<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 January 31, 1998
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission file number 1-8344
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THE LIMITED, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- ------------------------ ------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
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) 415-7000
--------------
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. X
-----
Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of April 17, 1998: $8,537,190,501.
Number of shares outstanding of the registrant's Common Stock as of April 17,
1998: 274,287,245.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report to shareholders for the fiscal year
ended January 31, 1998 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 18, 1998 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 its 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 various market segments that have distinctive consumer
characteristics.
Description of Operations.
General.
- -------
As of January 31, 1998, the Company owned the following businesses: (1) Intimate
Brands, Inc. ("IBI") (a corporation in which the Company holds an 83% interest)
which consists of a retail lingerie business, a catalogue lingerie and women's
apparel business (Victoria's Secret Catalogue), and a personal care business,
(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, a children's apparel business and a sporting goods business. The
following chart reflects the retail businesses and the number of stores in
operation for each business at January 31, 1998 and February 1, 1997.
2
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<TABLE>
<CAPTION>
NUMBER OF STORES
RETAIL BUSINESSES --------------------------
- -----------------
January 31, February 1,
1998 1997
------------ ----------
<S> <C> <C>
Women's
- -------
Express 753 753
Lerner New York 746 784
Lane Bryant 773 832
The Limited 629 663
Henri Bendel 6 6
---------- ------------
Total Women's 2,907 3,038
Emerging
- --------
Structure 544 542
The Limited Too 312 308
Galyan's Trading Co. 11 9
---------- -------------
Total Emerging 867 859
Intimate Brands, Inc.
- ---------------------
Victoria's Secret Stores 789 736
Bath & Body Works 921 750
Cacique /**/ - 119
Penhaligon's/*/ - 4
---------- -------------
Total Intimate Brands, Inc. 1,710 1,609
Abercrombie & Fitch Co./***/ 156 127
- ---------------------- ---------- -------------
Total 5,640 5,633
========== =============
</TABLE>
/*/ - Penhaligon's was sold in April 1997.
/**/ - Cacique was closed in January 1998.
/***/ - The Company expects to commence an offer of its A&F shares in exchange
for Limited common stock pursuant to which A&F will become an
independent public company.
The following table shows the changes in the number of retail stores operated by
the Company for the past five fiscal years:
<TABLE>
<CAPTION>
Beginning End of
Fiscal Year of Year Acquired Opened Closed Year
----------- ----------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
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
1997 5,633 - 315 (308) 5,640
</TABLE>
3
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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.
During fiscal year 1997, the Company purchased merchandise from approximately
7,800 suppliers and factories located throughout the world. In addition to
purchases through Mast and Gryphon, the Company purchased 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. 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 retail 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 as 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 1997, the highest
inventory level was $1.524 billion at the November 1997 month-end and the lowest
inventory level was $990 million at the December 1997 month-end.
Merchandise sales are paid for in cash, by personal check, and with credit cards
issued by third parties or credit cards issued by the Company's credit card
processing venture, Alliance Data Systems ("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. At that time, a 60% interest
was sold to a New York investment firm, resulting in the formation of ADS, 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 3 of the Notes to Consolidated Financial Statements included
in The Limited, Inc., 1997 Annual Report to Shareholders, portions of which are
annexed hereto as Exhibit 13 (the "1997 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
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Intimate Brands, Inc. - is a leading specialty retailer of intimate apparel and
- ---------------------
personal care products, operating primarily under its Victoria's Secret and Bath
& Body Works brand names. Under the Victoria's Secret name, The Limited is the
leading mall-based specialty retailer of women's intimate apparel and related
products and a leading catalogue retailer of intimate and other women's apparel.
Victoria's Secret operates over 780 stores nationwide and in 1997 mailed
approximately 425 million catalogues. Under the Bath & Body Works name, The
Limited is the leading mall-based specialty retailer of personal care products.
Launched in 1990, Bath & Body Works operates over 920 stores nationwide.
Intimate Brands had net sales of $3.6 billion in 1997.
Express - is a leading specialty retailer of women's sportswear and accessories.
- -------
Express' strategy is to offer, under the Express brand, an exciting collection
of quality sportswear designed to appeal to a broad range of young-minded,
spirited women looking for the latest in current fashion. Launched in 1980,
Express had net sales of approximately $1.2 billion in 1997 and operated 753
stores in 48 states.
Lerner New York - is a leading mall-based specialty store retailer of value
- ---------------
priced women's apparel. The business's repositioned merchandising strategy is
to be the leading fashion-at-a-value women's specialty retailer offering its
customer a fashion-coordinated flexible wardrobe at opening price points.
Originally founded in 1918, Lerner New York was purchased by The Limited in
1985. Lerner New York had net sales of approximately $946 million in 1997 and
operated 746 stores in 45 states.
Lane Bryant - is the leading specialty store retailer of large-size women's
- -----------
apparel. The business targets fashion-conscious women who are seeking
moderately-priced clothing in sizes 14-28. Originally founded in 1900, Lane
Bryant was acquired by The Limited in 1982. The business had net sales of
approximately $907 million in 1997 and operated 773 stores in 46 states.
Limited - is one of the oldest and largest mall-based specialty store retailers.
- --------
In early 1995, the business repositioned its merchandising strategy to focus its
historically strong brand name on an "American Lifestyle" point of view,
targeting fashion-oriented women who prefer a classic and comfortable wardrobe
and seek consistency in style, taste, quality and fit. Founded in 1963, Limited
Stores had net sales of $776 million in 1997 and operated 629 stores in 46
states.
Structure - is a leading mall-based specialty retailer of men's clothing.
- ---------
Structure targets men with an active, outdoor-oriented lifestyle. In 1996,
Structure repositioned its strategy by returning to classic American casual
fashion. Structure operates 544 stores in 43 states and had net sales of $660
million in 1997.
Limited Too - established in 1987, sells casual clothes for girls up to fourteen
- -----------
years of age through 312 stores. Limited Too had net sales of $322 million in
1997.
Galyan's - is a rapidly-growing operator of full-line sporting goods and apparel
- --------
superstores in the Midwestern United States. Galyan's operates eleven stores in
four markets, targeting upscale sports enthusiasts. Acquired by The Limited in
July 1995, Galyan's had net sales of $160 million in 1997.
5
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Henri Bendel - operates specialty stores which feature better, bridge and
- ------------
designer women's fashions in an exclusive, eclectic shopping environment. The
business was purchased by The Limited in 1988 and had net sales of approximately
$83 million in 1997. The Limited has announced that it will close five of its
six locations with the New York City store remaining open.
Abercrombie & Fitch Co. - is a rapidly growing specialty retailer that has
- ----------------------
created a focused and differentiated brand image based on quality, youthfulness
and classic American style. The business had net sales of $522 million in 1997
and operated 156 stores in 36 states. The Company expects to commence an offer
of its A&F shares in exchange for Limited common stock pursuant to which A&F
will become an independent public company.
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 1997 Annual Report and
is incorporated herein by reference.
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, department stores and
discount retailers. 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, service, 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 January 31, 1998, the Company employed approximately 131,000 associates,
96,200 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; Rio Rancho, New Mexico and London, England.
The distribution and shipping facilities owned by the Company consisted of nine
buildings located in the Columbus, Ohio area and, excluding office space,
comprised 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 1998 and
2018 and generally have renewal options.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including
6
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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 fund all or 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 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 that
had been filed against the Company and certain of its subsidiaries by the
American Textile Manufacturers Institute ("ATMI"), a textile industry trade
association. The amended complaint 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
judgement 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 has been transferred to another
judge of the United States District Court for the Southern District of Ohio. On
January 8, 1998, ATMI filed a second motion to vacate and a motion for leave to
file a second amended complaint. The Company has vigorously opposed all of the
pending motions.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
7
<PAGE>
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of January 31, 1998.
Leslie H. Wexner, 60, 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, 51, has been Vice Chairman and Chief Administrative Officer
of the Company since June 1997. Mr. Gilman was the Chief Financial Officer of
the Company from June 1993 to August 1997. Mr. Gilman was the Executive Vice
President and Chief Financial Officer of the Company for more than five years
prior thereto.
V. Ann Hailey, 47, has been Chief Financial Officer of the Company since August
1997. Ms. Hailey was Senior Vice President and Chief Financial Officer for
Pillsbury from August, 1994 to August 1997.
Martin Trust, 63, has been President of Mast Industries, Inc., a wholly-owned
subsidiary of the Company, for more than five years.
Arnold F. Kanarick, 57, has been Executive Vice President and Chief Human
Resources Officer since October 1992.
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 1997 and 1996, approximate number of holders of common
stock, and quarterly cash dividend per share information of the Company's common
stock for the fiscal years 1997 and 1996 is set forth under the caption "Market
Price and Dividend Information" on page 19 of the 1997 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 3 of the 1997 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 4 through 10 of the 1997 Annual Report and is incorporated herein by
reference.
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 1997 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company is set forth under the captions
"ELECTION OF DIRECTORS - Nominees and Directors", "- Business Experience", "-
Information Concerning the Board of Directors" and "- Security Ownership of
Directors and Management" on pages 1 through 6 of the Company's proxy statement
for the Annual Meeting of Shareholders to be held May 18, 1998 (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 13 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.
9
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ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth under the caption
"EXECUTIVE COMPENSATION" on pages 9 through 13 of the Proxy Statement and is
incorporated herein by reference. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "ELECTION OF DIRECTORS - Security
Ownership of Directors and Management" on pages 5 and 6 of the Proxy Statement
and "PRINCIPAL HOLDERS OF VOTING SECURITIES" on page 19 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 January 31,
1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Shareholders' Equity for the fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.
Consolidated Statements of Cash Flows for the fiscal years ended January
31, 1998, February 1, 1997 and February 3, 1996.
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.
(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").
4. Instruments Defining the Rights of Security Holders.
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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 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.
12
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10. Material Contracts.
10.1. The 1987 Stock Option Plan of The Limited, Inc., incorporated
by reference to Exhibit 28(a) to the Form S-8.
10.2. 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").
10.3. The Limited Deferred Compensation Plan incorporated by
reference to Exhibit 10.4 to the 1990 Form 10-K.
10.4. 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.
10.5. 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.
10.6. Reserved for future use.
10.7. 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.
10.8. 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.
10.9. 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).
10.10. 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.
10.11. Reserved for future use.
10.12. Contingent Stock Redemption Agreement dated as of January 26,
1996 among the Company, Leslie H. Wexner and The Wexner
Children's Trust, incorporated by reference to Exhibit 10.13
to the 1996 Form 10-K.
13
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10.13. 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,
incorporated by reference to Exhibit 10.14 to the 1996 Form
10-K.
10.14. Reserved for future use.
10.15. Reserved for future use.
10.16. 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.
10.17. 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.
10.18. 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. Reserved for future use.
10.20. Employment Agreement by and between The Limited, Inc and
Kenneth B. Gilman dated as of May 20, 1997 with exhibits.
10.21. Employment Agreement by and between The Limited, Inc. and
Arnold F. Kanarick dated as of May 20, 1997 with exhibits.
10.22. Employment Agreement by and between The Limited, Inc. and
Martin Trust dated as of May 20, 1997 with exhibits.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
13. Excerpts from the 1997 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 3 through 19.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
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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 1997.
(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
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SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 29, 1998
THE LIMITED, INC.
