<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ---------------------
Commission file number 1-8344
------
THE LIMITED, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- --------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 415-7000
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at August 28, 1998
- -------------------------------- ------------------------------
$.50 Par Value 28,080,286 Shares
<PAGE>
THE LIMITED, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
August 1, 1998 and August 2, 1997......................... 3
Consolidated Balance Sheets
August 1, 1998 and January 31, 1998....................... 4
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
August 1, 1998 and August 2, 1997......................... 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition....... 11
Part II. Other Information
Item 1. Legal Proceedings......................................... 19
Item 6. Exhibits and Reports on Form 8-K.......................... 19
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------------------- ----------------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $2,083,101 $2,020,084 $ 4,091,178 $3,849,864
Cost of Goods Sold, Occupancy and
Buying Costs 1,468,387 1,481,177 2,889,794 2,809,486
------------------ ------------------ ------------------ ------------------
GROSS INCOME 614,714 538,907 1,201,384 1,040,378
General, Administrative and Store
Operating Expenses (538,336) (466,247) (1,068,659) (918,094)
Special & Nonrecurring Items, Net 1,651,397 - 1,740,030 -
------------------ ------------------ ------------------ ------------------
OPERATING INCOME 1,727,775 72,660 1,872,755 122,284
Interest Expense (16,414) (16,272) (32,155) (32,819)
Other Income 15,595 6,818 31,748 15,655
Minority Interest (12,618) (10,632) (20,541) (16,279)
Gain in Connection with Initial Public
Offering of Equity Investee - - - 8,606
------------------ ------------------ ------------------ ------------------
INCOME BEFORE INCOME TAXES 1,714,338 52,574 1,851,807 97,447
Provision for Income Taxes 30,000 25,000 88,000 45,000
------------------ ------------------ ------------------ ------------------
NET INCOME $1,684,338 $ 27,574 $ 1,763,807 $ 52,447
================== ================== ================== ==================
NET INCOME PER SHARE:
Basic $7.13 $.10 $6.92 $.19
========== ========= =========== =========
Diluted $6.93 $.10 $6.75 $.19
========== ========= =========== =========
DIVIDENDS PER SHARE $ .13 $.12 $ .26 $.24
========== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $ 498,862 $ 746,395
Accounts Receivable 81,131 83,370
Inventories 1,144,545 1,002,710
Store Supplies 91,187 99,167
Other 80,954 99,509
----------- -----------
TOTAL CURRENT ASSETS 1,896,679 2,031,151
PROPERTY AND EQUIPMENT, NET 1,462,011 1,519,908
RESTRICTED CASH 351,600 351,600
DEFERRED INCOME TAXES 65,613 56,586
OTHER ASSETS 361,042 341,516
----------- -----------
TOTAL ASSETS $ 4,136,945 $ 4,300,761
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 264,864 $ 300,703
Accrued Expenses 701,746 676,715
Income Taxes Payable 14,004 115,994
----------- -----------
TOTAL CURRENT LIABILITIES 980,614 1,093,412
LONG-TERM DEBT 650,000 650,000
OTHER LONG-TERM LIABILITIES 54,606 58,720
MINORITY INTEREST 99,258 102,072
CONTINGENT STOCK REDEMPTION AGREEMENT 351,600 351,600
SHAREHOLDERS' EQUITY:
Common Stock 180,352 180,352
Paid-in Capital 151,002 148,018
Retained Earnings 5,306,178 3,613,174
----------- -----------
5,637,532 3,941,544
Less: Treasury Stock, at Average Cost (3,636,665) (1,896,587)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 2,000,867 2,044,957
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,136,945 $ 4,300,761
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
--------------------------------------
August 1, August 2,
1998 1997
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,763,807 $ 52,447
Impact of Other Operating Activities on Cash Flows:
Net Gain in Connection with Initial Public Offering of Equity Investee - (5,606)
Special and Nonrecurring Items, Net of Tax (1,705,030) -
Depreciation and Amortization 144,362 149,657
Minority Interest, Net of Dividends Paid 7,720 4,459
Changes in Assets and Liabilities:
Accounts Receivable 1,288 (22,208)
Inventories (178,542) (148,362)
Accounts Payable and Accrued Expenses 34,429 10,354
Income Taxes (148,405) (180,542)
Other Assets and Liabilities (11,559) 894
----------- ----------
NET CASH USED FOR OPERATING ACTIVITIES (91,930) (138,907)
----------- ----------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (158,435) (212,475)
Proceeds from Sale of Interest in Investee 131,262 -
----------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (27,173) (212,475)
----------- ----------
FINANCING ACTIVITIES:
Net Proceeds from Commercial Paper and Other Short-term Borrowings - 116,121
Dividends Paid (65,219) (65,118)
Stock Options and Other 31,923 10,050
Settlement of Abercrombie & Fitch Intercompany Account (47,649) -
Repurchase of Subsidiary Common Stock, Net (47,485) -
----------- ----------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (128,430) 61,053
----------- ----------
NET DECREASE IN CASH AND EQUIVALENTS (247,533) (290,329)
Cash and Equivalents, Beginning of Year 746,395 312,796
----------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $ 498,862 $ 22,467
=========== ==========
</TABLE>
In 1998, noncash financing activities include the addition of $1.766 billion to
treasury stock as a result of the exchange of 40,484,545 common shares of
Abercrombie & Fitch previously owned by the Company for 47,075,052 shares of
common stock of the Company. Additional noncash financing activities include a
$5.6 million dividend effected by a pro rata spin-off of the Company's remaining
shares of Abercrombie & Fitch (see Note 7).
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THE LIMITED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Limited,
Inc. (the "Company") and all significant subsidiaries which are more than
50 percent owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
Investments in other entities (including joint ventures) that the Company
has the ability to significantly influence operating and financial policies
are accounted for on the equity method.
The consolidated financial statements as of August 1, 1998 and for the
thirteen and twenty-six week periods ended August 1, 1998 and August 2,
1997 are unaudited and are presented pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's 1997
Annual Report on Form 10-K. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (which are of a
normal recurring nature) necessary to present fairly the financial position
and results of operations and cash flows for the interim periods, but are
not necessarily indicative of the results of operations for a full fiscal
year.
The consolidated financial statements as of August 1, 1998 and for the
thirteen and twenty-six week periods ended August 1, 1998 and August 2,
1997 included herein have been reviewed by the independent public
accounting firm of PricewaterhouseCoopers LLP and the report of such firm
follows the notes to consolidated financial statements.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP requires that certain external costs
and internal payroll and payroll related costs be capitalized during the
application development and implementation stages of a software development
project and amortized over the software's useful life. The SOP is effective
in the first quarter of 1999.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued in April 1998. This SOP requires that entities expense start-up
costs and organization costs as they are incurred. The SOP is effective in
the first quarter of 1999.
6
<PAGE>
2. EARNINGS PER SHARE
Weighted average common shares outstanding (thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------------------- -------------------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Common shares issued 379,454 379,454 379,454 379,454
Treasury shares (143,322) (107,860) (124,469) (107,821)
----------------- ---------------- ---------------- ----------------
Basic shares 236,132 271,594 254,985 271,633
Dilutive effect of stock options and
restricted shares 6,947 1,620 6,236 1,213
----------------- ---------------- ---------------- ----------------
Diluted shares 243,079 273,214 261,221 272,846
================= ================ ================ ================
</TABLE>
Options to purchase .8 million and 9.0 million shares of common stock were
outstanding at August 1, 1998 and August 2, 1997, but were not included in
the computation of earnings per share because the options' exercise price
was greater than the average market price of the common shares during the
period. In addition, the 18.75 million shares subject to the Contingent
Stock Redemption Agreement are excluded from the dilution calculation
because their redemption would not have a dilutive effect on earnings per
share.
