $.62 $.60
Net Income (Excluding Gain on
Sale of Subsidiary Stock) $1.10 $.96 $.68 $.62 $.60
Dividends $.24 $.16 $.12 $.12 $.08
Book Value $4.33 $3.45 $2.64 $2.04 $2.07
Weighted Average Shares
Outstanding 362,044 361,288 360,186 376,626 376,860
- -----------------------------------------------------------------------------------------------------------
OTHER FINANCIAL INFORMATION
Total Assets $2,871,878 $2,418,486 $2,145,506 $1,929,477 $1,726,544
Return on Average Assets 15% 15% 12% 13% 14%
Working Capital $884,004 $685,524 $567,639 $629,783 $586,827
Current Ratio 2.8 2.4 2.2 2.9 2.7
Capital Expenditures $428,844 $318,427 $288,972 $283,590 $196,487
Long-Term Debt $540,446 $445,674 $517,952 $681,000 $417,420
Debt-to-Equity Ratio 35% 36% 55% 93% 53%
Shareholders' Equity $1,560,052 $1,240,454 $946,207 $729,171 $781,542
Return on Average
Shareholders' Equity 28% 32% 29% 31% 38%
Comparable Store Sales
Increase (Decrease) 3% 9% 8% 3% 18%
- ----------------------------------------------------------------------------------------------------------
STORES AND ASSOCIATES AT
END OF YEAR
Total Number of Stores Open 3,760 3,344 3,497 3,115 2,682
Selling Square Feet 17,008,000 14,374,000 14,296,000 12,795,000 11,320,000
Number of Associates 72,500 63,000 56,700 50,200 43,200
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes the results of companies disposed of up to the disposition date.
(b) Includes the results of companies acquired subsequent to the date of
acquisition.
(c) Fifty-three-week fiscal year.
(d) Excludes the effect on net income of the gain on sale of subsidiary stock of
$118,178 in 1996, $649,467 in 1995 and $9,117 in 1992.
- --------------------------------------------------------------------------------
the limited inc 1996 annual report 27
<PAGE>
financials
MANAGEMENT'S DISCUSSION AND ANALYSIS
results of operations
Net sales for the thirteen-week fourth quarter of 1996 grew 7% to $2.966 billion
from $2.771 billion for the fourteen-week fourth quarter a year ago. Net income
was $213 million, and earnings per share increased 30% to $0.78 versus $0.60 on
a pro-forma basis in 1995, excluding the 1995 gain on sale of subsidiary stock.
In the fourth quarter of 1995, the Company recorded a gain on sale of subsidiary
stock of $36.0 million, or $0.10 per share, resulting from the exercise of
underwriters' over-allotment options on an additional 2.7 million shares over
the original 40 million shares issued from the Intimate Brands, Inc. ("IBI")
third quarter initial public offering.
Net sales for the fifty-two-week fiscal year ended February 1, 1997 increased
10% to $8.645 billion from sales of $7.881 billion for the fifty-three-week
fiscal year ended February 3, 1996. Net income (excluding gains on sales of
subsidiary stock) was $316 million, or $1.12 per share, compared to pro-forma
$0.88 per share last year, an increase of 27%. The Company also recorded gains
of $118.2 million and $649.5 million, or $0.42 and $1.81 per share, resulting
from the initial public offerings of a 15.8% interest in Abercrombie & Fitch Co.
("A&F") and a 16.9% interest in IBI during the Fall seasons of 1996 and 1995,
respectively.
Business highlights include the following:
.IBI, led by strong performances at Bath & Body Works and Victoria's Secret
Stores, demonstrated market leadership with an earnings per share increase of
24% over last year's pro-forma results, excluding a $12 million special and
nonrecurring charge for the 1997 sale of Penhaligon's.
.Lerner New York delivered a fivefold increase in operating income for the
year, on a comparable store sales increase of 8%.
.Merchandise improvements and expense controls contributed to operating income
gains at Limited Stores and Lane Bryant.
.A&F increased operating income by 93% for the year and 68% for the fourth
quarter. Comparable store sales were up 13% for the year.
.Limited Too experienced a significant improvement in operating income and an
8% comparable store sales gain. It was also a dramatic turnaround year for
Structure, which produced significant bottom-line improvement with comparable
store sales up 7%.
The Company believes that the pro-forma financial information as displayed
below provides a better comparison of financial results on a continuing basis.
During the second half of 1995 and the first three quarters of 1996, the Company
entered into a series of transactions: 1) the 1995 initial public offering of a
16.9% interest in IBI; 2) the fourth quarter 1995 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 A&F
during the third quarter of 1996. To aid in the analysis of fourth quarter and
fiscal year 1996 financial information as compared to the respective periods in
1995, certain pro-forma adjustments, including the tax impact, have been made to
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 at the beginning of 1995;
and 3) weighted average shares outstanding have been reduced to reflect the 85
million share repurchase as if it had occurred at the beginning of 1995.
- --------------------------------------------------------------------------------
Summary income information is presented below (thousands except per share data):
<TABLE>
<CAPTION>
1995 PRO-FORMA SUMMARY 1996 AS REPORTED
As Reported Pro-forma Pro-forma
FOURTH QUARTER February 3, 1996 Adjustments February 3, 1996 February 1, 1997
<S> <C> <C> <C> <C>
Net sales $2,771,365 -- $2,771,365 $2,966,261
- ----------------------------------------------------------------------------------------------------------------------------------
Gross income 808,212 -- 808,212 979,755
General, administrative and store operating expenses (464,311) (a)$(26,497) (490,808) (555,416)
Special and nonrecurring items, net 1,314 -- 1,314 (12,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 345,215 (26,497) 318,718 412,339
Interest expense (18,276) -- (18,276) (19,461)
Other income, net 11,693 -- 11,693 11,138
Minority interest (22,374) -- (22,374) (28,623)
Gain on sale of subsidiary stock 35,967 -- 35,967 --
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 352,225 (26,497) 325,728 375,393
Provision for income taxes 136,000 (c)(11,000) 125,000 162,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 216,225 $(15,497) $ 200,728 $ 213,393
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share $.60 (d)$.74 $.78
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share exclusive of gain on sale of
subsidiary stock $.50 (d)$.60 $.78
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 357,626 (d)272,626 272,098
</TABLE>
(Chart continued on next page)
28 the limited inc 1996 annual report
<PAGE>
<TABLE>
<CAPTION>
1995 PRO-FORMA SUMMARY 1996 AS REPORTED
As Reported Pro-forma Pro-forma
YEAR February 3, 1996 Adjustments February 3, 1996 February 1, 1997
<S> <C> <C> <C> <C>
Net sales $7,881,437 -- $7,881,437 $8,644,791
- ----------------------------------------------------------------------------------------------------------------------------------
Gross income 2,087,532 -- 2,087,532 2,496,579
General, administrative and store operating expenses (1,475,497) (a)$(102,910) (1,578,407) (1,848,512)
Special and nonrecurring items, net 1,314 -- 1,314 (12,000)
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 613,349 (102,910) 510,439 636,067
Interest expense (77,537) -- (77,537) (75,363)
Other income, net 21,606 -- 21,606 41,972
Minority interest (22,374) (b)(12,264) (34,638) (45,646)
Gain on sale of subsidiary stock 649,467 -- 649,467 118,178
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,184,511 (115,174) 1,069,337 675,208
Provision for income taxes 223,000 (c)(44,000) 179,000 241,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $961,511 $(71,174) $890,337 $434,208
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share $2.68 (d)$3.26 $1.54
- ----------------------------------------------------------------------------------------------------------------------------------
Net income per share exclusive of gain on sale of
subsidiary stock $.87 (d)$.88 $1.12
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 358,371 (d)273,371 282,053
</TABLE>
(a) Sale of a 60% interest in WFNNB as if the sale was consummated at the
beginning of 1995.
(b) Minority interest in IBI as if the transaction was consummated at the
beginning of 1995.
(c) Tax effect of pro-forma adjustments.
(d) Net income per share and weighted average shares outstanding have been
adjusted for the impact of the self-tender for 85 million shares effective
March 17, 1996, as if it was consummated at the beginning of 1995.
net sales
Thirteen-week fourth quarter 1996 sales as compared to sales for the fourteen-
week fourth quarter 1995 increased 7% to $2.966 billion due to a 9% increase in
sales attributable to new and remodeled stores and a 3% increase in comparable
store sales, offset by a 5% decrease due to the fifty-third week in 1995.
Fourteen-week fourth quarter 1995 sales as compared to sales for the thirteen-
week fourth quarter 1994 increased 9% to $2.771 billion due to a 9% increase in
sales attributable to new and remodeled stores and a 4% increase due to the
fifty-third week, offset by a 4% decrease in comparable store sales resulting
from a very difficult Holiday and promotional retail environment.
The 1996 retail sales increase is attributable to an 8% increase in sales
due to the net addition of new and remodeled stores and a 3% increase in
comparable store sales, offset by a 1% decrease due to the fifty-third week
in 1995. The Company added 470 new stores in 1996, remodeled 252 stores and
closed 135 stores for a net addition of 335 stores representing over 1.0 million
square feet of new retail selling space. Average sales productivity increased 5%
to $285 per square foot.
In 1996, IBI accounted for 63% of the annual sales increase, posting a $480
million sales increase over the prior year due to the net addition of 316 stores
representing over 817,000 selling square feet, a 7% increase in comparable store
sales and an 11% increase in catalogues mailed by Victoria's Secret Catalogue.
Sales at the women's businesses in 1996 were flat to 1995, primarily due to flat
comparable store sales. Disappointing results at Express, which experienced a 6%
decline in comparable store sales, were offset by improved results at Lerner New
York and Limited Stores, which had 8% and 3% increases in comparable store
sales.
In addition, the overall sales increase for the Company included strong
sales increases at Structure, Abercrombie & Fitch Co. and Limited Too, which
experienced 7%, 13% and 8% increases in comparable store sales.
The 1995 retail sales increase is attributable to a 9% increase in sales
due to the net addition of new and remodeled stores and a 1% increase due to the
fifty-third week, which was partially offset by a 2% decline in comparable store
sales. The Company added 504 new stores in 1995, acquired 6 stores via the
purchase of Galyan's Trading Company, Inc. ("Galyan's"), remodeled 284 stores
and closed 79 stores for a net addition of 431 stores representing approximately
1.8 million square feet of new retail selling space. Average sales productivity
increased slightly to $272 per square foot.
In 1995, $409 million, or 73%, of the sales increase came from the IBI
businesses. These businesses added collectively 256 net new stores representing
over 800,000 square feet and experienced a comparable store sales increase of
1%. Catalogue sales increased by $92 million, or 16%, due to a 25% increase in
catalogue mailings. The balance of the sales increase came from Structure,
Abercrombie & Fitch Co. and Limited Too, as sales from the women's businesses
were essentially flat to 1994.
the limited inc 1996 annual report 29
<PAGE>
financials
The following summarized financial data compares 1996 to the comparable periods
for 1995 and 1994:
<TABLE>
<CAPTION>
% Change
NET SALES (millions) 1996 1995 1994 1996-95 1995-94
<S> <C> <C> <C> <C> <C>
Express $ 1,386 $ 1,445 $ 1,387 (4%) 4%
Lerner New York 1,045 1,005 1,019 4% (1%)
Lane Bryant 905 903 959 -- (6%)
Limited Stores 855 850 869 1% (2%)
Henri Bendel 91 91 84 -- 8%
- --------------------------------------------------------------------------------------------------------------------
Total Women's Brands $ 4,282 $ 4,294 $ 4,318 -- (1%)
- --------------------------------------------------------------------------------------------------------------------
Structure 660 576 555 15% 4%
Limited Too 259 214 174 21% 23%
Galyan's Trading Co.