(registrant)
By /s/ V. ANN HAILEY
--------------------
V. Ann Hailey,
Executive Vice President 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 January 30, 1998:
Signature Title
--------- -----
/s/ LESLIE H. WEXNER/*/ Chairman of the Board of Directors,
- ---------------------------
Leslie H. Wexner President and Chief Executive Officer
/s/ KENNETH B. GILMAN/*/ Director, Vice Chairman and Chief
- ---------------------------
Kenneth B. Gilman Administrative Officer
/s/ ABIGAIL S. WEXNER/*/ Director
- ---------------------------
Abigail S. 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 January 31, 1998 and February 1, 1997, and for each of the
three fiscal years in the period ended January 31, 1998, which financial
statements are included on pages 11 through 18 of the 1997 Annual Report to
shareholders of The Limited, Inc. and incorporated by reference herein. We have
also audited the financial statement schedule for the fiscal year 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 January 31, 1998 and February 1, 1997, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 31, 1998 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule for the fiscal year 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 20, 1998
18
<PAGE>
Schedule II
-----------
THE LIMITED, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED
FEBRUARY 3, 1996
(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) $ -
============== ============== ============== ============== ==============
</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 3 to the Consolidated Financial
Statements for further information.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- -------------------------------
10.20 Employment Agreement by and between The Limited, Inc.
and Kenneth B. Gilman dated as of May 20, 1997 with exhibits.
10.21 Employment Agreement by and between The Limited, Inc.
and Arnold F. Kanarick dated as of May 20, 1997 with exhibits.
10.22 Employment Agreement by and between The Limited, Inc.
and Martin Trust dated as of May 20, 1997 with exhibits.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
13 Excerpts from the 1997 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 3 through 19.
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>
EXHIBIT 10.20
-------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of May 20, 1997, by and between The
Limited Inc. and The Limited Service Corporation a Delaware corporation (the
"Company"), and Kenneth B. Gilman (the "Executive") (hereinafter collectively
referred to as "the parties").
WHEREAS, the Executive has heretofore been employed as Vice Chairman
and Chief Administrative 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 Vice
--------
Chairman and Chief Administrative 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
Leslie H. Wexner or his successor.
(b) Obligations. The Executive agrees to devote his full business
-----------
time and attention to the business and affairs of the Company. The foregoing,
however, shall not 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 a base salary at the rate of
$900,000. 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.
<PAGE>
4. Equity Compensation. The Company shall grant to the Executive
-------------------
rights to receive 300,000 shares of the Company's common stock and options to
acquire 500,000 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.
(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.
(b) Expenses. Subject to applicable Company policies, the
--------
Executive shall be entitled to receive prompt reimbursement of all expenses
reasonably incurred by his in connection with the performance of his 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 those duties hereunder.
8. Vacation. The Executive shall be entitled to annual vacation in
--------
accordance with the policies as 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 those 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 those 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
2
<PAGE>
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 Vice Chairman and Chief Administrative
Officer of The Limited, Inc. or such other capacity as 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 the 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
3
<PAGE>
(including any interest earned or credited thereon) (collectively, "Accrued
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 his 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 his
Disability under the Company's relevant disability plan or plans; and
(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.
4
<PAGE>
(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 obtains 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 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.
5
<PAGE>
(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 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
himself 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 six
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 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
6
<PAGE>
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.
(c) 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 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 arbitrator 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 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
7
<PAGE>
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:
- ----------------
Kenneth B. Gilman
xxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx
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.
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.
22. 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.
8
<PAGE>
THE LIMITED, INC.
By: /s/ Leslie H. Wexner
---------------------------
Name: Leslie H. Wexner
Title: Chairman of the Board
/s/ Kenneth B. Gilman
------------------------------
Kenneth B. Gilman
9
<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 (1997 Restatement) (the "Plan").
Associate's Name: KENNETH B. GILMAN
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 NQ PLAN (97 RESTATEMENT) 05/20/97 05/21/07 494,872 $19.5000 05/20/98 50,000
05/20/99 50,000
05/20/00 50,000
05/20/01 75,000
05/20/02 100,000
05/20/03 169,872
1993 ISO PLAN (97 RESTATEMENT) 05/20/97 05/21/07 5,128 $19.5000 05/20/03 5,128
</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.
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/ Kenneth B. Gilman
-------------------------------- ------------------------------------
Leslie H. Wexner, Chairman Kenneth B. Gilman
============= 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 (1997 Restatement) ("the Plan").
Associate's Name: KENNETH B. GILMAN
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 (97 RESTATEMENT) 05/20/97 300,000 05/20/98 30,000
05/20/99 30,000
05/20/00 30,000
05/20/01 45,000
05/20/02 60,000
05/20/03 105,000
</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.
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/ Kenneth B. Gilman
-------------------------------- --------------------------------------
Leslie H. Wexner, Chairman
This Restricted Stock Agreement is granted and the 5/20/98 vesting segment of
the award will be earned based on achieving a x% increase in the sales growth
for The Limited, Inc. in the Fall season of 1997 over the Fall season of 1996.
Further, the balance of 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 10.21
-------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of May 20, 1997, by and between The
Limited Inc. and The Limited Service Corporation a Delaware corporation (the
"Company"), and Arnold F. Kanarick (the "Executive") (hereinafter collectively
referred to as "the parties").
WHEREAS, the Executive has heretofore been employed as Executive Vice
President and Director of Human Resources 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 Director of Human Resources 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 Leslie H. Wexner or his successor.
(b) Obligations. The Executive agrees to devote his full business
-----------
time and attention to the business and affairs of the Company. The foregoing,
however, shall not preclude the Executive from serving on corporate, civil or
charitable boards or committees or
<PAGE>
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 a base salary at the rate of
$550,000. 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 shall grant to the Executive
-------------------
rights to receive 150,000 shares of the Company's common stock and options to
acquire 250,000 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.
(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.
(b) Expenses. Subject to applicable Company policies, the
--------
Executive shall be entitled to receive prompt reimbursement of all expenses
reasonably incurred by his in
2
<PAGE>
connection with the performance of his 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 those duties hereunder.
8. Vacation. The Executive shall be entitled to annual vacation in
--------
accordance with the policies as 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 those 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 those 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 Director of
Human Resources of The Limited, Inc. or such other capacity as contemplated by
Section 2 hereof; (ii) the assignment to the Executive of any duties materially
inconsistent with
3
<PAGE>
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 the 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 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)
4
<PAGE>
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 his 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 his
Disability under the Company's relevant disability plan or plans; and
(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.
5
<PAGE>
(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 obtains 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 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.
6
<PAGE>
(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 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
7
<PAGE>
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
himself 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
six 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
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
8
<PAGE>
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.
(c) 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.
9
<PAGE>
(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 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 arbitrator 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 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:
- ----------------
Arnold F. Kanarick
xxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx
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,
10
<PAGE>
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.
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.
22. 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.
By: /s/ Leslie H. Wexner
---------------------------
Name: Leslie H. Wexner
Title: Chairman of the Board
/s/ Arnold F. Kanarick
------------------------------
Arnold F. Kanarick
11
<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 (1997 Restatement) ("the Plan").
Associate's Name: ARNOLD F. KANARICK
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 (97 RESTATEMENT) 05/20/97 05/21/07 6,918 $19.5000 05/20/02 1,790
05/20/03 5,128
1993 NQ PLAN (97 RESTATEMENT) 05/20/97 05/21/07 243,082 $19.5000 05/20/98 25,000
05/20/99 25,000
05/20/00 25,000
05/20/01 37,500
05/20/02 48,210
05/20/03 82,372
</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.
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/ Arnold F. Kanarick
-------------------------------- --------------------------------------
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 (1997 Restatement) ("the Plan").
Associate's Name: ARNOLD F. KANARICK
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 (97 RESTATEMENT) 05/20/97 150,000 05/20/98 15,000
05/20/99 15,000
05/20/00 15,000
05/20/01 22,500
05/20/02 30,000
05/20/03 52,500
</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.
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/ Arnold F. Kanarick
-------------------------------- --------------------------------------
Leslie H. Wexner, Chairman
This Restricted Stock Agreement is granted and the 5/20/98 vesting segment of
the award will be earned based on achieving a X% increase in the sales growth
for The Limited, Inc. in the Fall season of 1997 over the Fall season of 1996.
Further, the balance of 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 10.22
-------------
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of May 20, 1997, by and between MAST
Industries, Inc. and The Limited Inc., a Delaware corporation (the "Company"),
and Martin Trust (the "Executive") (hereinafter collectively referred to as "the
parties").
WHEREAS, the Executive has heretofore been employed as President and
Chief Executive Officer - MAST Industries, 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 President and
--------
Chief Executive Officer - MAST Industries 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 Chairman of the
Board, or other designee as appointed by the Chairman.
(b) Obligations. The Executive agrees to devote his full business
-----------
time and attention to the business and affairs of the Company. The foregoing,
however, shall not preclude the Executive from serving on corporate, civil or
charitable boards or committees or
<PAGE>
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 a base salary at the rate of
$700,000. 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 shall grant to the Executive
-------------------
rights to receive 200,000 shares of the Company's common stock and options to
acquire 300,000 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.
(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.
(b) Expenses. Subject to applicable Company policies, the
--------
Executive shall be entitled to receive prompt reimbursement of all expenses
reasonably incurred by his in
2
<PAGE>
connection with the performance of his 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 those duties hereunder.
8. Vacation. The Executive shall be entitled to annual vacation in
--------
accordance with the policies as 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 those 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 those 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 President and Chief Executive Officer -
MAST Industries or such other capacity as contemplated by Section 2 hereof; (ii)
the assignment to the Executive of any duties materially inconsistent with the
3
<PAGE>
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 the 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 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)
4
<PAGE>
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 his 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 his
Disability under the Company's relevant disability plan or plans; and
(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.
5
<PAGE>
(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 obtains 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 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.
6
<PAGE>
(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 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
7
<PAGE>
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
himself 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
six 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
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
8
<PAGE>
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.
(c) 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.
9
<PAGE>
(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 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 arbitrator 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 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:
- ----------------
Martin Trust
xxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxx
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
10
<PAGE>
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.
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.
22. 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.
By: /s/ Leslie H. Wexner
----------------------------
Name: Leslie H. Wexner
Title: Chairman of the Board
/s/ Martin Trust
-------------------------------
Martin Trust
11
<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 (1997 Restatement) (the "Plan").
Associate's Name: MARTIN TRUST
Division: MAST
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>
1993 ISO PLAN (97 RESTATEMENT) 05/20/97 05/21/07 5,993 $19.5000 05/20/02 865
05/20/03 5,128
1993 NQ PLAN (97 RESTATEMENT) 05/20/97 05/21/07 294,007 $19.5000 05/20/98 30,000
05/20/99 30,000
05/20/00 30,000
05/20/01 45,000
05/20/02 59,135
05/20/03 99,872
</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.
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/ Martin Trust
------------------------------ --------------------------
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 (1997 Restatement) ("the Plan").
Associate's Name: MARTIN TRUST
Division: MAST
Social Security #:
Address:
<TABLE>
<CAPTION>
Date Number of Vesting Schedule*
Plan Name of Grant Shares Date Shares
- ------------------------------- -------- --------- ---------------------
<S> <C> <C> <C> <C>
93 RESTRICTED (97 RESTATEMENT) 05/20/97 200,000 05/20/98 20,000
05/20/99 20,000
05/20/00 20,000
05/20/01 30,000
05/20/02 40,000
05/20/03 70,000
</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.