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories
is based principally upon the lower of average cost or market determined on
a first-in, first-out basis using the retail method. Inventory valuation
at the end of the first and third quarters reflects adjustments for
inventory markdowns and shrinkage estimates for the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
-------------- ------------
<S> <C> <C>
Property and equipment, at cost $ 3,057,597 $ 3,104,612
Accumulated depreciation and
amortization (1,595,586) (1,584,704)
-------------- ------------
Property and equipment, net $ 1,462,011 $ 1,519,908
============== ===========
</TABLE>
5. INCOME TAXES
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Income taxes paid during the twenty-six weeks
ended August 1, 1998 and August 2, 1997 approximated $199 million and $183
million.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for years 1992 to 1994 related to the treatment of
transactions involving the Company's foreign operations for which the
Company has provided deferred taxes on the undistributed earnings of
foreign affiliates. The Company strongly disagrees with the
7
<PAGE>
assessment and is vigorously contesting the assessment. Management believes
resolution of this matter will not have a material adverse effect on the
Company's results of operations or financial condition.
6. FINANCING ARRANGEMENTS
Unsecured long-term debt consisted of (thousands):
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
-------------- --------------
<S> <C> <C>
7 1/2% Debentures due March 2023 $250,000 $250,000
7 4/5% Notes due May 2002 150,000 150,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
-------------- --------------
$650,000 $650,000
============== ==============
</TABLE>
The Company maintains a $1 billion unsecured revolving credit agreement
(the "Agreement"). Borrowings outstanding under the Agreement are due
September 28, 2002. 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 (September 29, 1997),
subject to the approval of the lending banks. The Agreement has several
borrowing options, including interest rates which are based on either the
lender's "Base Rate", as defined, LIBOR, CD-based options or at a rate
submitted under a bidding process. Facilities fees payable under the
Agreement are based on the Company's long-term credit ratings, and
currently approximate 0.1% of the committed amount per annum. The Company
is in compliance with covenants contained in the Agreement relating to the
Company's working capital, debt and net worth. No amounts were outstanding
under the Agreement at August 1, 1998.
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 August 1, 1998.
Up to $250 million of debt securities and warrants to purchase debt
securities may be issued under the Company's shelf registration statement.
Interest paid during the twenty-six weeks ended August 1, 1998 and August
2, 1997 approximated $32.4 million and $40.1 million.
7. SPECIAL ITEMS
On May 19, 1998, the Company completed a tax-free exchange offer to
establish Abercrombie & Fitch ("A&F") as an independent company. A total of
47,075,052 shares of the Company's common stock were exchanged at a ratio
of .86 of a share of A&F common stock for each Limited share tendered. In
connection with the exchange, the Company recorded a $1.65 billion tax-free
gain. In addition, on June 1, 1998 a $5.6 million dividend was effected
through a pro rata spin-off to shareholders of the Company's remaining
3,115,455 A&F shares. Limited shareholders of record as of the close of
trading on May 29, 1998 received .013673 of a share of A&F for each Limited
share owned at that time.
8
<PAGE>
During the first quarter of 1998, the company recognized a pretax gain of
$93.7 million from the sale of its remaining interest in Brylane, Inc., a
specialty catalogue retailer. This gain was partially offset by a $5.1
million pretax charge for severance and other associate termination costs
related to the closing of five of six Henri Bendel stores. At August 1,
1998, $3.9 million of these charges had been paid.
During the first quarter of 1997, the Company recognized a pretax gain of
$8.6 million in connection with the initial public offering of Brylane,
Inc.
During the fourth quarter of 1997, the Company recorded pretax special and
nonrecurring charges related to closing the Cacique lingerie business,
streamlining the Henri Bendel business from six stores to one store,
recognizing charges for impaired assets and closing and downsizing certain
stores, principally at the women's businesses. Write-downs related to the
$175 noncash component of the charge were recognized in 1997. Outlays for
the cash component of the charge are expected to approximate $70 to $80
million during 1998, leaving a remaining accrual at year-end of $20 to $30
million, principally for contractual obligations. Cash outlays of $32
million during the first half of 1998 were principally related to store
closings.
9
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
The Limited, Inc.
We have reviewed the condensed consolidated balance sheet of The Limited, Inc.
and Subsidiaries (the Company) at August 1, 1998, and the related condensed
consolidated statements of income and cash flows for the thirteen-week and
twenty-six-week periods ended August 1, 1998 and August 2, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
20, 1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 31, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
August 18, 1998
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the second quarter of 1998 grew 3% to $2.083 billion from $2.020
billion a year ago. Operating income was $1.728 billion compared to operating
income of $72.7 million for 1997. The operating results of Abercrombie & Fitch
through May 19, 1998, the date of the split-off (see Note 7), are included in
the discussion of Results of Operations herein. Operating income in 1998
included a $1.651 billion gain from the split-off of Abercrombie & Fitch (the
"A&F gain"). Excluding the A&F gain, operating income increased 5% to $76.4
million. Net income was $1.684 billion compared to $27.6 million in 1997, and
earnings per share was $6.93 compared to $.10 in 1997. Exclusive of the A&F
gain, net income increased 19% in 1998 to $32.9 million compared to $27.6
million for 1997 and earnings per share increased to $.13 from $.10 in 1997.
Second quarter business highlights include the following:
The Intimate Brands businesses continued their consistent performance trend by
recording a 16% operating income increase and a 21% increase in net income.
Victoria's Secret Stores operating margin and operating income were
significantly higher on a comparable store sales increase of 2%. Victoria's
Secret Catalogue sales increased 3%. Major lingerie introductions and the
semi-annual sale were supported by national television advertising.
Bath & Body Works, up against strong comparable store sales of 16% a year ago,
delivered a comparable store sales increase of 3% and achieved a 30% increase
in operating profits. New product collections and a strong sale event
contributed to the sales and profit growth.
The women's businesses continued their first quarter improvement in sales and
operating income, with Express, Lerner and Lane Bryant as contributors;
however, the operating income improvement was partially offset by a
significant decline in operating results at Limited Stores. Overall, the
women's businesses reported a 10% increase in comparable store sales.
Limited Too continued its strong sales momentum with a 20% comparable store
sales gain, its eighth consecutive quarter with a double digit comparable
store sales increase.
Net sales for the twenty-six weeks ended August 1, 1998 increased 6% to $4.091
billion compared to $3.850 billion in 1997. Operating income was $1.873 billion
compared to $122.3 million for 1997. Operating income in 1998 included a $93.7
million pretax gain from the sale of the Company's remaining interest in
Brylane, Inc. that was partially offset by a $5.1 million first quarter pretax
charge for severance and other associate termination costs at Henri Bendel and
a $1.651 billion second quarter gain from the split-off of Abercrombie & Fitch.
Excluding these special and nonrecurring items, operating income increased 9% to
$132.7 million. Net income increased to $1.764 billion compared to $52.4
million in 1997, and earnings per share was $6.75 compared to $.19 in 1997.
Exclusive of these special and nonrecurring items and the $8.6 million 1997 gain
in connection with the initial public offering of Brylane, Inc., net income
increased 26% in 1998 to $58.8 million compared to $46.8 million for 1997 and
earnings per share increased to $.22 from $.17 in 1997.