(since 7/2/95) 108 45 -- -- --
Other 4 -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total Emerging Brands $ 1,031 $ 835 $ 729 23% 15%
- --------------------------------------------------------------------------------------------------------------------
Victoria's Secret Stores 1,450 1,286 1,181 13% 9%
Victoria's Secret Catalogue 684 661 569 3% 16%
Bath & Body Works 753 475 260 59% 83%
Cacique 88 80 92 10% (13%)
Other 22 15 6 -- --
- --------------------------------------------------------------------------------------------------------------------
Total Intimate Brands, Inc. $ 2,997 $ 2,517 $ 2,108 19% 19%
- --------------------------------------------------------------------------------------------------------------------
Abercrombie & Fitch Co. $ 335 $ 235 $ 166 43% 42%
- --------------------------------------------------------------------------------------------------------------------
Total Net Sales $ 8,645 $ 7,881 $ 7,321 10% 8%
- --------------------------------------------------------------------------------------------------------------------
operating income (millions)
Women's Brands $ 64 (a)$54 $ 244 19% (78%)
Emerging Brands
and Other 68 (b)149 (b)203 (54%) (27%)
Intimate Brands, Inc. (c)458 386 338 19% 14%
Abercrombie & Fitch Co. 46 24 14 92% 71%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Income $ 636 $ 613 $ 799 4% (23%)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1995 includes a special and nonrecurring charge of approximately $48
million, primarily for store closings and downsizings.
(b) 1995 and 1994 include 100% of WFNNB's operating income of $114 million and
$107 million before interest expense versus $4 million, representing 40% of
net income of $11 million in 1996; 1995 also includes an approximate gain
of $73 million for the sale of a 60% interest in WFNNB, partially offset by
$23 million of special and nonrecurring charges representing write-downs to
net realizable value of certain assets.
(c) 1996 includes a special and nonrecurring charge of $12 million in
connection with the sale of Penhaligon's in early 1997.
The following summarized financial data compares 1996 to the comparable periods
for 1995 and 1994:
<TABLE>
<CAPTION>
COMPARABLE % Change
STORE SALES 1996 1995 1994 1996-95 1995-94
<S> <C> <C> <C> <C> <C>
Express (6%) (2%) (9%)
Lerner New York 8% (1%) (10%)
Lane Bryant 0% (8%) 2%
Limited Stores 3% (4%) (21%)
Henri Bendel (5%) 6% 4%
- -------------------------------------------------------------------------
Total Women's Brands 0% (3%) (9%)
- -------------------------------------------------------------------------
Structure 7% (9%) 5%
Limited Too 8% (4%) 13%
Galyan's Trading Co.
(since 7/2/96) 12% -- --
- -------------------------------------------------------------------------
Total Emerging Brands 7% (8%) 7%
- -------------------------------------------------------------------------
Victoria's Secret Stores 5% (1%) 12%
Bath & Body Works 11% 21% 39%
Cacique 8% (20%) (12%)
- -------------------------------------------------------------------------
Total Intimate Brands, Inc. 7% 1% 13%
- -------------------------------------------------------------------------
Abercrombie & Fitch Co. 13% 5% 15%
- -------------------------------------------------------------------------
Total Comparable Store
Sales Increase (Decrease) 3% (2%) (3%)
- -------------------------------------------------------------------------
STORE DATA
Retail Sales Increase
Attributable to New and
Remodeled Stores 8% 9% 6%
Retail Sales per Average
Selling Square Foot $ 285 $ 272 $ 270 5% 1%
Retail Sales per Average
Store (thousands) $ 1,453 $ 1,419 $ 1,423 2% --
Average Store Size
at End of Year (square feet) 5,043 5,172 5,265 (2%) (2%)
Retail Selling Square Feet
(thousands) 28,405 27,403 25,627 4% 7%
- ------------------------------------------------------------------------------------------------
NUMBER OF STORES
Beginning of Year 5,298 4,867 4,623
Opened 470 504 358
Acquired -- 6 --
Closed (135) (79) (114)
- -------------------------------------------------------------------------
End of Year 5,633 5,298 4,867
- -------------------------------------------------------------------------
</TABLE>
gross income
Gross income increased as a percentage of sales to 33.0% for the fourth quarter
1996 from 29.2% for the fourth quarter 1995. The merchandise margin rate
(representing gross income before deduction of buying and occupancy costs)
increased 3.4%, expressed as a percentage of sales, due principally to improved
initial markup and lower markdown rates, as the Company was less price
promotional than a year ago. Buying and occupancy costs decreased .4%, expressed
as a percentage of sales, primarily due to sales productivity associated with
the 3% increase in comparable store sales.
Gross income decreased as a percentage of sales to 29.2% for the fourth
quarter of 1995 from 32.8% for the fourth quarter in 1994. Merchandise margins,
expressed as a percentage of sales, decreased 2.8%, due principally to higher
markdowns in 1995, which were used to clear slow-moving inventories and to
stimulate sales in a slow retail environment. Buying and occupancy costs rose
.6% as a percentage of sales, primarily due to the lower sales productivity
associated with the 5% decrease in comparable store sales at the women's
businesses and a 10% comparable store sales decline in the men's and kids'
businesses. In addition, higher catalogue costs due to significant price
increases in paper and postage, along with increased mailings, exacerbated the
buying and occupancy increase.
The Company's 1996 gross income rate increased 2.4% to 28.9% as compared to
1995. The merchandise margin rate increased 1.7% due principally to improved
initial markup. Buying and occupancy costs decreased .7% as a percentage of
sales, primarily due to sales productivity associated with the 3% increase in
comparable store sales.
The 1995 gross income rate of 26.5% fell 2.4% below the rate for 1994.
Merchandise margins, expressed as a percentage of sales, decreased 1.7%, due to
higher 1995 markdowns principally in the Fall season for the reasons mentioned
above. Buying and occupancy costs also increased .7% as a percentage of sales,
primarily due to the lower sales productivity associated with the 3% decrease in
comparable store sales in the women's businesses and a 5% decline in comparable
store sales in the men's and kids' businesses. Again, an increase in paper
prices and postage, along with increased catalogue mailings, also increased the
buying and occupancy rate.
30 the limited inc 1996 annual report
<PAGE>
general, administrative and store operating expenses
General, administrative and store operating expenses increased as a percentage
of sales to 18.7% in the fourth quarter of 1996 compared to 17.7% on a pro-forma
basis in the fourth quarter of 1995. This increase as a percentage of sales was
attributable to a 2.2% rate increase at the IBI businesses and the inability to
leverage expenses due to disappointing sales performance at the women's
businesses, particularly Express. IBI's increase is primarily the result of the
growth of Bath & Body Works in the overall mix of net sales for the Company and
investments made in store management and staffing for the Victoria's Secret Bath
& Fragrance business. 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. The Company anticipates that these expenses,
expressed as a percentage of sales, will increase slightly in 1997, since the
IBI businesses, in particular Bath & Body Works, will represent a greater
portion of the total Company's sales.
General, administrative and store operating expenses, expressed as a
percentage of sales, increased to 16.8% in the fourth quarter of 1995 from 15.4%
in 1994, due principally to lower sales productivity.
General, administrative and store operating expenses increased as a
percentage of sales to 21.4% in 1996 compared to 20.0% on a pro-forma basis in
1995. This increase was primarily due to the reasons discussed above for the
1996 fourth quarter. These costs, expressed as a percentage of sales and before
pro-forma adjustments, increased to 18.7% in 1995 from 18.0% in 1994, due to
lower sales productivity.
special and nonrecurring items
As described in Note 2 to the Consolidated Financial Statements, in 1996 the
Company recorded a $12 million pre-tax, special and nonrecurring charge in
connection with the early 1997 sale of Penhaligon's, a U.K.-based subsidiary of
IBI.
In the fourth quarter of 1995, a sale of a 60% interest in the Company's
wholly-owned credit card bank, WFNNB, to the New York investment firm of Welsh,
Carson, Anderson & Stowe ("WCAS") was completed. The venture, which is 40% owned
by the Company, focuses on providing private-label and bank card transaction
processing and database management services to the Company's private-label
credit card operations and other retailers. WCAS purchased its interest for $135
million and also made a $30 million capital contribution to the venture. The
Company recognized a $73.2 million pre-tax gain from the sale of WFNNB.
In addition, WFNNB's outstanding debt to the Company of approximately $1.2
billion was repaid in January 1996 from the proceeds realized from the
securitization of WFNNB's credit card receivables.
Along with the sale of the 60% interest in WFNNB, the Company recognized a
special and nonrecurring charge during the fourth quarter of 1995 of
approximately $71.9 million. Of this amount, $25.8 million was provided for the
closing of 26 stores and $19.8 million was provided for the downsizing of 33
stores, primarily at Limited Stores and Lerner New York. These stores were
identified based on store profit performance and assessment of the quality of
the real estate. The provision included the net present value of rent payments
through lease expiration, lease termination payments and approximately $15
million representing the net book value of fixed assets. The remaining charge of
approximately $26.3 million represented the write-down to market or net
realizable value of certain assets arising from nonoperating activities. The net
pre-tax gain from these special and nonrecurring items was $1.3 million. At
February 1, 1997, substantially all of the planned closings and downsizings were
completed, with two closings and downsizings expected to be completed shortly.
operating income
Operating income, as a percentage of sales, was 7.4% in 1996, compared to 6.5%
on a pro-forma basis in 1995. This increase was due to increases in gross
income, which more than offset the general, administrative and store operating
expense rate increase.
The operating income rate was 7.8% and 10.9% for 1995 and 1994. The 1995
rate decrease was due to lower merchandise margins resulting from higher
markdowns and the inability to leverage both buying and occupancy costs and
higher general, administrative and store operating expenses due to lower sales
productivity.
interest expense
<TABLE>
<CAPTION>
Fourth Quarter Year
1996 1995 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average Daily Borrowings
(in millions) $1,039.5 $812.9 $964.3 $887.7 $785.0
Average Effective
Interest Rate 7.49% 8.99% 7.82% 8.73% 8.33%
</TABLE>
Interest expense increased by $1.2 million in the fourth quarter of 1996 and
decreased by $2.2 million for the year. For the quarter, higher borrowing levels
increased interest expense by $5.1 million, offset by a $3.9 million decrease in
expense resulting from lower interest rates. For the year, lower interest rates
decreased expense by $8.8 million, offset by increased expense of $6.6 million
due to higher borrowing levels.
other income
The $20.4 million increase in other income for 1996 over 1995 is primarily
attributable to the investment of $351.6 million in restricted cash. In
addition, approximately $10.5 million of interest income arose from $1.615
billion of temporarily invested funds that were used to consummate the Company's
self-tender in March of 1996.
the limited inc 1996 annual report 31
<PAGE>
financials
gain on sale of subsidiary stock
As discussed in Note 1 to the Consolidated Financial Statements, in 1996 the
Company recognized a $118.2 million gain from the September 1996 initial public
offering of a 15.8% interest (8.05 million shares) of A&F. In 1995 the Company
recognized a $649.5 million gain which resulted from the initial public offering
of 16.9% (42.7 million shares) of the stock of IBI. The gains recorded by the
Company were not subject to tax.
acquisition
Effective July 2, 1995, the Company acquired all of the outstanding common stock
of Galyan's for $18 million in cash and stock. The Company's financial
statements include the results of operations of Galyan's since the acquisition
date.