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/ Martin Trust
-------------------------------- --------------------------------------
Leslie H. Wexner, Chairman
This Restricted Stock Agreement is granted and the 5/20/98 vesting segment of
the award will be earned based on achieving a x% increase in the sales growth
for The Limited, Inc. in the Fall season of 1997 over the Fall season of 1996.
Further, the balance of 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)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------------------------------------------------
January 31, 1998 February 1, 1997 February 3, 1996 January 28, 1995 January 29,1994
---------------- ---------------- ---------------- ---------------- ---------------
Adjusted Earnings
- -----------------
<S> <C> <C> <C> <C> <C>
Pretax earnings $400,390 $675,208 $1,184,511 $744,343 $644,999
Portion of minimum rent ($744,775 in 1997, 248,258 238,161 223,100 204,716 190,759
$714,482 in 1996, $669,301 in 1995, $614,147 in
1994 and $572,278 in 1993) representative of
interest
Interest on indebtedness 68,728 75,363 77,537 65,381 63,865
Minority interest 56,473 45,646 22,374 -- --
---------------- ---------------- ---------------- ---------------- ---------------
Total earnings as adjusted $773,849 $1,034,378 $1,507,522 $1,014,440 $899,623
================ ================ ================ ================ ===============
Fixed Charges
- -------------
Portion of minimum rent representative
of interest $248,258 $238,161 $223,100 $204,716 $190,759
Interest on indebtedness 68,728 75,363 77,537 65,381 63,865
---------------- ---------------- ---------------- ---------------- ---------------
Total fixed charges $316,986 $313,524 $300,637 $270,097 $254,624
================ ================ ================ ================ ===============
Ratio of earnings to fixed charges 2.44x 3.30x 5.01x 3.76x 3.53x
================ ================ ================ ================ ===============
</TABLE>
<PAGE>
EXHIBIT 13
----------
financials
Financial Summary
- --------------------------------------------------------------------------------
(Thousands except per share amounts, ratios and store and associate data)
<TABLE>
<CAPTION>
1997 1996 A B E 1995 1994 A 1993 1992
SUMMARY OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $9,188,804 $8,644,791 $7,881,437 $7,320,792 $7,245,088 $6,944,296
....................................................................................................................................
Gross Income $2,817,977 $2,496,579 $2,087,532 $2,114,363 $1,958,835 $1,990,740
....................................................................................................................................
Operating Income $480,099 $636,067 $613,349 $798,989 $701,556 $788,698
....................................................................................................................................
Operating Income
as a Percentage of Sales 5.2% 7.4% 7.8% 10.9% 9.7% 11.4%
....................................................................................................................................
Adjusted Operating
Income C$706,314 C$648,067 C$612,035 798,989 C$698,939 $788,698
....................................................................................................................................
Adjusted Operating
Income as a
Percentage of Sales C7.7% C7.5% C7.8% 10.9% C9.6% 11.4%
....................................................................................................................................
Net Income $217,390 $434,208 $961,511 $448,343 $390,999 $455,497
....................................................................................................................................
Net Income as a
Percentage of Sales 2.4% 5.0% 12.2% 6.1% 5.4% 6.6%
....................................................................................................................................
Adjusted Net Income D$341,199 D$321,830 D$311,230 $448,343 D$389,382 D$446,380
....................................................................................................................................
Adjusted Net Income
as a Percentage of Sales D3.7% D3.7% D4.0% 6.1% D5.4% D6.4%
PER SHARE RESULTS
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income Per Basic Share $0.80 $1.55 $2.69 $1.25 $1.09 $1.26
....................................................................................................................................
Net Income Per Diluted Share $0.79 $1.54 $2.68 $1.25 $1.08 $1.25
....................................................................................................................................
Adjusted Net Income
Per Diluted Share D$1.24 D$1.14 D$0.87 $1.25 D$1.08 D$1.23
....................................................................................................................................
Dividends $0.48 $0.40 $0.40 $0.36 $0.36 $0.28
....................................................................................................................................
Book Value $7.50 $7.09 $9.01 $7.72 $6.82 $6.25
....................................................................................................................................
Weighted Average Diluted
Shares Outstanding 274,483 282,053 358,371 358,601 363,234 363,738
OTHER FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $4,300,761 $4,120,002 $5,266,563 $4,570,077 $4,135,105 $3,846,450
....................................................................................................................................
Return on Average Assets 5% 9% 20% 10% 10% 13%
....................................................................................................................................
Adjusted Return on
Average Assets D8% D7% D6% 10% D10% D12%
....................................................................................................................................
Working Capital $937,739 $638,204 $2,018,960 $1,750,111 $1,513,181 $1,063,352
....................................................................................................................................
Current Ratio 1.9 1.7 3.5 3.2 3.1 2.5
....................................................................................................................................
Capital Expenditures $404,602 $409,260 $374,374 $319,676 $295,804 $429,545
....................................................................................................................................
Long-Term Debt $650,000 $650,000 $650,000 $650,000 $650,000 $541,639
....................................................................................................................................
Debt-to-Equity Ratio 32% 34% 20% 24% 27% 24%
....................................................................................................................................
Shareholders' Equity $2,044,957 $1,922,582 $3,201,041 $2,760,956 $2,441,293 $2,267,617
....................................................................................................................................
Return on Average
Shareholders' Equity 11% 17% 32% 17% 17% 22%
....................................................................................................................................
Adjusted Return on Average
Shareholders' Equity D17% D16% D10% 17% D17% D22%
....................................................................................................................................
Comparable Store Sales
Increase (Decrease) 0% 3% (2%) (3%) (1%) 2%
STORES AND ASSOCIATES AT END OF YEAR
- ------------------------------------------------------------------------------------------------------------------------------------
Total Number of
Stores Open 5,640 5,633 5,298 4,867 4,623 4,425
....................................................................................................................................
Selling Square Feet 28,400,000 28,405,000 27,403,000 25,627,000 24,426,000 22,863,000
....................................................................................................................................
Number of Associates 131,000 123,100 106,900 105,600 97,500 100,700
<CAPTION>
B 1991 B 1990 A E 1989 B 1988 1987
SUMMARY OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $6,149,218 $5,253,509 $4,647,916 $4,070,777 $3,527,941
...................................................................................................................
Gross Income $1,793,543 $1,630,439 $1,446,635 $1,214,703 $992,775
...................................................................................................................
Operating Income $712,700 $697,537 $625,254 $467,418 $408,872
...................................................................................................................
Operating Income
as a Percentage of Sales 11.6% 13.3% 13.5% 11.5% 11.6%
...................................................................................................................
Adjusted Operating
Income $712,700 $697,537 $625,254 $467,418 $408,872
...................................................................................................................
Adjusted Operating
Income as a
Percentage of Sales 11.6% 13.3% 13.5% 11.5% 11.6%
...................................................................................................................
Net Income $403,302 $398,438 $346,926 $245,136 $235,188
...................................................................................................................
Net Income as a
Percentage of Sales 6.6% 7.6% 7.5% 6.0% 6.7%
...................................................................................................................
Adjusted Net Income $403,302 $398,438 $346,926 $245,136 $235,188
...................................................................................................................
Adjusted Net Income
as a Percentage of Sales 6.6% 7.6% 7.5% 6.0% 6.7%
PER SHARE RESULTS
- -------------------------------------------------------------------------------------------------------------------
Net Income Per Basic Share $1.12 $1.11 $0.97 $0.68 $0.63
...................................................................................................................
Net Income Per Diluted Share $1.11 $1.10 $0.96 $0.68 $0.62
...................................................................................................................
Adjusted Net Income
Per Diluted Share $1.11 $1.10 $0.96 $0.68 $0.62
...................................................................................................................
Dividends $0.28 $0.24 $0.16 $0.12 $0.12
...................................................................................................................
Book Value $5.19 $4.33 $3.45 $2.64 $2.04
...................................................................................................................
Weighted Average Diluted
Shares Outstanding 363,594 362,044 361,288 360,186 376,626
OTHER FINANCIAL INFORMATION
- -------------------------------------------------------------------------------------------------------------------
Total Assets $3,418,856 $2,871,878 $2,418,486 $2,145,506 $1,929,477
...................................................................................................................
Return on Average Assets 13% 15% 15% 12% 13%
...................................................................................................................
Adjusted Return on
Average Assets 13% 15% 15% 12% 13%
...................................................................................................................
Working Capital $1,084,205 $884,004 $685,524 $567,639 $629,783
...................................................................................................................
Current Ratio 3.1 2.8 2.4 2.2 2.9
...................................................................................................................
Capital Expenditures $523,082 $428,844 $318,427 $288,972 $283,590
...................................................................................................................
Long-Term Debt $713,758 $540,446 $445,674 $517,952 $681,000
...................................................................................................................
Debt-to-Equity Ratio 38% 35% 36% 55% 93%
...................................................................................................................
Shareholders' Equity $1,876,792 $1,560,052 $1,240,454 $946,207 $729,171
...................................................................................................................
Return on Average
Shareholders' Equity 23% 28% 32% 29% 31%
...................................................................................................................
Adjusted Return on Average
Shareholders' Equity 23% 28% 32% 29% 31%
...................................................................................................................
Comparable Store Sales
Increase (Decrease) 3% 3% 9% 8% 3%
STORES AND ASSOCIATES AT END OF YEAR
- -------------------------------------------------------------------------------------------------------------------
Total Number of
Stores Open 4,194 3,760 3,344 3,497 3,115
...................................................................................................................
Selling Square Feet 20,355,000 17,008,000 14,374,000 14,296,000 12,795,000
...................................................................................................................
Number of Associates 83,800 72,500 63,000 56,700 50,200
</TABLE>
A Includes the results of companies disposed of up to the disposition date.
Effective April 30, 1989, the Company sold its Lerner Woman Division,
effective August 31, 1993, the Company sold 60% of its interest in Brylane,
Inc. and effective January 31, 1996 the Company sold 60% of its interest in
World Financial Network National Bank.
B Includes the results of Abercrombie & Fitch subsequent to the February 1,
1988 acquisition date, Penhaligon's subsequent to the July 2, 1990
acquisition date, Gryphon subsequent to June 1, 1991 when the Company
acquired a controlling interest and Galyan's subsequent to the July 2, 1995
acquisition date.
C Excludes the effect on operating income of special and nonrecurring items
of ($213,215) in 1997, ($12,000) in 1996, $1,314 in 1995 (see Note 2 to the
Consolidated Financial Statements) and $2,617 in 1993. Additionally,
inventory liquidation charges of ($13,000) related to Henri Bendel store
closings are excluded from 1997.
D In addition to excluding special charges listed in (c) above, excludes the
effect on net income of the gain resulting from the initial public
offerings of $8,606 for Brylane, Inc. in 1997, $118,178 for a 15.8%
interest in Abercrombie & Fitch in 1996, $649,467 for a 16.9% interest in
Intimate Brands, Inc. in 1995 (see Note 1 to the Consolidated Financial
Statements) and $9,117 for United Retail Group in 1992.
E Fifty-three-week fiscal year.