11
<PAGE>
Financial Summary
- -----------------
The following summarized financial and statistical data compares the thirteen
week and twenty-six week periods ended August 1, 1998 to the comparable 1997
periods:
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
------------------------------------ ------------------------------------
Change Change
From From
Prior Prior
1998 1997 Year 1998 1997 Year
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Sales (millions):
Victoria's Secret Stores $413 $389 6% $775 $714 9%
Victoria's Secret Catalogue 202 196 3% 401 376 7%
Bath & Body Works 254 212 20% 459 389 18%
Cacique (a) - 22 N/M - 42 N/M
Other 6 8 N/M 11 10 N/M
--------- --------- --------- --------- ----------- --------
Total Intimate Brands 875 $827 6% $1,646 $1,531 8%
--------- --------- --------- --------- ----------- --------
Express $284 $246 15% $553 $470 18%
Lerner 216 203 6% 418 397 5%
Lane Bryant 230 217 6% 441 421 5%
Limited Stores 169 175 (3%) 340 355 (4%)
Henri Bendel (c) 8 17 N/M 20 43 N/M
--------- --------- --------- --------- ----------- --------
Total Women's Businesses $907 $858 6% $1,772 $1,686 5%
--------- --------- --------- --------- ----------- --------
Structure $131 $152 (14%) $252 $279 (10%)
Limited Too 75 61 23% 157 127 24%
Galyan's 46 35 31% 81 66 23%
Mast and Other 27 - N/A 27 - N/A
--------- --------- --------- --------- ----------- --------
Total Emerging Businesses $279 $248 13% $517 $472 10%
--------- --------- --------- --------- ----------- --------
Abercrombie & Fitch (b) $22 $87 N/M $156 $161 N/M
--------- --------- --------- --------- ----------- --------
Total Net Sales $2,083 $2,020 3% $4,091 $3,850 6%
========= ========= ========= ========= =========== ========
Operating Income (millions):
Intimate Brands $125 $107 16% $196 $168 17%
Women's Businesses (25) (69) 64% (60)* (96) 37%
Emerging Businesses (25) 30 (183%) (15) 43 (135%)
Special and Nonrecurring Items 1,651 - N/A 1,740 - N/A
Abercrombie & Fitch (b) 2 5 N/M 12 7 N/M
--------- --------- --------- --------- ----------- --------
Total Operating Income $1,728 $73 N/M $1,873 $122 N/M
========= ========= ======== ========= =========== ========
</TABLE>
(a) The Cacique business was closed effective January 31, 1998.
(b) The Abercrombie & Fitch business was split-off effective May 19, 1998 via a
tax-free exchange offer. Results up to this date are included in the
consolidated financial statements.
(c) Five of six Henri Bendel stores were closed at the end of 1997.
*The women's businesses exclude a $5 million first quarter charge for special
and nonrecurring items (see Note 7).
12
<PAGE>
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
----------------------------------- -------------------------------------
Change Change
From From
Prior Prior
1998 1997 Year 1998 1997 Year
-------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Comparable Store Sales:
Victoria's Secret Stores 2% 15% 4% 11%
Bath & Body Works 3% 16% 1% 15%
Cacique N/A 11% N/A 8%
-------- --------- --------- --------
Total Intimate Brands 2% 15% 3% 12%
-------- --------- --------- --------
Express 17% (24%) 18% (27%)
Lerner 13% (5%) 11% (6%)
Lane Bryant 8% 5% 7% (1%)
Limited Stores 0% (12%) (1%) (7%)
Henri Bendel (10%) (12%) (21%) (4%)
-------- --------- --------- --------
Total Women's Businesses 10% (11%) 9% (12%)
-------- --------- --------- --------
Structure (14%) 1% (10%) 0%
Limited Too 20% 25% 21% 30%
Galyan's 6% 2% 2% 3%
-------- --------- --------- --------
Total Emerging Businesses (3%) 6% 0% 7%
-------- --------- --------- --------
Abercrombie & Fitch (through
May 19, 1998) N/M 15% 48% 14%
-------- --------- --------- --------
Total comparable store sales
increase (decrease) 6% 0% 7% (2%)
======== ========= ========= ========
Retail Sales Excluding
Catalogue and Other:
Retail sales increase attributable
to net new and remodeled
stores (1998 excludes impact
of closing Cacique and split-
off of A&F) 2% 7% 2% 7%
Retail sales per average
selling square foot $68 $64 6% $133 $122 9%
Retail sales per average
store (thousands) $335 $322 4% $657 $614 7%
Average store size at end of
quarter (selling square feet) 4,913 5,004 (2%)
Retail selling square feet at
end of quarter (thousands) 26,734 28,474 (6%)
Number of Stores:
Beginning of period 5,599 5,629 5,640 5,633
Opened 59 80 123 151
Disposed (159)* - (159)* (4)
Closed (58) (19) (163) (90)
-------- --------- --------- --------
End of period 5,441 5,690 5,441 5,690
======== ========= ========= ========
</TABLE>
*Split-off of Abercrombie & Fitch effective May 19, 1998
13
<PAGE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
------------------------------------------------ ---------------------------------------------
Change Change
Aug. 1, Aug. 2, From Aug. 1, Aug. 2, From
1998 1997 Prior Year 1998 1997 Prior Year
------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 799 757 42 3,595 3,433 162
Bath & Body Works 1,000 844 156 1,954 1,564 390
Cacique - 118 (118) - 363 (363)
------------ ------------ -------------- ------------ ------------ -----------
Total Intimate Brands 1,799 1,719 80 5,549 5,360 189
------------ ------------ -------------- ------------ ------------ -----------
Express 724 751 (27) 4,608 4,738 (130)
Lerner 687 757 (70) 5,289 5,803 (514)
Lane Bryant 770 808 (38) 3,719 3,875 (156)
Limited Stores 599 648 (49) 3,615 3,891 (276)
Henri Bendel 1 6 (5) 35 113 (78)
------------ ------------ -------------- ------------ ------------ -----------
Total Women's Businesses 2,781 2,970 (189) 17,266 18,420 (1,154)
------------ ------------ -------------- ------------ ------------ -----------
Structure 537 543 (6) 2,129 2,132 (3)
Limited Too 311 310 1 979 973 6
Galyan's 13 9 4 811 488 323
------------ ------------ -------------- ------------ ------------ -----------
Total Emerging Businesses 861 862 (1) 3,919 3,593 326
------------ ------------ -------------- ------------ ------------ -----------
Abercrombie & Fitch - 139 (139) - 1,101 (1,101)
------------ ------------ -------------- ------------ ------------ -----------
Total stores and selling
square feet 5,441 5,690 (249) 26,734 28,474 (1,740)
============ ============ ============== ============ ============ ===========
</TABLE>
Net Sales
- ---------
Net sales for the second quarter of 1998 increased 3% over the second quarter of
1997, primarily as a result of the 6% increase in comparable store sales, offset
by a 4% decrease from the A&F split-off and the Cacique closing and decreases
resulting from closed stores. During the second quarter of 1998, the Company
opened 59 new stores, remodeled 130 stores, closed 58 stores and disposed of 159
stores via the A&F split-off. Net sales for the twenty-six weeks ended August
1, 1998 increased 6% as compared to the same period in 1997 primarily as a
result of a 7% increase in comparable store sales.