FINANCIAL CONDITION
The Company's balance sheet at February 1, 1997, provides continuing evidence of
financial strength and flexibility. The Company's long-term debt-to-equity ratio
declined to 34% at the end of 1996 from an adjusted 41% in 1995, and working
capital increased 58% to $638 million over adjusted 1995. In March 1996, the
Company utilized $1.615 billion of proceeds received from the initial public
offering of IBI and the WFNNB transactions to repurchase 85 million shares of
its common stock at $19.00 per share in a self-tender offer and set aside $351.6
million of restricted cash to satisfy obligations under the terms of the
Contingent Stock Redemption Agreement with its largest shareholder, who did not
participate in the self-tender (see Notes 6 and 9). A more detailed discussion
of liquidity, capital resources and capital requirements follows.
liquidity and capital resources
Cash provided by 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, projected
growth, seasonal requirements and capital expenditures. Net cash provided by
operating activities totaled $712.1 million, $356.7 million and $361.1 million
for 1996, 1995 and 1994 and continued to serve as the Company's primary source
of liquidity.
<TABLE>
<CAPTION>
A summary of the Company's working capital position and capitalization follows
(thousands): Adjusted
1996 1995(a) 1995 1994
<S> <C> <C> <C> <C>
Cash Provided by
Operating Activities $ 712,069 $ 356,732 $ 356,732 $ 361,078
Working Capital $ 638,204 $ 403,960 $2,018,960 $1,750,111
CAPITALIZATION:
Long-Term Debt $ 650,000 $ 650,000 $ 650,000 $ 650,000
Deferred Income Taxes 169,932 152,081 152,081 306,139
Shareholders' Equity 1,922,582 1,586,041 3,201,041 2,760,956
- --------------------------------------------------------------------------------
Total Capitalization $2,742,514 $2,388,122 $4,003,122 $3,717,095
- --------------------------------------------------------------------------------
Additional Amounts
Available Under Long-Term
Credit Agreements $1,000,000 $1,000,000 $1,000,000 $ 840,000
</TABLE>
(a)Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
<TABLE>
<CAPTION>
The Company considers the following to be several measures of liquidity and
capital resources:
Adjusted
1996 1995(a) 1995 1994
<S> <C> <C> <C> <C>
Debt-to-Equity Ratio 34% 41% 20% 24%
(Long-Term Debt Divided by
Shareholders' Equity)
Debt-to-Capitalization Ratio 24% 27% 16% 17%
(Long-Term Debt Divided by
Total Capitalization)
Interest Coverage Ratio 12x 12x 12x 16x
(Income, Excluding the Gain on
Sale of Subsidiary Stock,
Before Interest Expense,
Depreciation, Amortization
and Income Taxes Divided by
Interest Expense)
Cash Flow to Capital Investment 174% 95% 95% 113%
(Net Cash Provided by
Operating Activities Divided
by Capital Expenditures)
</TABLE>
(a)Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
The increase in inventories in 1996 was funded principally from an increase in
accounts payable and accrued expenses primarily attributable to an increase in
merchandise payables. Cash requirements for inventories were lower in 1995 than
1994 due to higher markdowns taken in the Fall to clear slow-moving inventory
and end the year with cleaner, fresher inventories. Cash requirements for
accounts receivable were greater in 1995 and 1994 due to growth rates in the
number of new proprietary credit card holders at WFNNB, a previously wholly-
owned subsidiary. Payments approximating $74 million toward IRS assessments
contributed to a decrease in income taxes in 1995, along with lower income tax
provisions and payments associated with the 1995 earnings decrease (see Note 8).
Investing activities included capital expenditures, primarily for new and
remodeled stores. In 1996, $41.3 million was invested in the Alliance Data
Services (formerly WFNNB) credit card venture. 1995 reflects the acquisition of
Galyan's, the proceeds from the securitization of WFNNB's credit card
receivables of $1.2 billion (see Note 2) and the transfer of $351.6 million to a
restricted cash account (see Note 6).
Financing activities in 1996 include proceeds from and repayment of $150
million in short-term debt borrowed by A&F and net proceeds of $118.2 million
from A&F's initial public offering. Financing activities also included $1.615
billion used to repurchase 85 million shares of the Company's common stock via
the self-tender consummated in March 1996. Cash dividends paid in 1996 and 1995
were $.40 per share.
Financing activities in 1995 include proceeds from and repayment of $250 million
in short-term debt borrowed by IBI, net proceeds of $788.6 million from the IBI
initial public offering and the sale of a 60% interest in WFNNB (see Notes 1 and
2). Financing activities in 1995 also included the repurchase of $55.2 million
of the Company's common stock, representing 3.4 million shares. Cash dividends
paid increased to $.40 per share in 1995 versus $.36 per share in 1994.
At February 1, 1997, the Company had available $1 billion under its long-term
credit agreement. The Company also has the ability to offer up to $250 million
of additional debt securities under its shelf registration statement
authorization.
32 the limited inc 1996 annual report
<PAGE>
<TABLE>
<CAPTION>
STORES AND SELLING OF SQUARE FEET
A summary of stores and selling square feet by business for 1995 and 1996 and
goals for 1997 follows:
Change from
Goal-1997 1996 1995 1997-96 1996-95
<S> <C> <C> <C> <C> <C>
EXPRESS
Stores 759 753 737 6 16
Selling Sq. Ft. 4,803,000 4,726,000 4,588,000 77,000 138,000
LERNER NEW YORK
Stores 734 784 835 (50) (51)
Selling Sq. Ft. 5,563,000 5,984,000 6,393,000 (421,000) (409,000)
LANE BRYANT
Stores 809 832 828 (23) 4
Selling Sq. Ft. 3,892,000 3,980,000 3,955,000 (88,000) 25,000
LIMITED STORES
Stores 636 663 689 (27) (26)
Selling Sq. Ft. 3,817,000 3,977,000 4,211,000 (160,000) (234,000)
HENRI BENDEL
Stores 6 6 4 0 2
Selling Sq. Ft. 113,000 113,000 88,000 0 25,000
STRUCTURE
Stores 551 542 518 9 24
Selling Sq. Ft. 2,170,000 2,117,000 1,993,000 53,000 124,000
LIMITED TOO
Stores 317 308 288 9 20
Selling Sq. Ft. 995,000 967,000 903,000 28,000 64,000
GALYAN'S TRADING COMPANY
Stores 12 9 6 3 3
Selling Sq. Ft. 738,000 488,000 250,000 250,000 238,000
VICTORIA'S SECRET STORES
Stores 801 736 671 65 65
Selling Sq. Ft. 3,615,000 3,326,000 3,014,000 289,000 312,000
BATH & BODY WORKS
Stores 960 750 498 210 252
Selling Sq. Ft. 1,869,000 1,354,000 848,000 515,000 506,000
CACIQUE
Stores 118 119 120 (1) (1)
Selling Sq. Ft. 363,000 365,000 366,000 (2,000) (1,000)
PENHALIGON'S
Stores 0 4 4 (4) 0
Selling Sq. Ft. 0 2,000 2,000 (2,000) 0
ABERCROMBIE & FITCH CO.
Stores 153 127 100 26 27
Selling Sq. Ft. 1,218,000 1,006,000 792,000 212,000 214,000
TOTAL RETAIL BUSINESSES
Stores 5,856 5,633 5,298 223 335
Selling Sq. Ft. 29,156,000 28,405,000 27,403,000 751,000 1,002,000
</TABLE>
capital expenditures
Capital expenditures amounted to $409.3 million, $374.4 million and $319.7
million for 1996, 1995 and 1994, respectively, of which $235.7 million, $274.5
million and $201.2 million was for new stores and remodeling and expanding
existing stores. In addition, in 1996 the Company expended $42.1 million in
connection with the Bath & Body Works distribution center (to be completed June
1997) and $53.1 million on land acquisition and development costs.
The Company anticipates spending $400-$430 million for capital expenditures in
1997, of which $240-$260 million will be for new stores, the remodeling of
existing stores and related improvements for the retail businesses. The Company
estimates it will spend the balance primarily on the completion of the Bath &
Body Works distribution center and land acquisition and development. The Company
expects that substantially all 1997 capital expenditures will be funded by net
cash provided by operating activities.
The Company intends to add approximately 750,000 selling square feet in 1997,
which represents a 3% increase over year-end 1996. It is anticipated that the
increase will result from the net addition of approximately 220 stores and the
remodeling of approximately 140 stores.
impact of inflation
The Company's results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, the Company
believes that the effects of inflation, if any, on the results of operations and
financial condition have been minor.
safe harbor statement under the private securities litigation reform act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Company's Form 10-K or made by management of the Company
involve risks and uncertainties, and are subject to change based on various
important factors. The following factors, among others, in some cases have
affected and in the future could affect the Company's financial performance and
actual results and could cause actual results for 1997 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements: changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, postal rate increases and
charges, paper and printing costs, availability of suitable store locations at
appropriate terms, ability to develop new merchandise and ability to hire and
train associates.