- --------------------------------------------------------------------------------
3
<PAGE>
financials
Management's Discussion and Analysis
Results of Operations
Net sales for the fourth quarter of 1997 grew 10% to $3.268 billion from $2.966
billion for the same period a year ago. Net income was $85.3 million versus
$213.4 million in the fourth quarter of 1996, and earnings per diluted share
were $.31 versus $.78 in the fourth quarter of 1996. Excluding special and
nonrecurring items and inventory liquidation charges associated with the closing
of five Henri Bendel stores, net income was $252.5 million versus $220.2 million
in the fourth quarter of 1996, and earnings per diluted share were $.91 versus
$.81 in the fourth quarter of 1996.
As a result of an ongoing review of the Company's retail businesses and
investments as well as implementation of initiatives intended to promote and
strengthen the Company's various retail brands (including closing businesses,
identification and disposal of non-core assets and identification of store
locations not consistent with a particular brand) during the fourth quarter of
1997, the Company recognized total charges of $289 million (approximately $30
million after-tax cash impact) or $.60 per diluted share, consisting of $276
million in special and nonrecurring charges and a $13 million cost of sales
charge for inventory liquidation at Henri Bendel. These charges included:
. A $68 million charge for closing the 118 store Cacique lingerie business
effective January 31, 1998. The amount includes $38 million in cash charges
relating to cancellation of merchandise on order and other exit costs such as
severance, service contract termination fees and lease termination costs;
. $95 million in charges related to Henri Bendel, which include an $82 million
special and nonrecurring charge related to streamlining Henri Bendel from six
stores to a one-store operation by September 1, 1998. The amount includes $56
million in cash charges that are recorded in other current liabilities. In
addition, the Company incurred a $13 million cost of sales charge for inventory
liquidation. The charge to cost of sales is in accordance with Emerging Issues
Task Force ("EITF") Issue No. 96-9, "Classification of Inventory Markdowns and
Other Costs Associated with a Restructuring";
. $86 million of impaired asset charges related principally to the women's
apparel businesses, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." This charge has no cash impact but
is an SFAS No. 121 required accounting adjustment to measure the fair value of
store assets, and will provide a noncash benefit in future periods from reduced
depreciation and amortization;
. A $28 million provision for closing or downsizing approximately 80 oversized
stores, primarily in the Limited, Lane Bryant, Lerner New York and Express
women's businesses, and a $12 million write-down to net realizable value of a
real estate investment previously acquired in connection with closing and
downsizing certain stores.
Net sales for the fiscal year ended January 31, 1998, increased 6% to
$9.189 billion from sales of $8.645 billion for the same period ended February
1, 1997. Net income was $217.4 million, or $.79 per diluted share, compared to
$434.2 million, or $1.54 per diluted share last year.
Excluding the impact of special and nonrecurring items, gains in connection
with initial public offerings ("IPO"), and the Henri Bendel inventory
liquidation charges, the Company would have earned $1.24 per diluted share
compared to last year's $1.14. These excluded items consisted of: 1) $213.2
million related to the previously described fourth quarter charges that was net
of a third quarter net gain of $62.8 million related principally to the sale of
approximately one-half of the Company's investment in Brylane, Inc. ("Brylane"),
a 26% owned (post-IPO) catalogue retailer; 2) in 1997, a pretax gain of $8.6
million in connection with the IPO of Brylane; 3) $12 million of special and
nonrecurring charges in 1996 related to the April 1997 sale of Penhaligon's; and
4) in 1996, a gain of $118.2 million resulting from the Abercrombie & Fitch
("A&F") IPO.
Business highlights for 1997 include the following:
. Intimate Brands, Inc. ("IBI"), led by strong performances at Bath & Body Works
and Victoria's Secret Stores, recorded earnings per diluted share of $1.14,
compared to $1.02 in 1996, including special and nonrecurring charges of $.16 in
1997 and $.03 in 1996.
. A&F delivered 1997 earnings per diluted share of $.94, a 74% increase over
1996 as comparable store sales increased 21% on top of 13% for 1996.
. However, much of the gains from IBI and A&F were offset by a decline in
operating income for each of the women's businesses, which finished the year
with a pretax operating loss aggregating $268 million, including special and
nonrecurring charges of $187 million and the $13 million inventory liquidation
charge related to the closing of five Henri Bendel stores.
. Limited Too led the emerging businesses with a significant improvement in
operating income and 20% comparable store sales gains.
. During the year, the Company also completed the sales of its interests in the
Newport Office Tower in Jersey City, New Jersey, and The Mall at Tuttle Crossing
in Columbus, Ohio, and approximately one-half of its interest in Brylane for
cash proceeds of $343.2 million.
. On February 17, 1998, a registration statement was filed with the Securities
and Exchange Commission in connection with a plan to establish A&F as a fully
independent company via a tax-free exchange offer pursuant to which The Limited
shareholders will be given an opportunity to tender some or all of their shares
of The Limited in return for shares of A&F. The transaction is subject to
certain customary conditions.
. On February 20, 1998, the Company entered into a definitive agreement with
Pinault Printemps-Radoute to sell its remaining 2.6 million shares of Brylane
for $51 per share, generating net cash proceeds of $131 million. The transaction
is expected to close in the first quarter of 1998.
The Company does not believe that the consummation of the transactions and
the taking of the other actions outlined above will have a material effect on
the Company's liquidity (i.e., its ability to provide the resources to support
operations, projected growth, seasonal requirements and capital expenditures).
Furthermore, although the Company believes that such transactions and other
actions should have a favorable impact on the Company's results of operations,
there can be no assurance with respect to the effect of these actions.
4
<PAGE>
financials
The following summarized financial data compares 1997 to the comparable periods
for 1996 and 1995 (millions):
<TABLE>
<CAPTION>
% Change
1997 1996 1995 1997-96 1996-95
Net Sales
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Express $1,189 $1,386 $1,445 (14%) (4%)
..................................................................................
Lerner New York 946 1,045 1,005 (9%) 4%
..................................................................................
Lane Bryant 907 905 903 -- --
..................................................................................
The Limited 776 855 850 (9%) 1%
..................................................................................
Henri Bendel 83 91 91 (9%) --
- ----------------------------------------------------------------------------------
Total Women's Brands $3,901 $4,282 $4,294 (9%) --
Structure 660 660 576 -- 15%
..................................................................................
Limited Too 322 259 214 24% 21%
..................................................................................
Galyan's Trading Co.
(since 7/2/95) 160 108 45 48% n/m
..................................................................................
Other 6 4 -- n/m n/m
- ----------------------------------------------------------------------------------
Total Emerging Brands $1,148 $1,031 $835 11% 23%
Victoria's Secret Stores 1,702 1,450 1,286 17% 13%
..................................................................................
Victoria's Secret
Catalogue 734 684 661 7% 3%
..................................................................................
Bath & Body Works 1,057 753 475 40% 59%
..................................................................................
Cacique 95 88 80 8% 10%
..................................................................................
Other 30 22 15 n/m n/m
- ----------------------------------------------------------------------------------
Total Intimate
Brands $3,618 $2,997 $2,517 21% 19%
Abercrombie & Fitch $522 $335 $235 56% 43%
- ----------------------------------------------------------------------------------
Total Net Sales $9,189 $8,645 $7,881 6% 10%
Operating Income
- ----------------------------------------------------------------------------------
Women's Brands A$(268) $64 E$54 n/m 19%
..................................................................................
Emerging Brands
and Other B159 68 F149 134% (54%)
..................................................................................
Intimate Brands C505 D458 386 10% 19%
..................................................................................
Abercrombie & Fitch 84 46 24 83% 92%
- ----------------------------------------------------------------------------------
Total Operating Income $480 $636 $613 (25%) 4%
</TABLE>
A 1997 includes special and nonrecurring charges of approximately $187
million relating to the closure of five out of six Henri Bendel stores and
charges associated with asset valuation impairment and the closure and
downsizing of certain stores, plus $13 million in inventory liquidation
charges associated with the Henri Bendel closings.
B 1997 includes $42 million of special and nonrecurring income relating to
the gain from the sale of approximately one-half of the Company's interest
in Brylane, offset by a valuation adjustment on an investment.
C 1997 includes a $68 million charge related to the closing of the Cacique
business effective January 31, 1998.
D 1996 includes a special and nonrecurring charge of $12 million for
revaluation of certain assets in connection with the sale of Penhaligon's
in April 1997.
E 1995 includes a special and nonrecurring charge of approximately $48
million, primarily for store closings and downsizings.
F 1995 includes 100% of WFNNB's operating income of $114 million before
interest expense versus $4 million, representing 40% of net income of $11
million in 1996; 1995 also includes an approximate $73 million gain from
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.
n/m not meaningful
The following summarized financial data compares 1997 to the comparable periods
for 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Comparable Store Sales:
- ----------------------------------------------------------------------------------
Express (15%) (6%) (2%)
..................................................................................
Lerner New York (5%) 8% (1%)
..................................................................................
Lane Bryant 1% 0% (8%)
..................................................................................
The Limited (7%) 3% (4%)
..................................................................................
Henri Bendel (13%) (5%) 6%
- ----------------------------------------------------------------------------------
Total Women's Brands (8%) 0% (3%)
Structure (3%) 7% (9%)
..................................................................................
Limited Too 20% 8% (4%)
..................................................................................
Galyan's Trading Co.
(since 7/2/96) 0% 12% --
- ----------------------------------------------------------------------------------
Total Emerging Brands 3% 7% (8%)
Victoria's Secret Stores 11% 5% (1%)
..................................................................................
Bath & Body Works 11% 11% 21%
..................................................................................
Cacique 10% 8% (20%)
- ----------------------------------------------------------------------------------
Total Intimate Brands 11% 7% 1%
Abercrombie & Fitch 21% 13% 5%
- ----------------------------------------------------------------------------------
Total Comparable Store
Sales Increase (Decrease) 0% 3% (2%)
% Change
1997 1996 1995 1997-96 1996-95
Store Data:
- ----------------------------------------------------------------------------------
Retail Sales Increase
Attributable to New
and Remodeled Stores 6% 8% 9%
..................................................................................
Retail Sales per
Average Selling
Square Foot $295 $285 $272 4% 5%
..................................................................................
Retail Sales per
Average Store
(thousands) $1,478 $1,453 $1,419 2% 2%
..................................................................................
Average Store Size
at End of Year
(selling square feet) 5,035 5,043 5,172 -- (2%)
..................................................................................
Retail Selling Square
Feet at End of Year
(thousands) 28,400 28,405 27,403 -- 4%
Number of Stores:
- ----------------------------------------------------------------------------------
Beginning of Year 5,633 5,298 4,867
..................................................................................
Opened 315 470 504
..................................................................................
Acquired (Sold) (4) -- 6
..................................................................................
Closed (304) (135) (79)
- ----------------------------------------------------------------------------------
End of Year 5,640 5,633 5,298
- ----------------------------------------------------------------------------------
</TABLE>
Net Sales
Fourth quarter 1997 sales as compared to sales for the fourth quarter 1996
increased 10% to $3.268 billion due to 5% comparable store sales gains with the
balance of the increase attributable to new and remodeled stores and increased
catalogue 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%
5
<PAGE>
financials
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.
The 1997 retail sales increase of 6% was attributable to the Company adding
315 new stores, remodeling 206 stores and closing 186 stores (excluding closing
118 Cacique stores in January 1998 and the sale of four Penhaligon's stores in
the first quarter of 1997). This net addition of 129 stores represents over
365,000 square feet of new retail selling space. For the year, average sales
productivity increased 4% to $295 per square foot.