Sales at the Intimate Brands businesses for the second quarter of 1998 increased
6% over the same period last year. The increase was attributable to the net
addition of new and remodeled stores, a 2% increase in comparable store sales
and a 3% increase in catalogue net sales. Year-to-date Intimate Brands sales
increased 8% over the same period in 1997, due to the net addition of new and
remodeled stores, a 3% increase in comparable store sales, and a 7% increase in
catalogue net sales. If the impact of closing Cacique at the end of 1997 were
excluded, both the quarter and the year-to-date sales increases would be 3%
higher.
Sales at the women's businesses for the second quarter and year-to-date periods
of 1998 increased 6% and 5%, compared to the same periods in 1997, primarily due
to the 10% and 9% increases in comparable store sales, offset by the impact of
closed stores. Substantial improvements in comparable store sales were realized
at Express, Lerner and Lane Bryant.
Structure recorded 14% and 10% declines in comparable store sales for the
thirteen and twenty-six week periods ended August 1, 1998.
14
<PAGE>
Gross Income
- ------------
Gross income, expressed as a percentage of sales, increased to 29.5% for the
second quarter of 1998 from 26.7% for the second quarter of 1997. The increase,
expressed as a percentage of sales, was attributable to a 2.0% increase in
merchandise margins and a .9% decrease in buying and occupancy costs. The
increase in merchandise margin was attributable to higher initial markup
combined with a slightly lower markdown rate over the comparable period last
year. Buying and occupancy costs, expressed as a percentage of sales, decreased
as a result of leverage from higher sales at the women's businesses and efforts
over the past two years to streamline the businesses and close underperforming
stores.
The 1998 year-to-date gross income percentage increased 2.4% to 29.4% in 1998
from 27.0% for the same period in 1997, attributable to higher initial markup
and lower markdowns and a .6% decline in buying and occupancy.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of sales, increased to 25.8% for the second quarter of 1998 as compared to 23.1%
for the second quarter of 1997. This increase was attributable to expenses
associated with increased investments in information technology in preparation
for the Year 2000, expenses associated with the rollout of the merchandise
process redesign and brand building, and an investment in national advertising
for Victoria's Secret.
Year-to-date general, administrative and store operating expenses increased as a
percentage of sales to 26.1% in 1998 compared to 23.8% in 1997. This increase
was due primarily to the reasons discussed above.
Operating Income
- ----------------
Exclusive of special and nonrecurring items described in Note 7, second quarter
and year-to-date 1998 operating income, expressed as a percentage of sales, was
3.7% and 3.2%, compared to 3.6% and 3.2%, respectively, for 1997. Increases in
gross income were mostly offset by increases in general, administrative and
store operating expenses resulting in a 5% second quarter operating income
growth. Gains in operating income at Express, Lane Bryant and Lerner were more
than offset by significant declines in second quarter operating results at
Structure and Limited Stores.
Interest Expense
- ----------------
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
----------------------- -------------------------
1998 1997 1998 1997
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Average Borrowings (millions) $753 $767 $744 $780
Average Effective Interest Rate 8.72% 8.49% 8.65% 8.42%
</TABLE>
Interest expense increased $.1 million and decreased $.7 million in the second
quarter and year-to-date periods in 1998 from the comparable periods in 1997.
The year-to-date decrease was mainly a result of lower average borrowings offset
by slightly higher interest rates.
15
<PAGE>
Other Income
- ------------
Other income increased $8.8 million and $16.1 million in the second quarter and
year-to-date periods in 1998 from the comparable periods in 1997 due to interest
earned on significantly higher average invested cash balances during 1998.
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities, commercial paper backed by funds
available under the committed long-term credit agreement and the Company's
capital structure continue to provide the capital resources to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures. A summary of the Company's working capital position
and capitalization follows (thousands):
<TABLE>
<CAPTION>
August 1, January 31,
1998 1998
-------------- -------------
<S> <C> <C>
Working Capital $ 916,065 $ 937,739
============== =============
Capitalization:
Long-term debt $ 650,000 $ 650,000
Shareholders' equity 2,000,867 2,044,957
-------------- -------------
Total Capitalization $2,650,867 $2,694,957
============== =============
Amounts available under
long-term credit agreements * $1,000,000 $1,000,000
============== =============
</TABLE>
* In addition, the Company may offer up to $250 million of debt securities and
warrants to purchase debt securities under its shelf registration statement.
Net cash used for operating activities was $91.9 million for the twenty-six
weeks ended August 1, 1998 versus $138.9 million last year. The use of cash in
both years is principally from the growth of inventories for the Fall selling
seasons and the timing of tax payments related to the fourth quarter of the
prior years.
Investing activities included capital expenditures of approximately $108 million
in 1998 and $107 million in 1997 for new and remodeled stores, and the 1998
proceeds from the sale of the Company's remaining investment in Brylane, Inc.
Cash used for financing activities for 1998 reflects an increase in the
quarterly dividend to $.13 per share from $.12 per share and lower commercial
paper borrowings at quarter end. Intimate Brands has previously announced
authorization by its Board of Directors to repurchase up to four million shares
of its common stock on the open market, specifically reserved to cover shares
needed for employee benefit plans. At August 1, 1998, Intimate Brands had
repurchased approximately two million shares for this program and by the end of
August all four million shares were repurchased. In connection with the split-
off of Abercrombie & Fitch (see Note 7), the Company paid $47.6 million to
settle its intercompany balance at May 19, 1998.
16
<PAGE>
Capital Expenditures
- --------------------
Capital expenditures totaled $158.4 million for the twenty-six weeks ended
August 1, 1998, compared to $212.5 million for the same period of 1997. The
Company anticipates spending $400 to $420 million for capital expenditures in
1998, of which $200 to $220 million will be for new stores, the remodeling of
existing stores and related improvements for the retail businesses.
The Company expects that 1998 capital expenditures will be funded with cash from
operations.
Information Systems and "Year 2000" Compliance
- ----------------------------------------------
The Company has completed a comprehensive review of its information systems and
is involved in an enterprise-wide program to update computer systems and
applications in preparation for the year 2000. The Company will incur internal
staff costs as well as outside consulting and other expenditures related to this
initiative. Total expenditures related to remediation, testing, conversion,
replacement and upgrading system applications are expected to range from $85 to
$100 million from 1997 through 2000. Of the total, approximately $50 to $60
million will be capital expenditures related to acquisition and implementation
of new package systems. The balance, approximately $35 to $40 million, will be
expenses associated with remediation and testing of existing systems. Total
incremental expenses, including depreciation and amortization of new package
systems, remediation to bring current systems into compliance and writing off
legacy systems are not expected to have a material impact on the Company's
financial condition in any year during the conversion process from 1997 through
2000. However, incremental expenses could total approximately $30 to $35 million
in 1998, of which the majority will impact the first three fiscal quarters of
1998, at a rate of $8 to $10 million per quarter. As of August 1, 1998, the
Company has incurred expenses of approximately $16 million relating to the
Company's Year 2000 initiatives.
The Company is attempting to contact vendors and others on whom it relies to
assure that their systems will be timely converted. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely will be timely converted or that any such failure to convert by another
company would not have an adverse effect on the Company's systems. Furthermore,
no assurance can be given that any or all of the Company's systems are or will
be Year 2000 compliant, or that the ultimate costs required to address the Year
2000 issue or the impact of any failure to achieve substantial Year 2000
compliance will not have a material adverse effect on the Company's financial
condition.
Adoption of New Accounting Standards
- ------------------------------------
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires that certain external costs and internal payroll
and payroll related costs be capitalized during the application development and
implementation stages of a software development project and amortized over the
software's useful life. The SOP is effective in the first quarter of 1999.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities," was
issued in April 1998. This SOP requires that entities expense start-up costs and
organization costs as they are incurred. The SOP is effective in the first
quarter of 1999 and the Company does not anticipate that this SOP will have an
adverse effect on the Company's reported results of operations.