the limited inc 1996 annual report 33
<PAGE>
financials
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands except per share amounts)
1996 1995 1994
<S> <C> <C> <C>
Net Sales $8,644,791 $7,881,437 $7,320,792
Costs of Goods Sold, Occupancy and
Buying Costs (6,148,212) (5,793,905) (5,206,429)
- ---------------------------------------------------------------------------------
Gross Income 2,496,579 2,087,532 2,114,363
General, Administrative and Store
Operating Expenses (1,848,512) (1,475,497) (1,315,374)
Special and Nonrecurring Items, Net (12,000) 1,314 --
- ---------------------------------------------------------------------------------
Operating Income 636,067 613,349 798,989
Interest Expense (75,363) (77,537) (65,381)
Other Income, Net 41,972 21,606 10,735
Minority Interest (45,646) (22,374) --
Gain on Sale of Subsidiary Stock 118,178 649,467 --
- ---------------------------------------------------------------------------------
Income Before Income Taxes 675,208 1,184,511 744,343
Provision for Income Taxes 241,000 223,000 296,000
- ---------------------------------------------------------------------------------
Net Income $434,208 $961,511 $448,343
- ---------------------------------------------------------------------------------
Net Income Per Share $1.54 $2.68 $1.25
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(in thousands)
Common Stock Total
Shares Paid-In Retained Treasury Stock, Shareholders'
Outstanding Par Value Capital Earnings at Cost Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1994 357,801 $189,727 $128,906 $2,397,112 $(274,452) $2,441,293
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income -- -- -- 448,343 -- 448,343
Cash Dividends -- -- -- (128,939) -- (128,939)
Purchase of Treasury Stock (629) -- -- -- (11,382) (11,382)
Exercise of Stock Options
and Other 432 -- 4,032 -- 7,609 11,641
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, January 28, 1995 357,604 $189,727 $132,938 $2,716,516 $(278,225) $2,760,956
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income -- -- -- 961,511 -- 961,511
Cash Dividends -- -- -- (143,091) -- (143,091)
Purchase of Treasury Stock (3,361) -- -- -- (55,239) (55,239)
Common Shares Subject to
Contingent Stock Redemption
Agreement -- (9,375) (7,639) (334,586) -- (351,600)
Stock Issued for Acquisition 730 -- 7,769 -- 8,231 16,000
Exercise of Stock Options
and Other 393 -- 4,066 -- 8,438 12,504
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, February 3, 1996 355,366 $180,352 $137,134 $3,200,350 $(316,795) $3,201,041
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income -- -- -- 434,208 -- 434,208
Cash Dividends -- -- -- (108,302) -- (108,302)
Purchase of Treasury Stock (85,000) -- -- -- (1,615,000) (1,615,000)
Exercise of Stock Options
and Other 705 -- 5,726 -- 4,909 10,635
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 271,071 $180,352 $142,860 $3,526,256 $(1,926,886) $1,922,582
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
34 the limited inc 1996 annual report
<PAGE>
NET SALES [BAR GRAPHS APPEAR HERE]
- -----------------------------------------
NET INCOME PER SHARE [BAR GRAPH APPEARS HERE]
SHAREHOLDERS' EQUITY [BAR GRAPH APPEARS HERE]
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN MILLIONS)
(in thousands)
ASSETS Feb. 1, 1997 Feb. 3, 1996
<S> <C> <C>
Current Assets:
Cash and Equivalents $ 312,796 $1,645,731
Accounts Receivable 69,337 77,516
Inventories 1,007,303 958,953
Store Supplies 90,400 81,765
Other 65,261 70,346
- ------------------------------------------------------------------------------
Total Current Assets 1,545,097 2,834,311
- ------------------------------------------------------------------------------
Property and Equipment, Net 1,828,869 1,741,456
Restricted Cash 351,600 351,600
Other Assets 394,436 339,196
- ------------------------------------------------------------------------------
Total Assets $ 4,120,002 $5,266,563
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 307,841 $ 280,659
Accrued Expenses 481,744 388,818
Income Taxes 117,308 145,874
- ------------------------------------------------------------------------------
Total Current Liabilities 906,893 815,351
- ------------------------------------------------------------------------------
Long-Term Debt 650,000 650,000
Deferred Income Taxes 169,932 152,081
Other Long-Term Liabilities 51,659 50,791
Minority Interest 67,336 45,699
Contingent Stock Redemption Agreement 351,600 351,600
Shareholders' Equity:
Common Stock 180,352 180,352
Paid-In Capital 142,860 137,134
Retained Earnings 3,526,256 3,200,350
- ------------------------------------------------------------------------------
3,849,468 3,517,836
Less: Treasury Stock, at Cost (1,926,886) (316,795)
- ------------------------------------------------------------------------------
Total Shareholders' Equity 1,922,582 3,201,041
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 4,120,002 $5,266,563
- ------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
the limited inc 1996 annual report 35
<PAGE>
financials
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM 1996 1995 1994
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $434,208 $961,511 $448,343
impact of other operating activities
on cash flows
Depreciation and Amortization 289,643 285,889 267,888
Minority Interest, Net of Dividends Paid 21,637 17,250 --
Special and Nonrecurring Items, Net 12,000 (1,314) --
Gain on Sale of Subsidiary Stock (118,178) (649,467) --
CHANGE IN ASSETS AND LIABILITIES
Accounts Receivable 8,179 (104,121) (235,488)
Inventories (48,350) (70,813) (136,740)
Accounts Payable and Accrued Expenses 116,599 50,883 49,724
Income Taxes (10,715) (132,560) 61,925
Other Assets and Liabilities 7,046 (526) (94,574)
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 712,069 356,732 361,078
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures (409,260) (374,374) (319,676)
Businesses Acquired (41,255) (18,000) --
Increase in Restricted Cash -- (351,600) --
Proceeds from Credit Card Securitization -- 1,212,630 --
- --------------------------------------------------------------------------------
Net Cash Provided by (Used for)
Investing Activities (450,515) 468,656 (319,676)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Proceeds (Repayments) of Commercial
Paper Borrowings and Certificates of
Deposit -- (25,200) 9,500
Proceeds from Short-Term Borrowings 150,000 250,000 --
Repayment of Short-Term Borrowings (150,000) (250,000) --
Net Proceeds from Issuance and Sale of
Subsidiary Stock 118,178 788,589 --
Dividends Paid (108,302) (143,091) (128,939)
Purchase of Treasury Stock (1,615,000) (55,239) (11,382)
Stock Options and Other 10,635 12,504 11,641
- --------------------------------------------------------------------------------
Net Cash Provided by (Used for)
Financing Activities (1,594,489) 577,563 (119,180)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Equivalents (1,332,935) 1,402,951 (77,778)
Cash and Equivalents, Beginning of Year 1,645,731 242,780 320,558
- --------------------------------------------------------------------------------
Cash and Equivalents, End of Year $312,796 $1,645,731 $242,780
- --------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
WORKING CAPITAL [BAR GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES [BAR GRAPH APPEARS HERE]
- --------------------------------------------------------------------------------
36 the limited inc 1996 annual report
<PAGE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. summary of significant accounting policies principles of consolidation
The consolidated financial statements include the accounts of The Limited, Inc.
(the "Company") and all significant subsidiaries which are more than 50% owned
and controlled. All significant intercompany balances and transactions have been
eliminated in consolidation.
Investments in other entities (including joint ventures) which are more than
20% owned are accounted for on the equity method.
fiscal year
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar year
in which the fiscal year commences. The results for fiscal years 1996 and 1994
represent the fifty-two-week periods ended February 1, 1997, and January 28,
1995. The results for fiscal year 1995 represent the fifty-three-week period
ended February 3, 1996.
cash and equivalents
Cash and equivalents include amounts on deposit with financial institutions and
money market investments with maturities of less than 90 days.
inventories
Inventories are principally valued at the lower of average cost or market, on a
first-in first-out basis, utilizing the retail method.
store supplies
The initial inventory of supplies for new stores including, but not limited to,
hangers, signage, security tags and point-of-sale supplies are capitalized at
the store opening date. Subsequent shipments are expensed except for new
merchandise presentation programs which are capitalized.
property and equipment
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-30 years for buildings and improvements and 3-10
years for other property and equipment. The cost of assets sold or retired and
the related accumulated depreciation or amortization are removed from the
accounts with any resulting gain or loss included in net income. Maintenance and
repairs are charged to expense as incurred. Major renewals and betterments which
extend service lives are capitalized. Long-lived assets are reviewed for
impairment whenever events or changes indicate that full recoverability is
questionable. Factors used in the valuation include, but are not limited to,
management's plans for future operations, recent operating results and projected
cash flows.
goodwill amortization
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized on a straight-line basis
principally over 30 years.
catalogue costs and advertising
Catalogue costs, primarily consisting of catalogue production and mailing costs,
are amortized over the expected future revenue stream, which is principally from
three to six months from the date catalogues are mailed. All other advertising
costs are expensed at the time the promotion first appears in media or in the
store. Catalogue and advertising costs amounted to $242 million, $237 million
and $179 million in 1996, 1995 and 1994.
interest rate swap agreements
The difference between the amount of interest to be paid and the amount of
interest to be received under interest rate swap agreements due to changing
interest rates is charged or credited to interest expense over the life of the
swap agreement. Gains and losses from the disposition of swap agreements are
deferred and amortized over the term of the related agreements.
income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are recognized based on the
difference between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect in the years in which
those temporary differences are expected to reverse. Under SFAS 109, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
shareholders' equity
Five hundred million shares of $.50 par value common stock are authorized, of
which 271.1 million and 355.4 million were outstanding, net of 108.4 million
shares and 24.1 million shares held in treasury at February 1, 1997 and February
3, 1996. Ten million shares of $1.00 par value preferred stock are authorized,
none of which have been issued.
On March 17, 1996, the Company completed the repurchase of 85 million shares
of its common stock under a self-tender offer at $19.00 per share. Approximately
$1.615 billion was paid in exchange for the outstanding shares which was funded
with funds made available from a series of transactions that included 1) the
initial public offering of a 16.9% interest in Intimate Brands, Inc. ("IBI"), 2)
the securitization of World Financial Network National Bank ("WFNNB") credit
card receivables and 3) the sale of a 60% interest in WFNNB.
net income per share
Net income per share is computed based upon the weighted average number of
outstanding common shares, including the effect of stock options. There were
282.1 million, 358.4 million and 358.6 million weighted average outstanding
shares for 1996, 1995 and 1994.
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 1996, the Company recognized a $118.2
million gain from the initial public offering of a 15.8% interest (8.05 million
shares) of Abercrombie & Fitch Co. ("A&F"). In 1995, the Company recognized a
$649.5 million gain which
the limited inc 1996 annual report 37
<PAGE>
financials
resulted from the initial public offering of a 16.9% interest (42.7 million
shares) of IBI. IBI consists of the Victoria's Secret Stores, Victoria's Secret
Catalogue, Bath & Body Works, Cacique and Gryphon businesses. The gains recorded
by the Company were not subject to tax.
Minority interest of $67.3 million at February 1, 1997 represents a 16.9%
interest in the net equity of IBI and a 15.8% interest in the net equity of A&F.
A more detailed discussion of these matters is included under the heading "Gain
on Sale of Subsidiary Stock" in Management's Discussion and Analysis on page 32
of this Annual Report.
use of estimates in the preparation
of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Since actual results may differ from those estimates, the
Company revises its estimates and assumptions as new information becomes
available.
2. special and nonrecurring items
In 1996, IBI recorded a $12 million special and nonrecurring charge in
connection with the sale of Penhaligon's, a U.K.-based subsidiary of IBI, in
early 1997.
In the fourth quarter of 1995, a sale of a 60% interest in the Company's
wholly-owned credit card bank, WFNNB, to the New York investment firm of Welsh,
Carson, Anderson & Stowe ("WCAS") was completed. The transaction resulted in the
formation of a venture which will focus on providing private-label and bank card
transaction processing and database management services to retailers, including
the Company's private-label credit card operations. WCAS purchased its interest
from the Company for $135 million and also made a $30 million capital
contribution to the venture. As a result of these transactions, the Company
recognized a $73.2 million pre-tax gain from the sale of WFNNB.
During the fourth quarter of 1995, the Company elected to use $45.6 million of
the proceeds to provide for the accelerated closing and downsizing of stores in
1996, primarily at Limited Stores and Lerner New York, and provided
approximately $26.3 million for the write-down to net realizable value of
certain assets, including joint venture and other investments and receivables
arising from nonoperating activities. The sale of a 60% interest in WFNNB,
together with the aforementioned real estate charges and the revaluation of
certain assets, resulted in a special and nonrecurring net pre-tax gain of $1.3
million. At February 1, 1997, substantially all of the planned closings and
downsizings were completed, with two closings and downsizings expected to be
completed shortly.
A further discussion of these matters is included under the heading "Special
and Nonrecurring Items" in Management's Discussion and Analysis on page 31 of
this Annual Report.
3. accounts receivable
As discussed in Note 2, the sale of a 60% interest in WFNNB was completed in the
fourth quarter of 1995. In addition, WFNNB's outstanding debt to the Company of
approximately $1.2 billion was repaid from the proceeds realized from the
securitization of WFNNB's credit card receivables.
As a result of the sale of WFNNB and the securitization of the credit card
receivables, a substantial portion of the deferred payment accounts was
transferred to a special-purpose entity which facilitated the asset
securitization, and any remaining deferred payment accounts, net of an allowance
for uncollectible accounts, were held by the WFNNB venture.