In 1997, IBI accounted for 114% of the Company's total net sales increase
and 39% of total Company sales. IBI posted a $620 million sales gain over the
prior year due to the net addition of 223 stores (before the impact of the
Cacique store closings and the Penhaligon's sale) representing over 650,000 new
retail selling square feet, an 11% increase in comparable store sales and an 18%
increase in catalogues mailed by Victoria's Secret Catalogue. Additionally, A&F
reported a $186 million sales increase over the prior year, bolstered by a 21%
increase in comparable store sales, while Limited Too experienced a $63 million
sales increase over the prior year on a 20% increase in comparable store sales.
However, sales at the women's businesses in 1997 declined $382 million from
1996, primarily due to an 8% decrease in comparable store sales, as well as a
net decrease of 131 stores representing over 705,000 retail selling square feet,
due principally to closures of underperforming locations.
The 1996 retail sales increase of 10% was attributable to an 8% increase in
sales due to the Company adding 470 new stores, remodeling 252 stores and
closing 135 stores, and a 3% increase in comparable store sales, offset by a 1%
decrease due to the fifty-third week in 1995. This net addition of 335 stores
represents approximately 1 million square feet of new retail selling space. For
the year, average sales productivity increased 5% to $285 per square foot.
In 1996, IBI accounted for 63% of the annual sales increase, and nearly 35%
of total Company sales, 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 the Lerner New York
and Limited businesses, which had 8% and 3% increases in comparable store sales.
In addition, the overall sales increase for the Company included sales increases
at Structure, A&F and Limited Too, which experienced 7%, 13% and 8% increases in
comparable store sales.
Gross Income
Gross income increased to 35.4% as a percentage of sales for the fourth quarter
1997 from 33.0% for the fourth quarter 1996. The merchandise margin rate
(representing gross income before deduction of buying and occupancy costs),
increased 2.3%, expressed as a percentage of sales, due principally to improved
initial markup ("IMU"), which was partially offset by a slightly higher markdown
rate and the $13 million Henri Bendel inventory liquidation charge (.4% of
sales). Buying and occupancy costs, expressed as a percentage of sales, were
flat for the fourth quarter as compared to last year.
Gross income, expressed as a percentage of sales, was 33.0% for the fourth
quarter 1996 compared to 29.2% for the fourth quarter 1995. The merchandise
margin rate increased 3.4%, expressed as a percentage of sales, due principally
to improved IMU and lower markdown rates, as the Company was less
price-promotional than the year before. 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.
The Company's 1997 gross income rate increased 1.8% to 30.7% as compared to
1996. The merchandise margin rate increased 1.7% due principally to improved
IMU, while buying and occupancy costs, expressed as a percentage of sales, were
flat to last year.
The 1996 gross income rate of 28.9% increased 2.4% as compared to 1995.
Merchandise margins, expressed as a percentage of sales, increased 1.7%, due
principally to improved initial markup. Buying and occupancy costs decreased .7%
expressed as a percentage of sales, primarily due to sales productivity
associated with the 3% increase in comparable store sales.
General, Administrative and Store Operating Expenses
General, administrative and store operating expenses increased to 20.8%,
expressed as a percentage of sales, in the fourth quarter of 1997, compared to
18.7% in the fourth quarter of 1996. This increase was attributable to: 1) a
2.5% rate increase at the IBI businesses (discussed below) combined with an
increase of IBI sales in the total Company mix to 42.7% from 39.1%; 2) the
inability to leverage these expenses at the women's businesses due to
disappointing sales performance; and 3) additional compensation charges for
restricted stock plans.
IBI's increase is primarily the result of advertising costs at Victoria's
Secret Stores, the growth of Bath & Body Works in the overall mix of IBI net
sales from 25.1% in fiscal 1996 to 29.2% in fiscal 1997 and an increase in
restricted stock plan compensation expense. Due to an emphasis on point-of-sale
marketing and sales floor coverage for personal care products, Bath & Body Works
has higher store operating expenses as a percentage of net sales, which has been
more than offset by higher gross margins.
The Company anticipates that these expenses, expressed as a percentage of
sales, will increase slightly in 1998, since the IBI businesses, in particular
Bath & Body Works, will represent a greater portion of total Company sales.
General, administrative and store operating expenses, expressed as a
percentage of sales, increased to 18.7% in the fourth quarter of 1996 compared
to 17.7% in the fourth quarter of 1995. This
6
<PAGE>
financials
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.
General, administrative and store operating expenses increased, expressed
as a percentage of sales, to 23.1% in 1997, compared to 21.4% in 1996. This
increase was primarily attributable to the reasons discussed above for the 1997
fourth quarter. These costs increased, expressed as a percentage of sales, to
21.4% in 1996 compared to 20.0% in 1995, also primarily due to reasons discussed
above for fourth quarter 1996.
Special and Nonrecurring Items
As described in Note 2 to the Consolidated Financial Statements, the Company
recognized special and nonrecurring charges of $276 million during the fourth
quarter of 1997 comprised of: 1) a $68 million charge for the closing of the
Cacique lingerie business effective January 31, 1998; 2) an $82 million charge
related to streamlining the Henri Bendel business from six stores to one store;
3) an $86 million impaired-asset charge in accordance with SFAS No. 121, related
principally to the women's apparel businesses, covering certain store locations
where the asset carrying values are permanently impaired; and 4) a $28 million
provision for closing and downsizing approximately 80 oversized stores primarily
within the Limited, Lerner New York, Lane Bryant and Express women's businesses
and for a $12 million write-down to net realizable value of a real estate
investment previously acquired in connection with closing and downsizing certain
stores. Additionally, the Company recognized a $13 million charge to cost of
sales in the fourth quarter of 1997 for inventory liquidation in accordance with
EITF Issue No. 96-9. The Company, in accordance with EITF Issue No. 94-3,
anticipates charges for severance and other associate termination costs for
Henri Bendel in the first quarter of 1998 (the period the associates are
notified). Additionally, the Company recognized a net $62.8 million pretax gain
during the third quarter of 1997 relating to the sale of approximately one-half
of its investment in Brylane, partially offset by valuation adjustments on
certain assets where the carrying values were permanently impaired.
In 1996, the Company recorded a $12 million pretax, special and
nonrecurring charge in connection with the 1997 sale of Penhaligon's, a
U.K.-based subsidiary of IBI.
In the fourth quarter of 1995, the Company recognized a $73.2 million
pretax gain in connection with the sale of a 60% interest in the Company's
wholly-owned credit card bank, World Financial Network National Bank ("WFN"). In
addition, 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 and Lerner New York. 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 pretax gain from these special and nonrecurring items was
$1.3 million.
Operating Income
Fourth quarter operating income, expressed as a percentage of sales, was 6.1% in
1997, compared to 13.9% in 1996, and for the year was 5.2% in 1997 compared to
7.4% in 1996. Excluding charges for special and nonrecurring items in both years
and the Henri Bendel inventory liquidation charge in 1997, fourth quarter
operating income, expressed as a percentage of sales, would have been 15.0% in
1997 compared to 14.3% in 1996, and for the year would have been 7.7% in 1997
compared to 7.5% in 1996. These increases were due to increases in the gross
income rate, which more than offset the general, administrative and store
operating expense rate increase.
The fourth quarter operating income rate increased 2.4% in 1996, from 11.5%
on an adjusted basis in 1995, and for the year increased .9% in 1996 from 6.5%
on an adjusted basis in 1995. The 1995 rates were adjusted to reflect the 1995
sale of a 60% interest in WFN as if the sale was consummated at the beginning of
the year. These increases were also due to increases in gross income, which more
than offset the general, administrative and store operating expense rate
increase.
Interest Expense
- --------------------------------------------------------------------------------
FOURTH QUARTER YEAR
1997 1996 1997 1996 1995
Average Daily Borrowings
(millions) $891.4 $1,039.5 $835.9 $964.3 $887.7
................................................................................
Average Effective
Interest Rate 8.07% 7.49% 8.22% 7.82% 8.73%
- --------------------------------------------------------------------------------
Interest expense decreased by $1.5 million in the fourth quarter of 1997 and
decreased by $6.6 million for the year. For the quarter, lower average borrowing
levels reduced interest expense by $2.8 million, offset by a $1.3 million
increase resulting from higher rates. For the year, lower average borrowing
levels reduced interest expense by $10.0 million, offset by $3.4 million of
increased expense due to higher interest rates.
Other Income
The $5.1 million decrease in other income for 1997 compared to 1996 was
primarily attributable to approximately $10.5 million of interest income earned
in the first quarter of 1996, which arose from $1.615 billion of temporarily
invested funds that were used to consummate the Company's self-tender in March
1996. Excluding this $10.5 million in 1996, interest earnings increased $5.4
million from higher temporary investments in 1997, $3.5 million of which was
realized in the fourth quarter.
Gains in Connection with Initial Public Offerings
As discussed in Note 1 to the Consolidated Financial Statements, the Company
recognized a pretax gain of $8.6 million during
the first quarter of 1997, in connection with the IPO of Brylane,
a 26% owned (post-IPO) catalogue retailer. In 1996, the Company recognized a
$118.2 million gain in connection with the IPO of a 15.8% interest (8.05 million
shares) of A&F. In 1995, the Company recognized a $649.5 million gain in
connection with the IPO
7
<PAGE>
financials
of 16.9% (42.7 million shares) of the stock of IBI. The gains recorded by the
Company in 1996 and 1995 were not subject to tax.
Other Data
There were a number of significant events in fiscal years 1997 and 1996 that
impacted the comparability of the Company's net income per diluted share data.
Although the following information is not intended to be presented in accordance
with SEC guidelines for pro forma financial information, it is provided to
assist in investors' understanding of the Company's results of operations.
. In 1997 and 1996, the Company recognized $213.2 million and $12 million in
special and nonrecurring charges along with the $13 million Henri Bendel
inventory liquidation charge in 1997 as more fully described in Note 2 to the
Consolidated Financial Statements. The impact of these charges also reduced
earnings attributable to minority interest by $6.8 million and $1.0 million in
1997 and 1996.
. The Company recognized pretax gains in connection with IPOs of $8.6 million
and $118.2 million in 1997 and 1996 (see Note 1 to the Consolidated Financial
Statements).
. The Company repurchased 85 million shares via a self-tender and, as a result
of investing funds used to facilitate the self-tender, recognized approximately
$10.5 million of interest income in 1996 up to the effective date.
Adjusted for the income tax effect (an $87 million expense in 1997 and a
$1.0 million expense in 1996), earnings per diluted share would have increased
$.45 per share in 1997 to $1.24 and would have decreased $.38 per share to $1.16
in 1996.
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 January 31, 1998, provides continuing evidence of
financial strength and flexibility. The Company's long-term debt-to-equity ratio
declined to 32% at the end of 1997 from 34% in 1996, and working capital
increased 47% over 1996 to $938 million. 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 current operations,
projected growth, seasonal requirements and capital expenditures.
- --------------------------------------------------------------------------------
A summary of the Company's working capital position and capitalization follows
(thousands):
A Adjusted
1997 1996 1995 1995
Cash Provided by
Operating Activities $589,981 $712,069 $340,732 $340,732
................................................................................
Working Capital $937,739 $638,204 $403,960 $2,018,960
................................................................................
Capitalization:
................................................................................