17
<PAGE>
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 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 1998 and beyond to differ materially from those expressed or
implied in any such forward-looking statements: changes in consumer spending
patterns, consumer preferences and overall economic conditions, the impact of
competition and pricing, changes in weather patterns, political stability,
currency and exchange risks and changes in existing or potential duties, tariffs
or quotas, availability of suitable store locations at appropriate terms,
ability to develop new merchandise and ability to hire and train associates.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business.
On November 13, 1997, the United States District Court for the Southern
District of Ohio, Eastern Division, dismissed with prejudice an amended
complaint previously transferred to that court by the United States
District Court, Central District of California. The amended complaint,
which had been filed against the Company and certain of its subsidiaries
by the American Textile Manufacturers Institute ("ATMI"), a textile
industry trade association, alleged that the defendants violated the
federal False Claims Act by submitting false country of origin records
to the US Customs Service. On November 26, 1997, ATMI served a motion to
alter or amend judgment and a motion to disqualify the presiding judge
and to vacate the order of dismissal. The motion to disqualify was
denied on December 22, 1997, but as a matter of his personal discretion,
the presiding judge elected to recuse himself from further proceedings
and this matter was transferred to another judge of the United States
District Court for the Southern District of Ohio, Western Division. On
May 21, 1998, this judge reaffirmed the earlier dismissal and denied all
pending motions seeking to alter, amend or vacate the judgment that had
been entered in favor of the Company. On June 5, 1998, ATMI filed a
notice of appeal to the United States Court of Appeals for the Sixth
Circuit.
Although it is not possible to predict with certainty the eventual
outcome of any litigation, in the opinion of management, the foregoing
proceedings are not expected to have a material adverse effect on the
Company's financial position or results of operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
3. Articles of Incorporation and Bylaws.
3.1 Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3.4 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1988.
3.2 Restated Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 2, 1991 (the "1990" form 10-K).
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.
19
<PAGE>
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 September 25, 1997 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 Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997.
10. Material Contracts.
10.1 The 1998 Restatement of The Limited, Inc. 1993 Stock Option and
Performance Incentive Plan incorporated by reference to Exhibit
A to the Company's Proxy Statement dated April 20, 1998.
10.2 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.
10.3 The Limited, Inc. Incentive Compensation Performance Plan
incorporated by reference to Exhibit A to the Company's Proxy
Statement dated April 14, 1997.
10.19 Employment agreement by and between The Limited, Inc. and V. Ann
Hailey dated as of July 27, 1998 with exhibits.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Independent Accountants'
Report.
27. Financial Data Schedule.
20
<PAGE>
(b) Reports on Form 8-K.
-------------------
i. On May 7, 1998 the Company filed a report on Form 8-K which included
an exhibit containing a press release dated May 7, 1998.
ii. On May 14, 1998 the Company filed a report on Form 8-K which included
an exhibit containing a press release dated May 14, 1998.
iii. On May 19, 1998 the Company filed a report on Form 8-K which included
an exhibit containing a press release dated May 19, 1998.
21
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LIMITED, INC.
(Registrant)
By /S/ V. Ann Hailey
------------------
V. Ann Hailey,
Executive Vice President and Chief
Financial Officer*
Date: September 14, 1998
____________________________________
* Ms. Hailey is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
22
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- --------------------------
10.19 Employment agreement by and between The Limited, Inc. and V. Ann
Hailey dated as of July 27, 1998 with exhibits.
12 Statement re: Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Independent
Accountants' Report.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.19
-------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of July 27, 1998, by and between The
Limited, Inc. and Limited Service Corporation, each a Delaware corporation (the
"Company"), and V. Ann Hailey (the "Executive") (hereinafter collectively
referred to as "the parties").
WHEREAS, the Executive has heretofore been employed as Executive Vice
President and Chief Financial Officer of The Limited, Inc. and is experienced in
all phases of its business and possesses an intimate knowledge of the business
and affairs of the Company and its policies, procedures, methods and personnel;
and
WHEREAS, the Company has determined that it is essential and in its
best interests to retain the services of key management personnel and to ensure
their continued dedication and efforts; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Board") has determined that it is in the best interest of the
Company to secure the continued services and employment of the Executive and the
Executive is willing to render such services on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements of the parties contained herein, the parties hereby agree as follows:
1. Term. The initial term of employment under this Agreement shall
----
be for the period commencing on the date hereof (the "Commencement Date") and
ending on the sixth anniversary of the Commencement Date (the "Initial Term");
provided, however, that upon the expiration of the Initial Term, this Agreement
- -------- -------
shall be automatically extended for a period of one year, unless either the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended.
2. Employment.
----------
(a) Position. The Executive shall be employed as the Executive
--------
Vice President and Chief Financial Officer of The Limited, Inc. or such other
position of reasonably comparable or greater status and responsibilities as may
be determined by the Board with any division, subsidiary or affiliate of the
Company. The Executive shall perform the duties, undertake the responsibilities
and exercise the authority customarily performed, undertaken and exercised by
persons employed in a similar executive capacity. The Executive shall report to
the Vice Chairman and Chief Administrative Officer of The Limited, Inc., or such
other person as may be designated by the Chairman.
(b) Obligations. The Executive agrees to devote her full business
-----------
time and attention to the business and affairs of the Company. The foregoing,
however, shall not
<PAGE>
preclude the Executive from serving on corporate, civil or charitable boards or
committees or managing personal investments, so long as such activities do not
interfere with the performance of the Executive's responsibilities hereunder.
3. Base Salary. The Company agrees to pay or cause to be paid to the
-----------
Executive during the term of this Agreement an annual base salary at the rate of
$525,000. This base salary will be subject to annual review and may be
increased from time to time by the Board considering factors such as the
executive's responsibilities, compensation of similar executives within the
Company and in other companies, performance of the executive and other pertinent
factors (hereinafter referred to as the "Base Salary"). Such Base Salary shall
be payable in accordance with the Company's customary practices applicable to
its executives.
4. Equity Compensation. The Company has granted to the Executive
-------------------
rights to receive 100,000 shares of the Company's common stock and options to
acquire 200,000 shares of the Company's common stock pursuant to the terms of
the agreements attached hereto as Exhibits A and B.
5. Employee Benefits. The Executive shall be entitled to participate
-----------------
in all employee benefit plans, practices and programs maintained by the Company
and made available to senior executives generally and as may be in effect from
time to time. The Executive's participation in such plans, practices and
programs shall be on the same basis and terms as are applicable to senior
executives of the Company generally.
6. Bonus. The Executive shall be entitled to participate in the
-----
Company's applicable incentive compensation plan on such terms and conditions as
may be determined from time to time by the Board.
7. Other Benefits.
--------------
(a) Life Insurance.
--------------
(1) During the term of the Agreement, the Company shall
maintain term life insurance coverage on the life of the Executive in the amount
of $5,000,000, the proceeds of which shall be payable to the beneficiary or
beneficiaries designated by the Executive. The Executive agrees to undergo any
reasonable physical examination and other procedures as may be necessary to
maintain such policy. If the Company is not able to obtain such policy due to
Executive's physical examination results, an AD&D (accidental death and
dismemberment) policy of an equivalent amount will be obtained in lieu of the
term life insurance coverage.