Finance charge revenue on the deferred payment accounts amounted to $235.6
million and $223.9 million in 1995 and 1994, and the provision for uncollectible
accounts amounted to $91.4 million and $72.7 million in 1995 and 1994. These
amounts are classified as components of the cost to administer the deferred
payment program and are included in the Company's general, administrative and
store operating expenses.
4. property and equipment
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Property and equipment, at cost, consisted of (thousands):
1996 1995
<S> <C> <C>
Land, Buildings and Improvements $ 530,259 $ 535,061
Furniture, Fixtures and Equipment 1,929,951 1,794,612
Leaseholds and Improvements 641,200 609,253
Construction in Progress 188,834 79,831
- --------------------------------------------------------------------------------
Total 3,290,244 3,018,757
Less: Accumulated Depreciation and Amortization 1,461,375 1,277,301
- --------------------------------------------------------------------------------
Property and Equipment, Net $1,828,869 $1,741,456
- --------------------------------------------------------------------------------
</TABLE>
5. leased facilities and commitments
Annual store rent is comprised of a fixed minimum amount, plus contingent rent
based upon a percentage of sales exceeding a stipulated amount. Store lease
terms generally require additional payments covering taxes, common area costs
and certain other expenses.
- --------------------------------------------------------------------------------
A summary of rent expense for 1996, 1995 and 1994 follows (thousands):
<TABLE>
<CAPTION>
STORE RENT 1996 1995 1994
<S> <C> <C> <C>
Fixed Minimum $689,319 $643,200 $586,437
Contingent 23,117 18,812 17,522
- --------------------------------------------------------------------------------
Total Store Rent 712,436 662,012 603,959
Equipment and Other 25,163 26,101 27,710
- --------------------------------------------------------------------------------
Total Rent Expense $737,599 $688,113 $631,669
- --------------------------------------------------------------------------------
</TABLE>
At February 1, 1997, the Company was committed to noncancelable leases with
remaining terms of one to forty years. A substantial portion of these
commitments are store leases with initial terms ranging from ten to twenty
years, with options to renew at varying terms. Accrued rent expense was $123.4
million and $102.2 million at February 1, 1997 and February 3, 1996.
38 the limited inc 1996 annual report
<PAGE>
- --------------------------------------------------------------------------------
A summary of minimum rent commitments under noncancelable leases follows
(thousands):
<TABLE>
<S> <C>
1997 $ 684,617
1998 667,259
1999 642,397
2000 625,563
2001 598,166
Thereafter $2,485,018
- --------------------------------------------------------------------------------
</TABLE>
6. restricted cash
At February 1, 1997, Special Funding, Inc., a wholly-owned subsidiary of the
Company, had $351.6 million of restricted cash invested in short-term, highly
liquid securities. This amount is classified as a noncurrent asset, since it has
been reserved for use in the event that The Wexner Children's Trust, established
by Leslie H. Wexner, the Company's principal shareholder, exercises its
opportunity to require the Company to redeem, or the Company exercises its
opportunity to redeem from the Trust, shares of The Limited, Inc. common stock
in accordance with the terms of the Contingent Stock Redemption Agreement (see
Note 9). Interest earnings of $17.9 million in 1996 on the segregated cash
accrued to the Company.
7. long-term debt
- --------------------------------------------------------------------------------
Unsecured long-term debt consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995
<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
- --------------------------------------------------------------------------------
Total $650,000 $650,000
- --------------------------------------------------------------------------------
</TABLE>
The Company maintains a $1 billion unsecured credit agreement (the "Agreement")
established on December 15, 1995 (the "Effective Date"). 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, subject to
the approval of the lending banks. The Agreement has several borrowing options,
including interest rates which are based on either the lender's "Base Rate," as
defined, LIBOR, CD based options or at a rate submitted under a bidding process.
Facilities fees payable under the Agreement are based on the Company's long-term
credit ratings, and currently approximate 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
February 1, 1997.
The Agreement supports the Company's commercial paper program which is used
from time to time to fund working capital and other general corporate
requirements. No commercial paper was outstanding at February 1, 1997.
Up to $250 million of debt securities and warrants to purchase debt securities
may be issued under the Company's shelf registration statement.
The Company periodically enters into interest rate swap agreements with the
intent to manage interest rate exposure. At February 1, 1997, the Company had an
interest rate swap position of $100 million notional principal amount
outstanding. This contract effectively changed the Company's interest rate
exposure on $100 million of variable rate debt to a fixed rate of 8.09% through
July 2000.
Long-term debt maturities within the next five years consist of $100 million
which matures August 15, 1999 and $150 million which matures February 1, 2001.
Interest paid approximated $65.5 million, $88.4 million and $64.7 million in
1996, 1995 and 1994.
8. income taxes
- --------------------------------------------------------------------------------
The provision for income taxes consisted of (thousands):
<TABLE>
<CAPTION>
CURRENTLY PAYABLE 1996 1995 1994
<S> <C> <C> <C>
Federal $210,400 $190,900 $231,000
State 34,000 24,700 32,000
Foreign 2,400 4,500 4,100
- --------------------------------------------------------------------------------
Total 246,800 220,100 267,100
- --------------------------------------------------------------------------------
DEFERRED
Federal (13,800) (9,400) 12,900
State 8,000 12,300 16,000
- --------------------------------------------------------------------------------
Total (5,800) 2,900 28,900
- --------------------------------------------------------------------------------
Total Provision $241,000 $223,000 $296,000
- --------------------------------------------------------------------------------
</TABLE>
The foreign component of pre-tax income, arising principally from overseas
sourcing operations, was $45.9 million, $60.8 million and $40.9 million in 1996,
1995 and 1994.
- --------------------------------------------------------------------------------
A reconciliation between the statutory Federal income tax rate and the effective
income tax rate on pre-tax earnings excluding the nontaxable gain from sale of
subsidiary stock and minority interest follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal Income Tax Rate 35.0% 35.0% 35.0%
State Income Tax, Net of
Federal Income Tax Effect 4.5 4.5 4.2
Other Items, Net .5 .7 .6
- --------------------------------------------------------------------------------
Total 40.0% 40.2% 39.8%
- --------------------------------------------------------------------------------
</TABLE>
the limited inc 1996 annual report 39
<PAGE>
financials
Income taxes payable included net current deferred tax assets of
$0.3 million and $10.7 million at February 1, 1997 and February 3, 1996.
- --------------------------------------------------------------------------------
The effect of temporary differences which give rise to deferred income tax
balances was as follows (thousands):
<TABLE>
<CAPTION>
1996 1995
Assets Liabilities Total Assets Liabilities Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Excess of Tax
Over Book
Depreciation -- $ (19,951) $ (19,951) -- $ (39,190) $ (39,190)
Undistributed
Earnings of
Foreign Affiliates -- (116,562) (116,562) -- (125,511) (125,511)
Investment in
Affiliates -- (53,989) (53,989) -- (37,115) (37,115)
State Income
Taxes $ 9,599 -- 9,599 $22,875 -- 22,875
Special and
Nonrecurring
Items 24,145 -- 24,145 28,919 -- 28,919
Other 19,537 (32,449) (12,912) 28,571 (19,876) 8,695
- --------------------------------------------------------------------------------------------------------------
Total Deferred
Income Taxes $53,281 $ (222,951) $(169,670) $80,365 $ (221,692) $(141,327)
</TABLE>
- --------------------------------------------------------------------------------
Income tax payments approximated $233.8 million, $306.1 million and $230.9
million for 1996, 1995 and 1994.
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 construction allowances and
foreign operations. The Company believes that deposits already made will
mitigate any further assessments arising from construction allowances. The
Company strongly disagrees with the foreign operations 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.
9. contingent stock redemption agreement
In connection with the reconfiguration of its business, the Company purchased
from shareholders via a self-tender offer, 85 million shares of The Limited,
Inc. common stock for approximately $1.615 billion on March 17, 1996. Leslie H.
Wexner, Chairman and CEO of the Company, as well as the Company's founder and
principal shareholder, did not participate in the self-tender. However, the
Company entered into an agreement, as amended in 1996, which provides The Wexner
Children's Trust the opportunity, commencing on February 1, 1998, and for a
period of eight years thereafter (the exercise period), to require the Company
to redeem up to 18.75 million shares for a price per share equal to $18.75 (a
price equal to the price per share paid in the self-tender less $.25 per share).
Under certain circumstances, lenders to the Trust, if any, may exercise this
opportunity, beginning February 1, 1997. The Company received the opportunity to
redeem an equivalent number of shares from the Trust at $25.07 per share for a
period beginning on July 31, 2006, and for six months thereafter. As a result of
these events, the Company has transferred $351.6 million to temporary equity
identified as Contingent Stock Redemption Agreement in the Consolidated Balance
Sheets. In addition, approximately $351.6 million has been designated as
restricted cash to consummate either of the above rights (see Note 6). The terms
of this agreement were approved by the Company's Board of Directors.
10. stock options and restricted stock
Under the Company's stock plans, officers, directors and key associates may be
granted options to purchase the Company's common stock at the market price on
the date of grant. The options generally vest 25% per year over the first four
years of the grant and have a maximum term of ten years. Additionally, the
Company grants restricted stock to officers and key associates that generally
vest either on a graduated scale over four years or 100% at the end of a fixed
vesting period, principally five years. A maximum of 17.3 million shares may be
granted under the plans.
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial statements, but elected to
continue to measure compensation expense in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
for stock options has been recognized. If compensation expense had been
determined based on the estimated fair value of options granted in 1995 and
1996, consistent with the methodology in SFAS 123, the pro-forma effects on the
Company's net income and net income per share would have been immaterial. The
pro-forma effect on net income for 1996 would not be representative of the pro-
forma effect on net income in future years because it does not take into
consideration grants made prior to 1995.
In 1996, 1995 and 1994, approximately 468,000, 569,000 and 848,000 restricted
shares of the Company's common stock were granted to certain officers and key
associates. The market value of the shares at the date of grant amounted to $8.3
million in 1996, $10.0 million in 1995 and $16.7 million in 1994 and is being
amortized on a straight-line basis as compensation expense over the vesting
period. In 1995, 129,000 restricted shares which had been granted to IBI
associates were canceled and exchanged, on a fair value basis, for IBI
restricted stock. The compensation expense charged against income for restricted
stock grants amounted to $9.1 million in 1996 and 1995, and $7.3 million in
1994.