Long-Term Debt $650,000 $650,000 $650,000 $650,000
................................................................................
Shareholders' Equity 2,044,957 1,922,582 1,586,041 3,201,041
- --------------------------------------------------------------------------------
Total Capitalization $2,694,957 $2,572,582 $2,236,041 $3,851,041
- --------------------------------------------------------------------------------
Additional Amounts
Available Under Long-
Term Credit Agreements $1,000,000 $1,000,000 $1,000,000 $1,000,000
A Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
- --------------------------------------------------------------------------------
Net cash provided by operating activities totaled $590.0 million, $712.1
million and $340.7 million for 1997, 1996 and 1995 and continued to serve as the
Company's primary source of liquidity.
- --------------------------------------------------------------------------------
The Company considers the following to be several measures of liquidity and
capital resources:
A Adjusted
1997 1996 1995 1995
Debt-to-Equity Ratio 32% 34% 41% 20%
(Long-Term Debt Divided by
Shareholders' Equity)
................................................................................
Debt-to-Capitalization Ratio 24% 25% 29% 17%
(Long-Term Debt Divided by
Total Capitalization)
................................................................................
Interest Coverage Ratio 11x 12x 12x 12x
(Income, Excluding Gain in
Connection with Initial Public
Offerings, Before Interest
Expense, Depreciation,
Amortization and Income Taxes
Divided by Interest Expense)
................................................................................
Cash Flow to Capital Investment 146% 174% 91% 91%
(Net Cash Provided by
Operating Activities Divided by
Capital Expenditures)
A Adjusted 1995 reflects the impact of the $1.615 billion repurchase of 85
million shares of common stock.
- --------------------------------------------------------------------------------
8
<PAGE>
financials
Net cash provided from operating activities in 1997 decreased $122.1
million from the prior year principally due to an increase in income tax
payments, that was partially offset by slightly higher income from operations
adjusted for special and nonrecurring items and gains from initial public
offerings.
Investing activities included capital expenditures of $405 million, about
half of which was for new and remodeled stores. Investing activities also
included $235 million in net proceeds from the sales of the Newport Tower, an
office building in Jersey City, New Jersey, and the Company's interest in The
Mall at Tuttle Crossing in Columbus, Ohio, and $108.3 million of net proceeds
from the third quarter sale of slightly less than one-half of the Company's
investment in Brylane. In 1996, $41.3 million was invested in the Alliance Data
Systems (formerly WFN) credit card venture. 1995 reflects the acquisition of
Galyan's, the proceeds from the securitization of WFN's credit card receivables
of $1.2 billion (see Note 3 to the Consolidated Financial Statements) and the
transfer of $351.6 million to a restricted cash account (see Note 6 to the
Consolidated Financial Statements).
Cash used for financing activities for 1997 reflects an increase in the
quarterly dividend to $.12 per share from $.10 per share in 1996. Financing
activities in 1996 included 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.
At January 31, 1998, 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.
Stores and Selling Square Feet
- --------------------------------------------------------------------------------
A summary of actual stores and selling square feet by business for 1997 and
1996, and the 1998 goals by business (including the impact of the estimated 280
stores that will be closed/downsized during the year) follows:
<TABLE>
<CAPTION>
End of Year Change From
Goal 1998 1997 1996 1998-97 1997-96
<S> <C> <C> <C> <C> <C>
EXPRESS
- ------------------------------------------------------------------------------------------
Stores 712 753 753 (41) --
..........................................................................................
Selling Square Ft. 4,481,000 4,739,000 4,726,000 (258,000) 13,000
LERNER NEW YORK
- ------------------------------------------------------------------------------------------
Stores 668 746 784 (78) (38)
..........................................................................................
Selling Square Ft. 5,041,000 5,698,000 5,984,000 (657,000) (286,000)
LANE BRYANT
- ------------------------------------------------------------------------------------------
Stores 760 773 832 (13) (59)
..........................................................................................
Selling Square Ft. 3,666,000 3,735,000 3,980,000 (69,000) (245,000)
THE LIMITED
- ------------------------------------------------------------------------------------------
Stores 570 629 663 (59) (34)
- ------------------------------------------------------------------------------------------
Selling Square Ft. 3,398,000 3,790,000 3,977,000 (392,000) (187,000)
HENRI BENDEL
- ------------------------------------------------------------------------------------------
Stores 1 6 6 (5) --
..........................................................................................
Selling Square Ft. 35,000 113,000 113,000 (78,000) --
STRUCTURE
- ------------------------------------------------------------------------------------------
Stores 545 544 542 1 2
..........................................................................................
Selling Square Ft. 2,161,000 2,143,000 2,117,000 18,000 26,000
LIMITED TOO
- ------------------------------------------------------------------------------------------
Stores 317 312 308 5 4
..........................................................................................
Selling Square Ft. 1,002,000 979,000 967,000 23,000 12,000
GALYAN'S TRADING CO.
- ------------------------------------------------------------------------------------------
Stores 15 11 9 4 2
..........................................................................................
Selling Square Ft. 1,026,000 641,000 488,000 385,000 153,000
VICTORIA'S SECRET STORES
- ------------------------------------------------------------------------------------------
Stores 874 789 736 85 53
..........................................................................................
Selling Square Ft. 3,795,000 3,555,000 3,326,000 240,000 229,000
BATH & BODY WORKS
- ------------------------------------------------------------------------------------------
Stores 1,101 921 750 180 171
..........................................................................................
Selling Square Ft. 2,183,000 1,773,000 1,354,000 410,000 419,000
CACIQUE
- ------------------------------------------------------------------------------------------
Stores -- -- 119 -- (119)
..........................................................................................
Selling Square Ft. -- -- 365,000 -- (365,000)
PENHALIGON'S
- ------------------------------------------------------------------------------------------
Stores -- -- 4 -- (4)
..........................................................................................
Selling Square Ft. -- -- 2,000 -- (2,000)
ABERCROMBIE & FITCH
- ------------------------------------------------------------------------------------------
Stores 186 156 127 30 29
..........................................................................................
Selling Square Ft. 1,453,000 1,234,000 1,006,000 219,000 228,000
ABERCROMBIE (KIDS)
- ------------------------------------------------------------------------------------------
Stores 13 -- -- 13 --
..........................................................................................
Selling Square Ft. 42,000 -- -- 42,000 --
TOTAL RETAIL BUSINESSES
- ------------------------------------------------------------------------------------------
Stores 5,762 5,640 5,633 122 7
..........................................................................................
Selling Square Ft. 28,283,000 28,400,000 28,405,000 (117,000) (5,000)
- ------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
FINANCIALS
Capital Expenditures
Capital expenditures amounted to $404.6 million, $409.3 million and $374.4
million for 1997, 1996 and 1995, of which $194.4 million, $235.7 million and
$274.5 million were for new stores and remodeling and expanding existing stores.
In 1997 and 1996 the Company expended $55.3 million and $53.1 million on land
acquisition and development costs. Also, in 1997 and 1996 the Company expended
$30.2 million and $42.1 million in connection with the Bath & Body Works
distribution center.
The Company anticipates spending $480 to $500 million for capital
expenditures in 1998, of which $270 to $295 million will be for new stores, the
remodeling of existing stores and related improvements for the retail
businesses, $50 to $60 million will be for information technology related to
Year 2000 expenditures and $30 to $40 million will be for land acquisition and
development costs, principally the Easton development project in Columbus, Ohio.
The Company expects that substantially all 1998 capital expenditures will be
funded by net cash provided by operating activities.
The Company intends to reduce selling square footage by approximately
117,000 selling square feet in 1998, which represents a .4% decrease from
year-end 1997. It is anticipated that the decrease will result from the closing
of 250 stores offset by the addition of approximately 370 stores (over half of
which are Bath & Body Works stores averaging 2,300 square feet) and the
remodeling of approximately 125 stores.
Information Systems and "Year 2000" Compliance
The Company recently 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 during 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 $9 to $10 million per quarter.
The Company is attempting to contact vendors and others on whom it relies
to assure that their systems will be converted in a timely fashion. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely will also be converted in a timely fashion, 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.
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.
Adoption of New Accounting Standards
During the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share," which requires the Company to disclose basic and diluted earnings
per share for all periods presented.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." While the
standard has no impact in determining earnings and earnings per share, the
Company will adopt the disclosure standards in 1998.
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 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, 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.
10
<PAGE>
Consolidated Statements of Income
- --------------------------------------------------------------------------------
(Thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net Sales $9,188,804 $8,644,791 $7,881,437
..............................................................................................................................
Costs of Goods Sold, Occupancy and Buying Costs (6,370,827) (6,148,212) (5,793,905)
- ------------------------------------------------------------------------------------------------------------------------------
Gross Income 2,817,977 2,496,579 2,087,532
..............................................................................................................................
General, Administrative and Store Operating Expenses (2,124,663) (1,848,512) (1,475,497)
..............................................................................................................................
Special and Nonrecurring Items, Net (213,215) (12,000) 1,314
- ------------------------------------------------------------------------------------------------------------------------------
Operating Income 480,099 636,067 613,349
..............................................................................................................................
Interest Expense (68,728) (75,363) (77,537)
..............................................................................................................................
Other Income, Net 36,886 41,972 21,606
..............................................................................................................................
Minority Interest (56,473) (45,646) (22,374)
..............................................................................................................................
Gain in Connection with Initial Public Offerings 8,606 118,178 649,467
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 400,390 675,208 1,184,511
..............................................................................................................................
Provision for Income Taxes 183,000 241,000 223,000
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $217,390 $434,208 $961,511
- ------------------------------------------------------------------------------------------------------------------------------
Net Income Per Share:
..............................................................................................................................
Basic $.80 $1.55 $2.69
..............................................................................................................................
Diluted $.79 $1.54 $2.68
..............................................................................................................................
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
(Thousands)
<TABLE>
<CAPTION>
s COMMON STOCK Treasury Total
Shares Retained Stock, Shareholders'
Outstanding Par Value Paid-In Capital Earnings at Cost Equity
<S> <C> <C> <C> <C> <C> <C>
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
...................................................................................................................................
Net Income -- -- -- 217,390 -- 217,390
...................................................................................................................................
Cash Dividends -- -- -- (130,472) -- (130,472)
...................................................................................................................................
Exercise of Stock Options and Other 1,729 -- 5,158 -- 30,299 35,457
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998 272,800 $180,352 $148,018 $3,613,174 $(1,896,587) $2,044,957
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
++++++++++++
+financials+
++++++++++++
11
<PAGE>
financials
Consolidated Balance Sheets
- ---------------------------------------------------------------------------
(Thousands)
<TABLE>
<CAPTION>
January 31, 1998 February 1, 1997
ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
...........................................................................
Cash and Equivalents $746,395 $312,796
...........................................................................
Accounts Receivable 83,370 69,337
...........................................................................
Inventories 1,002,710 1,007,303
...........................................................................
Store Supplies 99,167 90,400
...........................................................................
Other 99,509 65,261
- ---------------------------------------------------------------------------
Total Current Assets 2,031,151 1,545,097
...........................................................................
Property and Equipment, Net 1,519,908 1,828,869
...........................................................................
Restricted Cash 351,600 351,600
...........................................................................
Deferred Income Taxes 56,586 --
...........................................................................
Other Assets 341,516 394,436
- ---------------------------------------------------------------------------
Total Assets $4,300,761 $4,120,002
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Current Liabilities:
...........................................................................