(2) During the term of this Agreement, the Company shall be
entitled to maintain a "key person" term life insurance policy on the life of
the Executive, the proceeds of which shall be payable to the Company or its
designees. The Executive agrees to undergo any reasonable physical examination
and other procedures as may be necessary to maintain such policy.
<PAGE>
(b) Expenses. Subject to applicable Company policies, the
--------
Executive shall be entitled to receive prompt reimbursement of all expenses
reasonably incurred by her in connection with the performance of her duties
hereunder or for promoting, pursuing or otherwise furthering the business or
interests of the Company.
(c) Office and Facilities. The Executive shall be provided with
---------------------
an appropriate office and with such secretarial and other support facilities as
are commensurate with the Executive's status with the Company and adequate for
the performance of the Executive's duties hereunder.
8. Vacation. The Executive shall be entitled to annual vacation in
--------
accordance with the policies periodically established by the Board for similarly
situated executives of the Company.
9. Termination. The Executive's employment hereunder may be
-----------
terminated under the following circumstances:
(a) Disability. The Company shall be entitled to terminate the
----------
Executive's employment after having established the Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or mental infirmity
which impairs the Executive's ability to substantially perform her duties under
this Agreement for a period of at least six (6) months in any 12 month calendar
period as determined in accordance with the The Limited, Inc. Long-Term
Disability Plan.
(b) Cause. The Company shall be entitled to terminate the
-----
Executive's employment for "Cause" without prior written notice. For purposes of
this Agreement, "Cause" shall mean that the Executive (1) willfully failed to
perform her duties with the Company (other than a failure resulting from the
Executive's incapacity due to physical or mental illness); or (2) has plead
"guilty" or "no contest" to or has been convicted of an act which is defined as
a felony under federal or state law; or (3) engaged in willful misconduct in bad
faith which could reasonably be expected to materially harm the Company's
business or its reputation.
The Executive shall be given written notice by the Board of
termination for Cause, such notice to state in detail the particular act or acts
or failure or failures to act that constitute the grounds on which the proposed
termination for Cause is based. The Executive shall be entitled to a hearing
before the Board or a committee thereof established for such purpose and to be
accompanied by legal counsel. Such hearing shall be held within 15 days of
notice to the Company by the Executive, provided the Executive requests such
hearing within 30 days of the written notice from the Board of the termination
for Cause.
(c) Termination by the Executive. The Executive may terminate
----------------------------
employment hereunder for "Good Reason" by delivering to the Company (1) a
Preliminary Notice of Good Reason (as defined below), and (2) not earlier than
thirty (30) days from the delivery of such Preliminary Notice, a Notice of
Termination. For purposes of this Agreement, "Good Reason" means (i) the
failure to continue the Executive as Executive Vice President and
<PAGE>
Chief Financial Officer of The Limited, Inc. or in another capacity
contemplated by Section 2 hereof; (ii) the assignment to the Executive of any
duties materially inconsistent with the Executive's positions, duties,
authority, responsibilities and reporting requirements as set forth in Section 2
hereof; (iii) a reduction in or a material delay in payment of the Executive's
total cash compensation and benefits from those required to be provided in
accordance with the provisions of this Agreement; (iv) the Company, the Board or
any person controlling the Company requires the Executive to be based outside of
the United States, other than on travel reasonably required to carry out the
Executive's obligations under the Agreement; or (v) the failure of the Company
to obtain the assumption in writing of its obligation to perform this Agreement
by any successor to all or substantially all of the assets of the Company within
15 days after a merger, consolidation, sale or similar transaction; provided,
--------
however, that "Good Reason" shall not include (A) acts not taken in bad faith
- -------
which are cured by the Company in all respects not later than thirty (30) days
from the date of receipt by the Company of a written notice from the Executive
identifying in reasonable detail the act or acts constituting "Good Reason" (a
"Preliminary Notice of Good Reason") or (B) acts taken by the Company by reason
of the Executive's physical or mental infirmity which impairs the Executive's
ability to substantially perform her duties under this Agreement. A Preliminary
Notice of Good Reason shall not, by itself, constitute a Notice of Termination.
(d) Notice of Termination. Subject to Section 9(b), any purported
---------------------
termination by the Company or by the Executive shall be communicated by a
written Notice of Termination to the other two weeks prior to the Termination
Date (as defined below). For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination of employment shall be effective
without such Notice of Termination.
(e) Termination Date, Etc. "Termination Date" shall mean in the
----------------------
case of the Executive's death, the date of death, or in all other cases, the
date specified in the Notice of Termination; provided, however, that if the
-------- -------
Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least thirty (30) days from
the date the Notice of Termination is given to the Executive.
10. Compensation Upon Termination.
-----------------------------
(a) If during the term of this Agreement (including any extensions
thereof), the Executive's employment is terminated by the Company for Cause, by
reason of the Executive's death or if the Executive gives written notice not to
extend the term of this Agreement, the Company's sole obligation hereunder shall
be to pay the Executive the following amounts earned hereunder but not paid as
of the Termination Date: (i) Base Salary, (ii) reimbursement for any and all
monies advanced or expenses incurred pursuant to Section 7(b) through the
Termination Date, and (iii) any earned compensation which the Executive had
previously deferred (including any interest earned or credited thereon)
(collectively, "Accrued
<PAGE>
Compensation"); provided, however, that if the Executive gives such written
-------- -------
notice not to extend, the Company shall continue to pay the premiums provided
for in Section 7(a)(1) through the end of the calendar year in which the
Executive's termination occurs. The Executive's entitlement to any other
benefits shall be determined in accordance with the Company's employee benefit
plans then in effect.
(b) If the Executive's employment is terminated by the Company
other than for Cause or by the Executive for Good Reason, the Company's sole
obligation hereunder shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive the
Base Salary for a period of one (1) year following the Termination
Date; and
(iii) the Company shall continue to pay the premiums provided
for in Section 7(a)(1) hereof through the end of the calendar year in
which such termination occurs.
(c) If the Executive's employment is terminated by the Company by
reason of the Executive's Disability, the Company's sole obligation hereunder
shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive 100% of
the Base Salary for the first twelve months following the Termination
Date, 80% of the Base Salary for the second twelve months following the
Termination Date, and 60% of the Base Salary for the third twelve
months following the Termination Date; provided, however, that such
-------- -------
Base Salary shall be reduced by the amount of any benefits the
Executive receives by reason of her Disability under the Company's
relevant disability plan or plans; and
(iii) if the Executive is disabled beyond thirty-six (36)
months, the Company shall continue to pay the Executive 60% of Base
Salary up to a maximum of $250,000 per year for the period of the
Executive's Disability, as defined in the Company's relevant disability
plans; provided, however, that such payments shall be reduced by the
-----------------
amount of any benefits the Executive receives by reason of her
Disability under the Company's relevant disability plan or plans; and
<PAGE>
(iv) the Company shall continue to pay the premiums provided
for in Section 7(a)(1) hereof through the end of the calendar year in
which such termination occurs.
(d) If the Executive's employment is terminated by reason of the
Company's written notice to the Executive of its decision not to extend the term
of this Agreement as contemplated in Section 1 hereof, the Company's sole
obligation hereunder shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive the
Base Salary for a period of one (1) year following the expiration of
such term; and
(iii) the Company shall continue to pay the premiums provided
for in Section 7(a)(1) hereof through the end of the calendar year in
which the Executive's termination occurs.