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
February 1, 1997:
<TABLE>
<CAPTION>
- --------------Options Outstanding------------------- -----Options Exercisable-
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable Exercisable
Prices at 2/1/97 Contractual Life Price at 2/1/97 Price
<S> <C> <C> <C> <C> <C>
$15-$17 1,647,000 7.0 years $16 493,000 $15
$17-$18 2,713,000 7.4 years $17 1,077,000 $17
$20-$22 2,341,000 5.6 years $21 1,794,000 $21
$24-$27 905,000 5.0 years $24 905,000 $24
$9-$31 1,593,000 6.5 years $19 980,000 $20
- -------------------------------------------------------------------------------
$9-$31 9,199,000 6.5 years $19 5,249,000 $20
</TABLE>
- -------------------------------------------------------------------------------
40 the limited inc 1996 annual report
<PAGE>
- --------------------------------------------------------------------------------
A summary of option activity for 1994, 1995 and 1996 follows:
<TABLE>
<CAPTION>
Number of Weighted Average
1994 Shares Option Price Per Share
--------------------------------------
<S> <C> <C>
Outstanding at Beginning of Year 7,183,000 $19.87
Granted 2,122,000 17.19
Exercised (393,000) 11.44
Canceled (498,000) 21.49
- --------------------------------------------------------------------------------
Outstanding at End of Year 8,414,000 $19.56
- --------------------------------------------------------------------------------
Options Exercisable at Year-End 4,100,000
1995
Outstanding at Beginning of Year 8,414,000 $19.56
Granted 2,196,000 17.81
Exercised (280,000) 12.43
Canceled (1,188,000) 19.90
- --------------------------------------------------------------------------------
Outstanding at End of Year 9,142,000 $19.32
- --------------------------------------------------------------------------------
Options Exercisable at Year-End 4,800,000
1996
Outstanding at Beginning of Year 9,142,000 $19.32
Granted 1,899,000 17.30
Exercised (531,000) 14.89
Canceled (1,311,000) 19.45
- --------------------------------------------------------------------------------
Outstanding at End of Year 9,199,000 $19.14
- --------------------------------------------------------------------------------
Options Exercisable at Year-End 5,249,000
</TABLE>
- --------------------------------------------------------------------------------
In 1995, the Company established a stock option plan for officers and key
associates of IBI. In connection with the IBI initial public offering,
associates of IBI were permitted to exchange on a fair value basis 1995 stock
options of The Limited, Inc., for stock options granted by IBI. Cancellations
during 1995 included 347,500 shares granted to IBI associates which were
exchanged for options of IBI common stock.
11. retirement benefits
The Company sponsors a defined contribution retirement plan. Participation in
this plan is available to all associates who have completed 1,000 or more hours
of service with the Company during certain 12-month periods and attained the age
of 21. Company contributions to this plan are based on a percentage of
associates' annual compensation. The cost of this plan was $33.1 million in
1996, $30.5 million in 1995 and $26.7 million in 1994.
12. fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
current assets, current liabilities and restricted cash
The carrying value of cash equivalents, restricted cash, accounts payable and
accrued expenses approximates fair value because of their short maturity.
long-term debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities.
interest rate swap agreement
The fair value of the interest rate swap is the estimated amount that the
Company would receive or pay to terminate the swap agreement at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparty.
- --------------------------------------------------------------------------------
The estimated fair values of the Company's financial instruments are as follows
(thousands):
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Debt $(650,000) $(638,798) $(650,000) $(645,180)
Interest Rate Swaps $(351) $(5,267) $(793) $(10,194)
</TABLE>
- --------------------------------------------------------------------------------
13. quarterly financial data (unaudited)
- --------------------------------------------------------------------------------
Summarized quarterly financial results for 1996 and 1995 follow (thousands
except per share amounts):
<TABLE>
<CAPTION>
1996 QUARTER First Second Third Fourth
---------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $1,787,943 $1,895,601 $1,994,986 $2,966,261
Gross Income 469,541 491,909 555,374 979,755
Net Income 28,152 33,150 159,513 213,393
Net Income Per Share 0.09 0.12 0.59 0.78
Net Income Per Share
(Excluding Gain on Sale of
Subsidiary Stock) $0.09 $0.12 $0.15 $0.78
1995 QUARTER
Net Sales $1,588,134 $1,718,643 $1,803,295 $2,771,365
Gross Income 402,666 423,696 452,958 808,212
Net Income 39,211 48,762 657,313 216,225
Net Income Per Share 0.11 0.14 1.83 0.60
Net Income Per Share
(Excluding Gain on Sale of
Subsidiary Stock) $0.11 $0.14 $0.12 $0.50
</TABLE>
- --------------------------------------------------------------------------------
the limited inc 1996 annual report 41
<PAGE>
financials
MARKET PRICE AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Price Cash Dividend
FISCAL YEAR END 1996 High Low Per Share
-----------------------------------
<S> <C> <C> <C>
4th Quarter $20 1/8 $16 5/8 $.10
3rd Quarter 20 1/4 17 3/4 .10
2nd Quarter 22 18 1/4 .10
1st Quarter $20 3/4 $16 5/8 $.10
FISCAL YEAR END 1995
4th Quarter $19 1/2 $15 1/4 $.10
3rd Quarter 21 1/2 17 7/8 .10
2nd Quarter 22 7/8 20 .10
1st Quarter $23 1/4 $16 5/8 $.10
</TABLE>
- --------------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange ("LTD") and
the London Stock Exchange. On February 1, 1997, there were 75,484 shareholders
of record. However, when including active associates who participate in the
Company's stock purchase plan, associates who own shares through Company-
sponsored retirement plans and others holding shares in broker accounts under
street names, the Company estimates the shareholder base at approximately
117,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Limited, Inc.
We have audited the accompanying consolidated balance sheets of The Limited,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three fiscal years in the period ended February 1, 1997 (on
pages 34-41). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Limited, Inc.
and subsidiaries as of February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 24, 1997
42 the limited inc 1996 annual report
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Subsidiaries (a) of Incorporation
---------------- ----------------
Express, Inc. (b) Delaware
Lerner New York, Inc. (c) Delaware
Lane Bryant, Inc. (d) Delaware
The Limited Stores, Inc. (e) Delaware
Henri Bendel, Inc. (f) Delaware
Structure, Inc. (g) Delaware
Limited Too, Inc. (h) Delaware
Galyan's Trading Company, Inc. (i) Indiana
Mast Industries, Inc. (j) Delaware
Mast Industries (Far East) Limited (k) Hong Kong
Limited Distribution Services, Inc. (l) Delaware
Limited Service Corporation (m) Delaware
Womanco Service Corporation (n) Delaware
Victoria's Secret Stores, Inc. (o) Delaware
Victoria's Secret Catalogue , Inc. (p) Delaware
Bath & Body Works, Inc. (q) Delaware
Cacique, Inc. (r) Delaware
Gryphon Development, Inc. (s) Delaware
Intimate Brands, Inc. Service Corporation (t) Delaware
Intimate Brands, Inc. (u) Delaware
Abercrombie & Fitch Stores, Inc. (u) Delaware
Abercrombie & Fitch Co. Service Corporation (w) Delaware
Abercrombie & Fitch Co. (x) Delaware
- ---------------------------
(a) The names of certain subsidiaries are omitted since such unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would
not constitute a significant subsidiary as of February 1, 1997.
(b) Express, Inc. is a wholly-owned subsidiary of Express (Delaware)
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
registrant.
(c) Lerner New York, Inc. is a wholly-owned subsidiary of Lerner Corporation,
a Delaware corporation and a wholly-owned subsidiary of the registrant.
(d) Lane Bryant, Inc. is a wholly-owned subsidiary of Lane Bryant (Delaware)
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
registrant.
(e) The Limited Stores, Inc. is a wholly-owned subsidiary of LIM Corporation,
a Delaware corporation and a wholly-owned subsidiary of the registrant.
(f) Henri Bendel, Inc. is a wholly-owned subsidiary of Henri Bendel Holding
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
registrant.
(g) Structure, Inc. is a wholly-owned subsidiary of Structure Holding
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
registrant.
(h) Limited Too, Inc. is a wholly-owned subsidiary of Limited Too Holding
Corporation, a Delaware corporation and a wholly-owned subsidiary of the
registrant.
<PAGE>
(i) Galyan's Trading Company, Inc. is a wholly-owned subsidiary of Galyan's
Holding Corporation, a Delaware corporation and a wholly-owned subsidiary
of the registrant.
(j) Mast Industries, Inc. is a wholly-owned subsidiary of Mast Industries
(Delaware), Inc., a Delaware corporation and a wholly-owned subsidiary of
the registrant.
(k) Mast Industries (Far East) Limited is a wholly-owned subsidiary of Mast
Industries (Overseas), Inc., which is a wholly-owned subsidiary of Mast
Industries, Inc.
(l) Limited Distribution Services, Inc. is a wholly-owned subsidiary of
LTDSP, Inc., a Delaware corporation and a wholly-owned subsidiary of the
registrant.
(m) Limited Service Corporation is a majority owned subsidiary of Mast
Industries (Overseas), Inc.
(n) Womanco Service Corporation is a wholly-owned subsidiary of Womanco,
Inc., a Delaware corporation which is a wholly-owned subsidiary of the
registrant.
(o) Victoria's Secret Stores, Inc. is a wholly-owned subsidiary of Victoria's
Secret Stores Holding Corporation, a Delaware corporation, which is a
wholly-owned subsidiary of Intimate Brands, Inc., a Delaware corporation
and a majority owned subsidiary of the registrant.
(p) Victoria's Secret Catalogue, Inc. is a wholly-owned subsidiary of
Victoria's Secret Catalogue Holding Corporation, a Delaware corporation,
which is a wholly-owned subsidiary of Intimate Brands, Inc., a Delaware
corporation and a majority owned subsidiary of the registrant.
(q) Bath & Body Works, Inc. is a wholly-owned subsidiary of Bath & Body Works
Holding Corporation, a Delaware corporation, which is a wholly-owned
subsidiary of Intimate Brands, Inc., a Delaware corporation and a
majority owned subsidiary of the registrant.
(r) Cacique, Inc. is a wholly-owned subsidiary of Cacique Holding
Corporation, a Delaware corporation, which is a wholly-owned subsidiary
of Intimate Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(s) Gryphon Development, Inc. is a wholly-owned subsidiary of Gryphon Holding
Corporation., a Delaware corporation, which is a wholly-owned subsidiary
of Intimate Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(t) Intimate Brands Service Corporation is a wholly-owned subsidiary of the
Intimate Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(u) Intimate Brands, Inc. is a majority owned subsidiary of the registrant.
(v) Abercrombie & Fitch Stores, Inc. is a wholly-owned subsidiary of
Abercrombie & Fitch Holding Corporation, a Delaware corporation, which is
a wholly-owned subsidiary of Abercrombie & Fitch Co., a Delaware
corporation and a majority owned subsidiary of the registrant.
(w) Abercrombie & Fitch Co. Service Corporation is a wholly-owned subsidiary
of Abercrombie & Fitch Holding Corporation, a Delaware corporation, which
is a wholly-owned subsidiary of Abercrombie & Fitch Co., a Delaware
corporation and a majority owned subsidiary of the registrant.
(x) Abercrombie & Fitch Co. is a majority owned subsidiary of the registrant.
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE] EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Limited, Inc. 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, 33-42832 and 33-53366 of our
report dated February 24, 1997, on our audits of the consolidated financial
statements of The Limited, Inc. and Subsidiaries as of February 1, 1997, and
February 3, 1996, and for the fiscal years ended February 1, 1997, February 3,
1996, and January 28, 1995, and the financial statement schedule of The Limited,
Inc. and Subsidiaries for each of the two fiscal years in the period ended
February 3, 1996, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 25, 1997
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ LESLIE H. WEXNER
--------------------
Leslie H. Wexner
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ KENNETH B. GILMAN
---------------------
Kenneth B. Gilman
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ BELLA WEXNER
----------------
Bella Wexner
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ MARTIN TRUST
----------------
Martin Trust
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ EUGENE M. FREEDMAN
----------------------
Eugene M. Freedman
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ E. GORDON GEE
-----------------
E. Gordon Gee
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ DAVID T. KOLLAT
-------------------
David T. Kollat
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ CLAUDINE MALONE
-------------------
Claudine Malone
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ LEONARD A. SCHLESINGER
--------------------------
Leonard A. Schlesinger
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ DONALD B. SHACKELFORD
-------------------------
Donald B. Shackelford
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ ALLAN R. TESSLER
--------------------
Allan R. Tessler
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
THE LIMITED, INC.