Accounts Payable $300,703 $307,841
...........................................................................
Accrued Expenses 676,715 481,744
...........................................................................
Income Taxes 115,994 117,308
- ---------------------------------------------------------------------------
Total Current Liabilities 1,093,412 906,893
...........................................................................
Long-Term Debt 650,000 650,000
...........................................................................
Deferred Income Taxes -- 169,932
...........................................................................
Other Long-Term Liabilities 58,720 51,659
...........................................................................
Minority Interest 102,072 67,336
...........................................................................
Contingent Stock Redemption Agreement 351,600 351,600
...........................................................................
Shareholders' Equity:
...........................................................................
Common Stock 180,352 180,352
...........................................................................
Paid-In Capital 148,018 142,860
...........................................................................
Retained Earnings 3,613,174 3,526,256
- ---------------------------------------------------------------------------
3,941,544 3,849,468
...........................................................................
Less: Treasury Stock, at Cost (1,896,587) (1,926,886)
- ---------------------------------------------------------------------------
Total Shareholders' Equity 2,044,957 1,922,582
- ---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $4,300,761 $4,120,002
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- ---------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------------------------------------------------------------
Net Income $217,390 $434,208 $961,511
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS
- ----------------------------------------------------------------------------------------------
Depreciation and Amortization 313,292 289,643 285,889
..............................................................................................
Special and Nonrecurring Items, Net 128,215 7,200 (1,314)
..............................................................................................
Minority Interest, Net of Dividends Paid 34,736 21,637 17,250
..............................................................................................
Gain in Connection with
Initial Public Offerings, Net (5,606) (118,178) (649,467)
CHANGE IN ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------
Accounts Receivable (14,033) 8,179 (104,121)
..............................................................................................
Inventories (5,407) (48,350) (70,813)
..............................................................................................
Accounts Payable and
Accrued Expenses 81,833 116,599 50,883
..............................................................................................
Income Taxes (145,832) (5,915) (132,560)
..............................................................................................
Other Assets and Liabilities (14,607) 7,046 (16,526)
- ----------------------------------------------------------------------------------------------
Net Cash Provided by
Operating Activities 589,981 712,069 340,732
INVESTING ACTIVITIES
- ----------------------------------------------------------------------------------------------
Capital Expenditures (404,602) (409,260) (374,374)
..............................................................................................
Proceeds from Sale of
Property and Related Interests 234,976 -- --
..............................................................................................
Net Proceeds from Partial
Sale of Interest in Investee 108,259 -- --
..............................................................................................
Businesses Acquired -- (41,255) (2,000)
..............................................................................................
Increase in Restricted Cash -- -- (351,600)
..............................................................................................
Proceeds from Credit Card Securitization -- -- 1,212,630
- ----------------------------------------------------------------------------------------------
Net Cash Provided by (Used
for) Investing Activities (61,367) (450,515) 484,656
FINANCING ACTIVITIES
- ----------------------------------------------------------------------------------------------
Net Repayments of Commercial
Paper Borrowings and
Certificates of Deposit -- -- (25,200)
..............................................................................................
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 (130,472) (108,302) (143,091)
..............................................................................................
Purchase of Treasury Stock -- (1,615,000) (55,239)
..............................................................................................
Stock Options and Other 35,457 10,635 12,504
- ----------------------------------------------------------------------------------------------
Net Cash Provided by
(Used for) Financing Activities (95,015) (1,594,489) 577,563
- ----------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Cash and Equivalents 433,599 (1,332,935) 1,402,951
..............................................................................................
Cash and Equivalents,
Beginning of Year 312,796 1,645,731 242,780
- ----------------------------------------------------------------------------------------------
Cash and Equivalents,
End of Year $746,395 $312,796 $1,645,731
</TABLE>
Noncash investing activities included $2.2 million in 1997 and $16 million in
1995 for stock issued in connection with the acquisition of Galyan's.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
12
<PAGE>
FINANCIALS
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 that 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) where the Company
has the ability to significantly influence operating and financial policies 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 1997 and 1996
represent the fifty-two-week periods ended January 31, 1998, and February 1,
1997. 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 that
extend service lives are capitalized. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. Factors used in the valuation include, but are
not limited to, management's plans for future operations, brand initiatives,
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 $275 million, $242 million
and $237 million in 1997, 1996 and 1995.
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") No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Under this method, deferred tax assets
and liabilities are recognized based on the difference between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect in the years in which those temporary differences
are expected to reverse. Under SFAS No. 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 272.8 million shares and 271.1 million shares were outstanding, net of
106.7 million shares and 108.4 million shares held in treasury at January 31,
1998, and February 1, 1997. 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
("WFN") credit card receivables; and 3) the sale of a 60% interest in WFN.
Revenue Recognition
Sales are recorded upon purchase by customers. A reserve is provided equal to
the gross profit on projected catalogue merchandise returns, based on prior
experience.
Earnings Per Share
Net income per share is computed in accordance with SFAS No. 128, "Earnings Per
Share," which the Company adopted in the fourth quarter of 1997. Earnings per
basic share are computed based on the weighted average number of outstanding
common shares. Earnings per diluted share include the weighted average effect of
dilutive options and restricted stock.
13
<PAGE>
financials
- --------------------------------------------------------------------
(Thousands)
1997 1996 1995
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
- --------------------------------------------------------------------
Common Shares Issued 379,454 379,454 379,454
....................................................................
Treasury Shares (107,556) (98,755) (21,862)
- --------------------------------------------------------------------
Basic Shares 271,898 280,699 357,592
....................................................................
Dilutive Effect of Options
and Restricted Shares 2,585 1,354 779
- --------------------------------------------------------------------
Diluted Shares 274,483 282,053 358,371
- --------------------------------------------------------------------
Options to purchase .7 million, 5.9 million and 7.9 million shares of
common stock were outstanding at year-end 1997, 1996 and 1995, but were not
included in the computation of earnings per diluted share because the options'
exercise price was greater than the average market price of the common shares.
Exercise of the 18.75 million shares subject to the Contingent Stock Redemption
Agreement (see Notes 6 and 10) was determined not to dilute earnings per share.
Subsequent to January 31, 1998, the Company announced an exchange offer for
Abercrombie & Fitch Co. ("A&F") shares that, if consummated, would result in a
substantial decrease in total common shares outstanding (see Note 14).
Gains in Connection With Initial Public Offerings
Gains in connection with initial public offerings are recognized in the
current year's income. During the first quarter of 1997, the Company recognized
a pretax gain of $8.6 million in connection with the initial public offering
("IPO") of Brylane, Inc. ("Brylane"), a 26% owned (post-IPO) catalogue retailer.
In 1996, the Company recognized a $118.2 million gain in connection with the IPO
of a 15.8% interest (8.05 million shares) of A&F. In 1995, the Company
recognized a $649.5 million gain in connection with the IPO 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 and Gryphon businesses. The IPO
gains recorded by the Company in 1996 and 1995 were not subject to income tax.
Minority interest of $102.1 million at January 31, 1998, represents a 16.9%
interest in the net equity of IBI and a 15.8% interest in the net equity of A&F.
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.
Reclassifications
Certain amounts on previously reported financial statement captions have been
reclassified to conform with current year presentation.
2. Special and Nonrecurring Items
As a result of an ongoing review of the Company's retail businesses and
investments as well as implementation of initiatives intended to promote and
strengthen the Company's various retail brands (including closing businesses,
identification and disposal of non-core assets and identification of store
locations not consistent with a particular brand), the Company recognized
special and nonrecurring charges of $276 million during the fourth quarter of
1997 comprised of: 1) a $68 million charge for the closing of the 118 store
Cacique lingerie business effective January 31, 1998. The amount includes
noncash charges of $30 million comprised principally of write-offs and
liquidations of store assets and accruals of $38 million related to
cancellations of merchandise on order and other exit costs such as severance,
service contract termination fees and lease termination costs. Other than
contractual obligations of $5 million, the accrued costs are expected to be paid
in fiscal year 1998; 2) an $82 million charge related to streamlining the Henri
Bendel business from six stores to one store by September 1, 1998. The amount
includes $26 million of noncash charges related primarily to write-offs of store
assets, and accruals of $56 million related primarily to contract cancellations
and lease termination costs. Other than contractual obligations of $18 million,
the accrued costs are expected to be paid in 1998. Termination costs related to
Henri Bendel closings will be recognized in first quarter 1998 when the
associates are notified; 3) $86 million of impaired asset charges, related
principally to the women's businesses, covering certain store locations where
the carrying values are permanently impaired; and 4) a $28 million provision for
closing and downsizing approximately 80 oversized stores, primarily within the
Limited, Lerner New York, Lane Bryant and Express women's businesses and a $12
million write-down to net realizable value of a real estate investment
previously acquired in connection with closing and downsizing certain stores.
The $28 million charge includes $13 million of noncash charges related to
write-offs of store assets and accruals of $15 million related to lease
termination costs. Other than contractual obligations of $7 million, the accrued
costs are expected to be paid within 18 months. Additionally, the Company
recognized a $13 million cost of sales charge in the fourth quarter for
inventory liquidation at Henri Bendel. The after-tax cash impact of these
charges is estimated to be approximately $30 million. The Company will recognize
charges for severance and other associate termination costs for Henri Bendel in
the first quarter of 1998 (at the time the associates are notified).
Additionally, the Company recognized a $75.3 million pretax gain during the
third quarter of 1997 in connection with the sale of 2.4 million shares of
Brylane, which is carried on the equity method, for $46 per share generating
cash proceeds of $108 million. This sale represented approximately one-half of
its investment in Brylane. This gain was partially offset by valuation adjust-
ments of $12.5 million on certain assets where the carrying values were
permanently impaired. On February 20, 1998, the Company entered into an
agreement with Pinault Printemps-Radoute to sell its remaining 2.6 million
shares of Brylane for $51 per share, or cash proceeds of $131 million. The
transaction is expected to close in April 1998.
The $86 million impaired asset charge was in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." As a result of
14
<PAGE>
the Company's strategic review process, including the implementation of brand
initiatives within individual businesses, updated analyses were prepared to
determine if there was impairment of any long-lived assets. The revised carrying
values of these assets were calculated on the basis of discounted cash flows.
The impaired asset charge had no impact on the Company's 1997 or future cash
flows. As a result of this charge, depreciation and amortization expense related
to these assets will decrease in future periods.
In 1996, the Company recorded a $12 million pretax, special and nonrecurring
charge in connection with the April 1997 sale of Penhaligon's, a U.K.-based
subsidiary of IBI.
In the fourth quarter of 1995, the Company recognized a $73.2 million pretax
gain from the sale of a 60% interest in the Company's wholly-owned credit card
bank, WFN. Along with the sale of the 60% interest in WFN, 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 and Lerner New York. 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
pretax gain from these special and nonrecurring items was $1.3 million.
3. Accounts Receivable
As discussed in Note 2, the sale of a 60% interest in WFN was completed in the
fourth quarter of 1995, and WFN's outstanding debt to the Company of
approximately $1.2 billion was repaid. Finance charge revenue on the deferred
payment accounts amounted to $235.6 million in 1995 and the provision for
uncollectible accounts amounted to $91.4 million in 1995. 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 for that year.