(e) During the period the Executive is receiving salary
continuation pursuant to Section 10(b)(ii), 10(c)(ii) or 10(d)(ii) hereof, the
Company shall, at its expense, provide to the Executive and the Executive's
beneficiaries medical and dental benefits substantially similar in the aggregate
to those provided to the Executive immediately prior to the date of the
Executive's termination of employment; provided, however, that the Company's
-------- -------
obligation with respect to the foregoing benefits shall be reduced to the extent
that the Executive or the Executive's beneficiaries obtain any such benefits
pursuant to a subsequent employer's benefit plans.
(f) The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation provided to the Executive in any subsequent employment.
11. Employee Covenants.
------------------
(a) Unauthorized Disclosure. The Executive shall not, during the
-----------------------
term of this Agreement and thereafter, make any Unauthorized Disclosure. For
purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by
the Executive without the prior written consent of the Board to any person,
other than an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of duties as an executive of the Company or as may be legally
required, of any information relating to the business or prospects of the
Company (including, but not limited to, any confidential information with
respect to any of the Company's customers, products, methods of distribution,
strategies, business and marketing plans and business policies and practices);
provided, however, that such term shall not include the use or
- -------- -------
<PAGE>
disclosure by the Executive, without consent, of any information known generally
to the public (other than as a result of disclosure by the Executive in
violation of this Section 11(a)). This confidentiality covenant has no temporal,
geographical or territorial restriction.
(b) Non-Competition. During the Non-Competition Period described
---------------
below, the Executive shall not, directly or indirectly, without the prior
written consent of the Company, own, manage, operate, join, control, be employed
by, consult with or participate in the ownership, management, operation or
control of, or be connected with (as a stockholder, partner, or otherwise), any
business, individual, partner, firm, corporation, or other entity that competes,
directly or indirectly, with the Company or any division, subsidiary or
affiliate of the Company; provided, however, that the "beneficial ownership" by
-------- -------
the Executive after termination of employment with the Company, either
individually or as a member of a "group," as such terms are used in Rule 13d of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), of not more than two percent (2%) of the voting
stock of any publicly held corporation shall not be a violation of Section 11 of
this Agreement.
The "Non-Competition Period" means the period the Executive is
employed by the Company plus one (1) year from the Termination Date if the
Executive's employment is terminated (i) by the Company for any reason, (ii) by
the Executive for any reason, or (iii) by reason of either the Company's or the
Executive's decision not to extend the term of this Agreement as contemplated by
Section 1 hereof.
(c) Non-Solicitation. During the No-Raid Period described below,
----------------
the Executive shall not, either directly or indirectly, alone or in conjunction
with another party, interfere with or harm, or attempt to interfere with or
harm, the relationship of the Company, its subsidiaries and/or affiliates, with
any person who at any time was an employee, customer or supplier of the Company,
its subsidiaries and/or affiliates or otherwise had a business relationship with
the Company, its subsidiaries and/or affiliates.
The "No-Raid Period" means the period the Executive is employed by the
Company plus one (1) year from the Termination Date if the Executive's
employment is terminated (i) by the Company for any reason except by reason of
the Executive's Disability, (ii) by the Executive for any reason, or (iii) by
reason of either the Company's or the Executive's decision not to extend the
term of this Agreement as contemplated by Section 1 hereof.
(d) Remedies. The Executive agrees that any breach of the terms
--------
of this Section 11 would result in irreparable injury and damage to the Company
for which the Company would have no adequate remedy at law; the Executive
therefore also agrees that in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and restraining order
to prevent such breach and/or threatened breach and/or continued breach by the
Executive and/or any and all persons and/or entities acting for and/or with the
Executive, without having to prove damages, and to all costs and expenses,
including
<PAGE>
reasonable attorneys' fees and costs, in addition to any other remedies to which
the Company may be entitled at law or in equity. The terms of this paragraph
shall not prevent the Company from pursuing any other available remedies for any
breach or threatened breach hereof, including but not limited to the recovery of
damages from the Executive. The Executive and the Company further agree that the
provisions of the covenants not to compete and solicit are reasonable and that
the Company would not have entered into this Agreement but for the inclusion of
such covenants herein. Should a court determine, however, that any provision of
the covenants is unreasonable, either in period of time, geographical area, or
otherwise, the parties hereto agree that the covenant should be interpreted and
enforced to the maximum extent which such court or arbitrator deems reasonable.
The provisions of this Section 11 shall survive any termination of
this Agreement, and the existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 11; provided, however, that this
-------- -------
paragraph shall not, in and of itself, preclude the Executive from defending
herself against the enforceability of the covenants and agreements of this
Section 11.
12. Limitation of Payments.
----------------------
(a) Gross-Up Payment. In the event it shall be determined that
-----------------
any payment or distribution of any type to or for the benefit of the Executive
by the Company, any of its affiliates, any Person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations thereunder) or any
affiliate of such Person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are collectively referred to
as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax, imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments (not including any Gross-Up Payment).
(b) All determinations as to whether any of the Total Payments are
"parachute payments" (within the meaning of Section 280G of the Code), whether a
Gross-Up Payment is required, the amount of such Gross-Up Payment and any
amounts relevant to the last sentence of Subsection 12(a), shall be made by an
independent accounting firm selected by the Company from among the largest five
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matter, both to the Company and the Executive
<PAGE>
within five (5) days of the Termination Date, if applicable, or such earlier
time as is requested by the Company or the Executive (if the Executive
reasonably believes that any of the Total Payments may be subject to the Excise
Tax). Any determination by the Accounting Firm shall be binding upon the Company
and the Executive. As a result of uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that the Company should have made Gross-Up Payments
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment.
13. Employee Representation. The Executive expressly represents
-----------------------
and warrants to the Company that the Executive is not a party to any contract or
agreement and is not otherwise obligated in any way, and is not subject to any
rules or regulations, whether governmentally imposed or otherwise, which will or
may restrict in any way the Executive's ability to fully perform the Executive's
duties and responsibilities under this Agreement.
14. Successors and Assigns.
----------------------
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns, and the Company shall
require any successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. The
term "the Company" as used herein shall include any such successors and assigns
to the Company's business and/or assets. The term "successors and assigns" as
used herein shall mean a corporation or other entity acquiring or otherwise
succeeding to, directly or indirectly, all or substantially all the assets and
business of the Company (including this Agreement) whether by operation of law
or otherwise.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
15. Arbitration. Except with respect to the remedies set forth
-----------
in Section 11(d) hereof, if in the event of any controversy or claim between the
Company or any of its affiliates and the Executive arising out of or relating to
this Agreement, either party delivers to the other party a written demand for
arbitration of a controversy or claim then such
<PAGE>
claim or controversy shall be submitted to binding arbitration. The binding
arbitration shall be administered by the American Arbitration Association under
its Commercial Arbitration Rules. The arbitration shall take place in Columbus,
Ohio. Each of the Company and the Executive shall appoint one person to act as
an arbitrator, and a third arbitrator shall be chosen by the first two
arbitrators (such three arbitrators, the "Panel"). The Panel shall have no
authority to award punitive damages against the Company or the Executive. The
Panel shall have no authority to add to, alter, amend or refuse to enforce any
portion of the disputed agreements. The Company and the Executive each waive any
right to a jury trial or to a petition for stay in any action or proceeding of
any kind arising out of or relating to this Agreement.
16. Notice. For the purposes of this Agreement, notices and all
------
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by registered or certified mail, return
receipt requested, postage prepaid, or upon receipt if overnight delivery
service or facsimile is used, addressed as follows:
To the Executive:
- ----------------
V. Ann Hailey
To the Company:
- --------------
The Limited, Inc.