The undersigned officer and/or director of The Limited, Inc., a Delaware
corporation, which anticipates filing an Annual Report on Form 10-K for its 1996
fiscal year under the provisions of the Securities Exchange Act of 1934 with
the Securities and Exchange Commission, Washington, D.C., hereby constitutes and
appoints Leslie H. Wexner and Kenneth B. Gilman, and each of them, with full
powers of substitution and resubstitution, as attorney to sign for the
undersigned in any and all capacities such Annual Report on Form 10-K and any
and all amendments thereto, and any and all applications or other documents to
be filed with the Securities and Exchange Commission pertaining to such Annual
Report on Form 10-K with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present. The undersigned hereby ratifies and confirms all that said attorney-
in-fact and agent or his substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ RAYMOND ZIMMERMAN
---------------------
Raymond Zimmerman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of The Limited, Inc. and Subsidiaries for the
year ended February 1, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 312,796
<SECURITIES> 0
<RECEIVABLES> 69,337
<ALLOWANCES> 0
<INVENTORY> 1,007,303
<CURRENT-ASSETS> 1,545,097
<PP&E> 3,290,244
<DEPRECIATION> 1,461,375
<TOTAL-ASSETS> 4,120,002
<CURRENT-LIABILITIES> 906,893
<BONDS> 650,000
0
0
<COMMON> 180,352
<OTHER-SE> 1,742,230
<TOTAL-LIABILITY-AND-EQUITY> 4,120,002
<SALES> 8,644,791
<TOTAL-REVENUES> 8,644,791
<CGS> 6,148,212
<TOTAL-COSTS> 6,148,212
<OTHER-EXPENSES> 1,848,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,363
<INCOME-PRETAX> 675,208
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 434,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434,208
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
<PAGE>
EXHIBIT 99
----------
[LETTERHEAD OF ARY, EARMAN AND ROEPCKE APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Plan Administrator of The Limited,
Inc. Savings and Retirement Plan:
We have audited the accompanying statements of net assets available for
benefits of The Limited, Inc. Savings and Retirement Plan (the "Plan") as of
December 31, 1996 and 1995, and the related statements of changes in net assets
available for benefits for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1996 and 1995, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 20, 1997.
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1996
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
TOTAL Stock Fund Income Fund Fund
ASSETS -------------- ------------- ----------- -------------
- ------
<S> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ 60,824,705 $60,824,705 $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) 976,468 - - -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) 82,389,513 - 82,389,513 -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) 53,136,984 - - 53,136,984
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - - -
Vanguard Wellington Fund
(Cost $9,986,245) 10,453,023 - - -
Temporary Investments (Cost
Approximates Fair Value) 30,946 873 18,039 5,684
------------ ----------- ----------- -----------
Total Investments 254,080,299 60,825,578 82,407,552 53,142,668
Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265
Receivable from Employers for Withheld
Participants' Contributions 1,183,352 118,433 391,432 298,971
Due from Brokers 311,530 311,530 - -
Interfund Transfers - 4,686 (12,473) 12,645
Accrued Interest and Dividends 4,553 1,089 1,772 847
------------ ----------- ----------- -----------
Total Assets 276,283,800 63,409,086 89,978,656 58,591,396
------------ ----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers 122,686 - - -
Administrative Fees Payable 278,885 114,176 29,286 15,828
------------ ----------- ----------- -----------
Total Liabilities 401,571 114,176 29,286 15,828
------------ ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
ASSETS ------------ ----------- ---------------
- ------
<S> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ - $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) - - 976,468
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) - - -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) - - -
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - -
Vanguard Wellington Fund
(Cost $9,986,245) - 10,453,023 -
Temporary Investments (Cost
Approximates Fair Value) 3,824 329 2,197
----------- ----------- -----------
Total Investments 46,272,484 10,453,352 978,665
Contribution Receivable from Employers 4,396,598 1,667,242 165,818
Receivable from Employers for Withheld
Participants' Contributions 255,519 108,647 10,350
Due from Brokers - - -
Interfund Transfers (4,213) (2,507) 1,862
Accrued Interest and Dividends 682 131 32
----------- ----------- -----------
Total Assets 50,921,070 12,226,865 1,156,727
----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers - - 122,686
Administrative Fees Payable 109,033 10,562 -
----------- ----------- -----------
Total Liabilities 109,033 10,562 122,686
----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-1
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1995
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
TOTAL Stock Fund Income Fund Fund Fund Fund
ASSETS ------------ ------------- ------------- ------------- ----------- ------------
- ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $36,237,327) $ 69,418,465 $ 69,418,465 $ - $ - $ - $ -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $70,972,869) 70,972,869 - 70,972,869 - - -
Vanguard Index - 500
Portfolio (Cost $28,215,245) 36,781,237 - - 36,781,237 - -
Vanguard U.S. Growth
Portfolio (Cost $22,450,170) 28,568,077 - - - 28,568,077 -
Vanguard Wellington Fund
(Cost $2,688,763) 2,810,545 - - - - 2,810,545
Determined By Contract Value:
Guaranteed Investment Contracts:
Metropolitan Life Insurance 7,064,772 - 7,064,772 - - -
Temporary Investments (Cost
Approximates Fair Value) 29,917 209 29,708 - - -
------------ ------------ ------------ ------------ ------------ ------------
Total Investments 215,645,882 69,418,674 78,067,349 36,781,237 28,568,077 2,810,545
Contribution Receivable from Employers 21,814,605 3,121,459 10,109,934 4,317,439 3,491,987 773,786
Receivable from Employers for Withheld
Participants' Contributions 1,417,497 227,262 522,163 331,820 263,791 72,461
Due from Brokers 46,096 46,096 - - - -
Interfund Transfers - (122,205) (6,207) (50,186) 33,824 144,774
Accrued Interest and Dividends 3,174 541 1,760 421 418 34
Other Assets 976 - - 424 483 69
------------ ------------ ------------ ------------ ------------ ------------
Total Assets 238,928,230 72,691,827 88,694,999 41,381,155 32,358,580 3,801,669
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES
- -----------
Other Liabilities 26,894 - 26,894 - - -
Administrative Fees Payable 392,065 129,381 141,144 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 418,959 129,381 168,038 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
Total Stock Fund Income Fund Fund
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 5,826,139 $(3,507,840) $ - $ 5,621,065
Realized Gain on Sale of Securities 14,208,839 9,385,783 - 2,732,990
Interest 4,977,925 17,980 4,888,501 6,109
Dividends 1,400,891 1,395,032 - -
Mutual Funds' Earnings 5,229,593 - - 1,139,142
------------ ----------- ----------- -----------
Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306
------------ ----------- ----------- -----------
Contributions:
Employers 30,145,525 3,087,453 10,664,673 7,443,415
Participants 16,172,183 1,802,993 5,382,468 4,063,595
------------ ----------- ----------- -----------
Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010
------------ ----------- ----------- -----------
Interfund Transfers - (13,040,074) (3,485,681) 5,016,481
------------ ----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351)
------------ ----------- ----------- -----------
Administrative Expense (935,202) (258,452) (320,918) (125,949)
------------ ----------- ----------- -----------
Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433)
------------ ----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064
Beginning Net Assets Available for
Benefits 238,509,271 72,562,446 88,526,961 41,314,504
------------ ----------- ----------- -----------
Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
----------- ------------ ------------
<S> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 3,428,551 $ 344,996 $ (60,633)
Realized Gain on Sale of Securities 2,001,323 90,165 (1,422)
Interest 4,933 60,295 107
Dividends - - 5,859
Mutual Funds' Earnings 3,420,290 670,161 -
----------- ----------- -----------
Total Investment Income (Loss) 8,855,097 1,165,617 (56,089)
----------- ----------- -----------
Contributions:
Employers 6,287,166 2,489,055 173,763
Participants 3,449,162 1,412,169 61,796
----------- ----------- -----------
Total Contributions 9,736,328 3,901,224 235,559
----------- ----------- -----------
Interfund Transfers 6,476,961 4,164,295 868,018
----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (2,040,825) (204,747) -
----------- ----------- -----------
Administrative Expense (207,292) (22,591) -
----------- ----------- -----------
Benefits to Participants (4,315,844) (585,243) (13,447)
----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 18,504,425 8,418,555 1,034,041
Beginning Net Assets Available for
Benefits 32,307,612 3,797,748 -
----------- ----------- -----------
Ending Net Assets Available for Benefits $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
Total Stock Fund Income Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 7,426,953 $ (5,714,880) $ - $ 7,535,683 $ 5,484,368 $ 121,782
Realized Gain on Sale of Securities 3,567,665 1,581,946 - 1,096,390 877,023 12,306
Interest 4,771,693 10,190 4,752,866 4,761 3,726 150
Dividends 1,632,728 1,632,728 - - - -
Mutual Funds' Earnings 2,054,249 - - 832,487 1,151,646 70,116
------------ ------------ ------------ ------------ ------------ ------------
Total Investment Income (Loss) 19,453,288 (2,490,016) 4,752,866 9,469,321 7,516,763 204,354
------------ ------------ ------------ ------------ ------------ ------------
Contributions:
Employers 29,943,002 4,142,615 13,472,869 6,246,002 4,928,087 1,153,429
Participants 13,909,162 2,380,938 4,899,509 3,466,763 2,694,626 467,326
------------ ------------ ------------ ------------ ------------ ------------
Total Contributions 43,852,164 6,523,553 18,372,378 9,712,765 7,622,713 1,620,755
------------ ------------ ------------ ------------ ------------ ------------
Interfund Transfers - (775,658) (1,604,380) (28,051) 378,900 2,029,189
------------ ------------ ------------ ------------ ------------ ------------
Administrative Expense (1,017,651) (384,338) (357,753) (153,254) (117,880) (4,426)
------------ ------------ ------------ ------------ ------------ ------------
Benefits to Participants (24,679,806) (7,721,019) (9,758,147) (3,959,696) (3,188,820) (52,124)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 37,607,995 (4,847,478) 11,404,964 15,041,085 12,211,676 3,797,748
Beginning Net Assets Available for
Benefits 200,901,276 77,409,924 77,121,997 26,273,419 20,095,936 -
------------ ------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth
Total Stock Fund Income Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 1,716,786 $ 1,918,510 $ - $ (568,121) $ 366,397
Realized Gain on Sale of Securities 3,033,768 2,781,458 - 206,695 45,615
Interest 4,123,855 9,181 4,110,632 2,223 1,819
Dividends 1,575,897 1,575,897 - - -
Mutual Funds' Earnings 864,642 - - 661,477 203,165
------------ ------------ ------------ ------------ ------------
Total Investment Income 11,314,948 6,285,046 4,110,632 302,274 616,996
------------ ------------ ------------ ------------ ------------
Contributions:
Employers 23,236,673 4,220,346 11,221,074 4,509,396 3,285,857
Participants 10,745,605 2,466,228 3,919,556 2,532,832 1,826,989
------------ ------------ ------------ ------------ ------------
Total Contributions 33,982,278 6,686,574 15,140,630 7,042,228 5,112,846
------------ ------------ ------------ ------------ ------------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (37,482) (14) (37,468) - -
------------ ------------ ------------ ------------ ------------
Interfund Transfers - (1,149,559) 231,825 879,225 38,509
------------ ------------ ------------ ------------ ------------
Administrative Expense (755,565) (335,032) (270,359) (84,273) (65,901)
------------ ------------ ------------ ------------ ------------
Benefits to Participants (29,091,678) (13,430,138) (11,480,188) (2,305,551) (1,875,801)
------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 15,412,501 (1,943,123) 7,695,072 5,833,903 3,826,649
Beginning Net Assets Available for
Benefits 185,488,775 79,353,047 69,426,925 20,439,516 16,269,287
------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $200,901,276 $ 77,409,924 $ 77,121,997 $ 26,273,419 $ 20,095,936
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) DESCRIPTION OF THE PLAN
-----------------------
General
-------
The Limited, Inc. Savings and Retirement Plan (the "Plan") is a defined
contribution plan covering certain employees of The Limited, Inc. and
its affiliates (the "Employers") who are at least 21 years of age and
have completed 1,000 or more hours of service during their first
consecutive twelve months of employ ment or any calendar year beginning
in or after their first consecutive twelve months of employment. Certain
employees of the Employers, who are covered by a collective bargaining
agreement, are not eligible to participate in the Plan. At December 31,
1996, there were 25,392 participants in the Plan.