3 Limited Parkway
Columbus, Ohio 43230
Attn: Secretary
17. Settlement of Claims. The Company's obligation to make the
--------------------
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
18. Miscellaneous. No provision of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
<PAGE>
19. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Ohio without
giving effect to the conflict of law principles thereof.
20. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
21. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, if any, understandings and arrangements,
oral or written, between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
THE LIMITED, INC.
LIMITED SERVICE CORPORATION
By: /s/ Leslie H. Wexner
---------------------------
Name: Leslie H. Wexner
/s/ V. Ann Hailey
----------------------------
V. Ann Hailey
<PAGE>
================= [LOGO OF THE LIMITED, INC. APPEARS HERE] =====================
S T O C K A W A R D
STOCK OPTION AGREEMENT
ACKNOWLEDGEMENT OF RECEIPT
This Stock Option Agreement is entered into by and between The Limited, Inc.
(the "Company"), and the associate of the Company whose name appears below (the
"Associate") in order to set forth the terms and conditions of Options granted
to the Associate under The Limited, Inc. 1993 Stock Option and Performance
Incentive Plan (1998 Restatement) (the "Plan").
Associate's Name: V. ANN HAILEY
Division: LIMITED, INC.
Social Security #:
Address:
<TABLE>
<CAPTION>
Date Expiration Number of Option Exercise Schedule
Plan Name of Grant Date Shares Price Date Shares
- ------------------- -------- ---------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
1993 ISO PLAN (98 RESTATEMENT) 02/02/98 02/03/08 11,058 $27.1250 02/02/02 3,686
02/02/03 3,686
02/02/04 3,686
1993 NQ PLAN (97 RESTATEMENT) 02/02/98 02/03/08 188,942 $27.1250 02/02/99 20,000
02/02/00 20,000
02/02/01 20,000
02/02/02 26,314
02/02/03 36,314
02/02/04 66,314
</TABLE>
Subject to the attached Terms and Conditions and the terms of the Plan, which
are incorporated herein by reference, the Company hereby grants to the
Associate, Options to purchase shares of Common Stock of the Company, as
outlined above. This award is granted pending shareholder approval of the 1998
Restatement of The Limited, Inc. 1993 Stock Option and Performance Incentive
Plan.
The Company and the Associate have executed this Agreement as of the Date of
Grant set forth above.
THE LIMITED, INC. ASSOCIATE
By: /s/ Leslie H. Wexner /s/ V. Ann Hailey
------------------------------ --------------------------
Leslie H. Wexner, Chairman
Please return one signed copy of this agreement to
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
614-415-7000
<PAGE>
================= [LOGO OF THE LIMITED, INC. APPEARS HERE] =====================
S T O C K A W A R D
RESTRICTED STOCK AGREEMENT
ACKNOWLEDGEMENT OF RECEIPT
This Restricted Stock Agreement is entered into by and between The Limited, Inc.
(the "Company"), and the associate or director of the Company whose name appears
below (the "Associate") in order to set forth the terms and conditions of a
Restricted Stock Award granted to the Associate under The Limited, Inc. 1993
Stock Option and Performance Incentive Plan (1998 Restatement) ("the Plan").
Associate's Name: V. ANN HAILEY
Division: LIMITED, INC.
Social Security #:
Address:
<TABLE>
<CAPTION>
Date Number of Vesting Schedule*
Plan Name of Grant Shares Date Shares
- ------------------------------ ---------- ----------- -----------------------
<S> <C> <C> <C> <C>
93 RESTRICTED (98 RESTATEMENT) 02/02/98 100,000 02/02/99 10,000
02/02/00 10,000
02/02/01 10,000
02/02/02 15,000
02/02/03 20,000
02/02/04 35,000
</TABLE>
* If employment is terminated by the Company other than for Cause or by the
Associate for Good Reason, vesting will be at 16% for each full year following
the date of grant for the first five years, and 20% for the sixth year (offset
by any shares previously vested under the normal schedule).
Subject to the attached Terms and Conditions of this Agreement and the terms of
the Plan, which are incorporated herein by reference, the Company hereby grants
to the Associate Restricted shares, as outlined above. This award is granted
pending shareholder approval of the 1998 Restatement of The Limited, Inc., 1993
Stock Option and Performance Incentive Plan.
The Company and the Associate have executed this Agreement as of the Date of
Grant set forth above.
THE LIMITED, INC. ASSOCIATE
By: /s/ Leslie H. Wexner /s/ V. Ann Hailey
------------------------------ --------------------------
Leslie H. Wexner, Chairman
This Restricted Stock Agreement is granted and the award will be earned and vest
as outlined in the above schedule based on achieving a x% increase in sales
growth for The Limited, Inc. for the 1998 fiscal year over the 1997 fiscal
year.*
Please return one signed copy of this agreement to
The Limited, Inc.
Three Limited Parkway
Columbus, OH 43230
614-415-7000
<PAGE>
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands except ratio amounts)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------------------
August 1, August 2,
1998 1997
--------------------- ------------------
<S> <C> <C>
Adjusted Earnings
- -----------------
Income, excluding gain on split-off of
Abercrombie & Fitch, before income taxes $200,410 $ 97,447
Portion of minimum rent ($366,398 in 1998 and
$373,445 in 1997) representative of interest 122,133 124,582
Interest on indebtedness 32,155 32,819
Minority interest 20,541 16,279
-------------- --------------
Total earnings as adjusted $375,239 $271,127
============== ==============
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $122,133 $124,582
Interest on indebtedness 32,155 32,819
-------------- --------------
Total fixed charges $154,288 $157,401
============== ==============
Ratio of earnings to fixed charges 2.43x 1.72x
============== ==============
</TABLE>
<PAGE>
EXHIBIT 15
----------
[LETTERHEAD OF PRICEWATERHOUSECOOPERS APPEARS HERE]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated August 18, 1998, on our review of the interim
consolidated financial information of The Limited, Inc. and Subsidiaries for the
thirteen-week and twenty-six-week periods ended August 1, 1998 and included in
this Form 10-Q is incorporated by reference in the Company's registration
statements on Form S-8, Registration Nos. 33-18533, 33-25005, 2-92277, 33-24829,
33-24507, 33-24828, 2-95788, 2-88919, 33-24518, 33-6965, 33-14049, 33-22844,
33-44041, 33-49871, 333-04927, 333-04941, and the registration statements on
Form S-3, Registration Nos. 33-20788, 33-31540, 33-43832, and 33-53366.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Columbus, Ohio
September 11, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF THE LIMITED, INC. AND
SUBSIDIARIES FOR THE QUARTER ENDED AUGUST 1, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 498,862
<SECURITIES> 0
<RECEIVABLES> 81,131
<ALLOWANCES> 0
<INVENTORY> 1,144,545
<CURRENT-ASSETS> 1,896,679
<PP&E> 3,057,597
<DEPRECIATION> 1,595,586
<TOTAL-ASSETS> 4,136,945
<CURRENT-LIABILITIES> 980,614
<BONDS> 650,000
0
0
<COMMON> 180,352
<OTHER-SE> 1,820,515
<TOTAL-LIABILITY-AND-EQUITY> 4,136,945
<SALES> 2,083,101
<TOTAL-REVENUES> 2,083,101
<CGS> 1,468,387
<TOTAL-COSTS> 1,468,387
<OTHER-EXPENSES> 538,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,414
<INCOME-PRETAX> 1,714,338
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 1,684,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,684,338
<EPS-PRIMARY> 7.13
<EPS-DILUTED> 6.93
</TABLE>