On August 31, 1993, The Limited, Inc. sold 60% of its interest in Brylane,
Inc. and transferred the assets and liabilities allocated to the
employees of Brylane, Inc. and its affiliates to the Brylane L.P.
Savings and Retirement Plan.
On January 31, 1996, The Limited, Inc. sold 60% of its interest in World
Finan cial Network National Bank and transferred the assets and
liabilities allo cated to the employees of World Financial Network
National Bank and its affiliates to the World Financial Network National
Bank Savings and Retirement Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA) as amended.
Amendments
----------
During 1994, the Plan was amended and restated effective as of January 1,
1992 to, among other things, (1) make certain changes in the design of
the Plan to comply with the Internal Revenue code of 1986, as amended,
and the Employee Retirement Income Security Act of 1974, as amended and
(2) incorporate amendments previously made.
Contributions
-------------
Employer Contributions:
The Employers may provide a non-service related retirement contribution of
4% of annual compensation up to the Social Security wage base and 7% of
annual compensation after that and a service related retirement
contribution of 1% of annual compensation for participants who have
completed five or more years of vesting service as of the last day of
the Plan year. Participants who complete 500 hours of service during the
Plan year and are participants on the last day of the Plan year are
eligible. The annual compensation of each participant taken into account
under the Plan is limited to the maximum amount permitted under Section
401(a)(17) of the Internal Revenue Code. The annual compensation limit
for the Plan year ended December 31, 1996, was $150,000. The limit
increases to $160,000 for 1997.
The Employers may provide a matching contribution of 100% of the
participant's voluntary contributions up to 3% of the participant's
total annual compensa tion.
F-6
<PAGE>
Participant Voluntary Contributions:
A participant may elect to make a voluntary tax-deferred contribution of 1%
to 6% of his or her annual compensation up to the maximum permitted
under Section 402(g) of the Internal Revenue Code adjusted annually
($9,500 at December 31, 1996). This voluntary tax-deferred contribution
may be limited by Section 401(k) of the Internal Revenue Code.
A participant earning annually more than $66,000 for the years ended December
31, 1996, 1995 and 1994, respectively, may be limited to voluntary
contributions to the Plan of less than 6% due to requirements of Section
401(k) of the Internal Revenue Code based on the current levels of
participant voluntary contributions.
Vesting
-------
A participant is fully and immediately vested for voluntary and rollover
contributions. A summary of vesting percentages in the Employers'
contributions follows:
<TABLE>
<CAPTION>
Years of Vested Service Percentage
------------------------ ----------
<S> <C>
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
</TABLE>
Payment Of Benefits
-------------------
The full value of participants' accounts becomes payable upon retirement,
disability, or death. Upon termination of employment for any other
reason participants' accounts, to the extent vested, become payable.
Those partici pants with vested account balances greater than $3,500
have the option of leaving their accounts invested in the Plan until age
65. All benefits will be paid as a lump-sum distribution. Those
participants holding between five and one hundred shares of Employer
Securities will have the option to receive such amount in whole shares
of Employer Securities and cash for any fractional shares. Those
participants holding more than one hundred shares of Employer Securities
will receive whole shares of Employer securities and cash for any
fractional shares. Participants have the option of having their benefit
paid directly to an eligible retirement plan specified by the
participant.
A participant who is fully vested in his or her account and who has
participated in the Plan for at least five years may obtain an in-
service withdrawal from their account based on the percentage amounts
designated by the Plan. A participant may also request a hardship
distribution due to an immediate and heavy financial need based on the
terms of the Plan.
Amounts Allocated Participants Withdrawn from the Plan
------------------------------------------------------
The vested portion of net assets available for benefits allocated to
participants withdrawn from the plan as of December 31, 1996 and 1995,
is set forth below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Limited Stock Fund $ 914,636 $ 54,393
Fixed Income Fund 1,171,143 301,337
Index-500 Fund 371,539 128,645
U.S. Growth Fund 338,708 138,247
Wellington Fund 77,814 11,908
Intimate Brands Stock Fund 165 -
---------- --------
$2,874,005 $634,530
========== ========
</TABLE>
F-7
<PAGE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1996, 1995 and 1994, are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Limited Stock Fund $ 309,429 $ 268,411 $ 536,323
Fixed Income Fund 3,178,025 1,691,327 2,804,818
Index-500 Fund 743,916 352,056 268,212
U.S. Growth Fund 692,299 295,948 241,890
Wellington Fund 36,468 - -
Intimate Brands Stock Fund - - -
---------- ---------- ----------
$4,960,137 $2,607,742 $3,851,243
========== ========== ==========
</TABLE>
Expenses
--------
Brokerage fees, transfer taxes, and other expenses incurred in connection
with the investment of the Plan's assets will be added to the cost of
such investments or deducted from the proceeds thereof, as the case
may be. Administrative expenses of the Plan will be paid from the Plan
from earnings not allocated to partici pants' accounts. The remainder
will be paid by the Employers, unless the Employers elect to pay more
or all of such costs.
Tax Determination
-----------------
The Plan obtained its latest determination letter on January 30, 1995, in
which the Internal Revenue Service stated that the Plan, as amended
and restated January 1, 1992 was in compliance with the applicable
requirements of the Internal Revenue Code. Accordingly, the following
Federal income tax rules will apply to the Plan:
Voluntary tax-deferred contributions made under the Plan by a
participant and contributions made by the Employers to
participant accounts are generally not taxable until such
amounts are distributed.
The participants are not subject to Federal income tax on
interest, divi dends, or gains in their particular accounts
until distributed.
The foregoing is only a brief summary of certain tax implications and
applies only to Federal tax regulations currently in effect.
(2) SUMMARY OF ACCOUNTING POLICIES
------------------------------
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. If available,
quoted market prices are used to value investments. The amounts for
investments that have no quoted market price are shown at their
estimated fair value, which is determined based on yields equivalent
for such securities or for securities of comparable maturi ty,
quality, and type as obtained from market makers. Guaranteed
investment contracts issued by insurance companies are valued at
contract value. Contract value represents contributions made under the
contract, and interest at the contract rate, less Plan withdrawals and
administration expenses charged by the insurance companies.
Realized gains or losses on the distribution or sale of securities
represent the difference between the average cost of such securities
held and the fair value on the date of distribution or sale.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results may differ from those
estimates.
F-8
<PAGE>
INVESTMENTS
-----------
Net unrealized appreciation, equal to the difference between cost and fair
value of all investments held at the applicable valuation dates, is
recognized in determining the value of each fund. The unrealized
appreciation (depreciation) as of December 31, 1996, 1995 and 1994 is
set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Limited Stock Fund $26,715,998 $33,181,138 $42,740,905
Fixed Income Fund - - -
Index-500 Fund 14,187,057 8,565,992 1,030,309
U.S. Growth Fund 9,546,458 6,117,907 633,539
Wellington Fund 466,778 121,782 -
Intimate Brands Stock Fund (60,633) - -
----------- ----------- -----------
$50,855,658 $47,986,819 $44,404,753
=========== =========== ===========
</TABLE>
The following is a summary of the net gain (loss) on securities sold during
the periods ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Realized
Proceeds Cost Gain (Loss)
----------- ----------- ------------
<S> <C> <C> <C>
Period Ended December 31, 1996
Limited Stock Fund $18,722,433 $ 9,336,650 $ 9,385,783
Fixed Income Fund 31,802,226 31,802,226 -
Index-500 Fund 11,800,336 9,067,346 2,732,990
U.S. Growth Fund 8,582,452 6,581,129 2,001,323
Wellington Fund 1,842,744 1,752,579 90,165
Intimate Brands Stock Fund 11,229 12,651 (1,422)
----------- ----------- -----------
$72,761,420 $58,552,581 $14,208,839
=========== =========== ===========
Period Ended December 31, 1995
Limited Stock Fund $ 2,804,851 $ 1,222,905 $ 1,581,946
Fixed Income Fund 21,155,451 21,155,451 -
Index-500 Fund 6,616,037 5,519,647 1,096,390
U.S. Growth Fund 4,986,144 4,109,121 877,023
Wellington Fund 266,558 254,252 12,306
----------- ----------- -----------
$35,829,041 $32,261,376 $ 3,567,665
=========== =========== ===========
Period Ended December 31, 1994
Limited Stock Fund $ 4,926,530 $ 2,145,072 $ 2,781,458
Fixed Income Fund 14,779,530 14,779,530 -
Index-500 Fund 3,511,736 3,305,041 206,695
U.S. Growth Fund 3,139,753 3,094,138 45,615
----------- ----------- -----------
$26,357,549 $23,323,781 $ 3,033,768
=========== =========== ===========
</TABLE>
Contributions under the Plan are invested in one of six investment funds:
(1) The Limited Stock Fund, consisting of common stock of The Limited,
Inc., a Delaware corporation (the "Issuer") and parent company of the
Employers, (2) the Fixed Income Fund, which is invested in the Vanguard
Investment Contract Trust, and prior to January 1996, was also invested
in other guaranteed investment con tracts issued by insurance companies,
(3) the Index-500 Fund, which is invested in the Vanguard Index - 500
Portfolio, (4) the U.S. Growth Fund, which is invested in the Vanguard
U.S. Growth Portfolio, (5) the Wellington Fund, which is invested in the
Vanguard Wellington Fund. Prior to July 1, 1995 the Wellington Fund was
not an investment option, and (6) the Intimate Brands Stock Fund,
consisting of common stock of Intimate Brands, Inc., a Delaware corpora
tion and an eighty-three percent owned subsidiary of The Limited, Inc.
Prior to October 1, 1996 the Intimate Brands Stock Fund was not an
investment option.
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant. There are
5,584 partic ipants in the Limited Stock Fund, 17,644 in the Fixed
Income Fund, 8,941 in the Index-500 Fund, 8,160 in the U.S. Growth Fund,
5,350 in the Wellington Fund, and 641 in the Intimate Brands Stock Fund
at December 31, 1996.
F-9
<PAGE>
(4) PLAN ADMINISTRATION
-------------------
The Plan is administered by a Committee, the members of which are appointed
by the Board of Directors of the Employers.
(5) PLAN TERMINATION
----------------
Although the Employers have not expressed any intent to do so, the
Employers have the right under the Plan to discontinue their
contributions at any time. The Limited, Inc. has the right at any time,
by action of its Board of Directors, to terminate the Plan subject to
provisions of ERISA. Upon Plan termination or partial termination,
participants will become fully vested in their accounts.
F-10