4. Property and Equipment
- --------------------------------------------------------------------------------
(Thousands)
1997 1996
PROPERTY AND EQUIPMENT, AT COST
------------------------------------------------------------------------------
Land, Buildings and Improvements $394,885 $530,259
..............................................................................
Furniture, Fixtures and Equipment 1,951,172 1,929,951
..............................................................................
Leaseholds and Improvements 539,047 641,200
..............................................................................
Construction in Progress 219,508 188,834
------------------------------------------------------------------------------
Total 3,104,612 3,290,244
..............................................................................
Less: Accumulated Depreciation
and Amortization 1,584,704 1,461,375
------------------------------------------------------------------------------
Property and Equipment, Net $1,519,908 $1,828,869
- --------------------------------------------------------------------------------
5. Leased Facilities and Commitments
Annual store rent is comprised of a fixed minimum amount, plus contingent rent
based on a percentage of sales exceeding a stipulated amount. Store lease terms
generally require additional payments covering taxes, common area costs and
certain other expenses.
- --------------------------------------------------------------------------------
(Thousands)
1997 1996 1995
RENT EXPENSE
------------------------------------------------------------------------------
Fixed Minimum $721,283 $689,319 $643,200
..............................................................................
Contingent 26,630 23,117 18,812
------------------------------------------------------------------------------
Total Store Rent 747,913 712,436 662,012
..............................................................................
Equipment and Other 23,492 25,163 26,101
------------------------------------------------------------------------------
Total Rent Expense $771,405 $737,599 $688,113
- --------------------------------------------------------------------------------
At January 31, 1998, the Company was committed to noncancelable leases with
remaining terms generally from one to twenty 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.
- --------------------------------------------------------------------------------
(Thousands)
MINIMUM RENT COMMITMENTS UNDER NONCANCELABLE LEASES
------------------------------------------------------------------------------
1998 $731,233
..............................................................................
1999 712,804
..............................................................................
2000 688,317
..............................................................................
2001 645,229
..............................................................................
2002 595,377
..............................................................................
Thereafter $2,062,453
- --------------------------------------------------------------------------------
6. Restricted Cash
At January 31, 1998, 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 10). Interest earnings of $18.6 million and $17.9 million in 1997 and 1996
on the segregated cash accrued to the Company.
7. Accrued Expenses
- --------------------------------------------------------------------------------
(Thousands)
1997 1996
ACCRUED EXPENSES
------------------------------------------------------------------------------
Compensation, Payroll Taxes and Benefits $135,701 $100,526
..............................................................................
Rent 152,850 123,421
..............................................................................
Taxes, Other than Income 42,321 47,297
..............................................................................
Interest 21,129 21,510
..............................................................................
Store Closings 86,803 3,509
..............................................................................
Other 237,911 185,481
------------------------------------------------------------------------------
Total $676,715 $481,744
- --------------------------------------------------------------------------------
15
<PAGE>
financials
8. Long-Term Debt
- --------------------------------------------------------------------------------
(Thousands)
1997 1996
UNSECURED LONG-TERM DEBT
------------------------------------------------------------------------------
8 7/8% Notes due August 1999 $100,000 $100,000
..............................................................................
9 1/8% Notes due February 2001 150,000 150,000
..............................................................................
7 4/5% Notes due May 2002 150,000 150,000
..............................................................................
7 1/2% Debentures due March 2023 250,000 250,000
------------------------------------------------------------------------------
Total $650,000 $650,000
- --------------------------------------------------------------------------------
The Company maintains a $1 billion unsecured credit agreement (the "Agreement"),
established on September 29, 1997 (the "Effective Date"). 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, subject to
the approval of the lending banks. The Agreement has several borrowing options,
including interest rates that 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% 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 January 31,
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 January 31, 1998.
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 January 31, 1998, 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, $150 million which matures February 1, 2001, and
$150 million which matures May 15, 2002. Interest paid approximated $69.1
million, $65.5 million and $88.4 million in 1997, 1996 and 1995.
9. Income Taxes
- --------------------------------------------------------------------------------
(Thousands)
1997 1996 1995
PROVISION FOR INCOME TAXES
------------------------------------------------------------------------------
Currently Payable:
..............................................................................
Federal $304,300 $210,400 $190,900
..............................................................................
State 33,800 34,000 24,700
..............................................................................
Foreign 3,700 2,400 4,500
..............................................................................
Total 341,800 246,800 220,100
..............................................................................
Deferred:
..............................................................................
Federal (156,600) (13,800) (9,400)
..............................................................................
State (2,200) 8,000 12,300
..............................................................................
Total (158,800) (5,800) 2,900
------------------------------------------------------------------------------
Total Provision $183,000 $241,000 $223,000
- --------------------------------------------------------------------------------
The foreign component of pretax income, arising principally from overseas
sourcing operations, was $62.3 million, $45.9 million and $60.8 million in 1997,
1996 and 1995.
- --------------------------------------------------------------------------------
1997 1996 1995
STATUTORY FEDERAL INCOME TAX RATE RECONCILIATION
------------------------------------------------------------------------------
Federal Income Tax Rate 35.0% 35.0% 35.0%
..............................................................................
State Income Tax, Net of
Federal Income Tax Effect 4.5% 4.5% 4.5%
..............................................................................
Other Items, Net .6% .5% .7%
------------------------------------------------------------------------------
Total 40.1% 40.0% 40.2%
- --------------------------------------------------------------------------------
The reconciliation between the statutory Federal income tax rate and the
effective income tax rate on pretax earnings excludes the nontaxable gains from
sales of subsidiary stock in 1996 and 1995 and minority interest.
- --------------------------------------------------------------------------------
(Thousands)
1997 1996
Assets Liabilities Total Assets Liabilities Total
DEFERRED INCOME TAXES
------------------------------------------------------------------------------
Excess of Tax
Over Book
Depreciation - $(1,400) $(1,400) - $(20,000) $(20,000)
..............................................................................
Undistributed
Earnings
of Foreign
Affiliates - (102,400) (102,400) - (116,600) (116,600)
..............................................................................
Special and
Nonrecurring
Items $99,200 - 99,200 $24,100 - 24,100
..............................................................................
Rent 62,100 - 62,100 - (17,500) (17,500)
..............................................................................
Inventory 43,700 - 43,700 40,000 - 40,000
..............................................................................
Investments
in Affiliates - (24,900) (24,900) - (54,000) (54,000)
..............................................................................
State Income
Taxes 24,900 - 24,900 9,600 - 9,600
..............................................................................
Other 18,500 - 18,500 - (35,300) (35,300)
------------------------------------------------------------------------------
Total
Deferred
Income
Taxes $248,400 $(128,700) $119,700 $73,700 $(243,400) $(169,700)
- --------------------------------------------------------------------------------
16
<PAGE>
financials
Income taxes payable included net current deferred tax assets of $63.1
million and $.3 million at January 31, 1998 and February 1, 1997.
Income tax payments approximated $410.8 million, $233.8 million and $306.1
million for 1997, 1996 and 1995.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for the years 1992 to 1994 relating 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 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.
10. 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.
11. Stock Options and Restricted Stock
Under the Company's stock plans, associates may be granted up to a total of 17.3
million restricted shares and options to purchase the Company's common stock at
the market price on the date of grant. In 1997, the Company granted
approximately 5.6 million options with a graduated vesting schedule over six
years. The remaining options generally vest 25% per year over the first four
years of the grant. Virtually all options have a maximum term of ten years.
Under separate stock plans, up to 17.5 million IBI shares and 3.5 million A&F
shares are available to grant restricted shares and options to IBI and A&F
associates. As of January 31, 1998, options to purchase 4.3 million IBI shares
and 1.9 million A&F shares were outstanding, of which 418,000 IBI options and
35,000 A&F options were exercisable. Under these plans, options generally vest
over periods from four to six years.
The Company adopted the disclosure requirements of SFAS No. 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
since 1995, consistent with the methodology in SFAS No. 123, the pro forma
effects on net income and earnings per diluted share, including the impact of
options issued by IBI and A&F, would have been a reduction of approximately
$11.4 million or $.04 per share in 1997 and $4.0 million or $.01 per share in
1996. The weighted-average per share fair value of options granted ($5.79, $4.72
and $5.48 during 1997, 1996 and 1995) was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for 1997,
1996 and 1995: dividend yields of 2.8%; volatility of 27%, 31% and 31%; risk-
free interest rates of 6%, 5.25% and 7%; assumed forfeiture rates of 15%, 20%
and 20%; and expected lives of 6.5 years, 5 years and 5 years. The pro forma
effect on net income for 1997 and 1996 is not representative of the pro forma
effect on net income in future years because it does not take into consideration
pro forma compensation expense related to grants made prior to 1995.
Approximately 2,120,000, 468,000 and 569,000 restricted Limited shares were
granted in 1997, 1996 and 1995, with market values at date of grant of $43.9
million, $8.3 million and $10.0 million. Included in the 1997 grants were 1.7
million restricted shares, of which 685,000 had performance requirements, with a
graduated vesting schedule over six years. The remaining restricted shares
generally vest either on a graduated scale over four years or 100% at the end of
a fixed vesting period, principally five years. Additionally, IBI granted
1,442,000, 169,000 and 357,000 restricted shares in 1997, 1996 and 1995 and A&F
granted 540,000 and 50,000 restricted shares in 1997 and 1996. Vesting terms for
the IBI and A&F restricted shares are similar to those of The Limited. The
market value of restricted shares, subject to adjustment at measurement date for
the performance awards, is being amortized as compensation expense over the
vesting period, generally four to six years. Compensation expense related to
restricted stock awards, including expense related to awards granted at IBI and
A&F, amounted to $29.0 million in 1997 and $9.1 million in both 1996 and 1995.
- --------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercisable
Prices at 1/31/98 Life Price at 1/31/98 Price
$15-$16 1,350,000 6.1 $16 618,000 $16
..............................................................................
$17-$18 2,827,000 7.3 $17 1,227,000 $17
..............................................................................
$19-$21 5,658,000 7.9 $20 1,651,000 $21
..............................................................................
$22-$27 2,646,000 7.9 $23 773,000 $24
..............................................................................
$9-$31 1,589,000 7.5 $20 638,000 $20
------------------------------------------------------------------------------
$9-$31 14,070,000 7.5 $20 4,907,000 $20
- --------------------------------------------------------------------------------
17
<PAGE>
financials
- -----------------------------------------------------------------------
Weighted Average
Number of Option Price
Shares Per Share
STOCK OPTION ACTIVITY
- -----------------------------------------------------------------------
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 $19.62
- -----------------------------------------------------------------------
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 $20.24
- -----------------------------------------------------------------------
1997
.......................................................................
Outstanding at Beginning of Year 9,199,000 $19.14
.......................................................................
Granted 7,331,000 20.02
.......................................................................
Exercised (1,377,000) 17.70
.......................................................................
Canceled (1,083,000) 19.64
- -----------------------------------------------------------------------
Outstanding at End of Year 14,070,000 $19.70
- -----------------------------------------------------------------------
Options Exercisable at Year-End 4,907,000 $19.89
- -----------------------------------------------------------------------
12. Retirement Benefits
The Company sponsors a qualified defined contribution retirement plan and a
nonqualified supplemental retirement plan. Participation in the qualified 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.
Participation in the nonqualified plan is subject to service and compensation
requirements. Company contributions to these plans are based on a percentage of
associates' eligible annual compensation. The cost of these plans was $36.4
million in 1997, $36.2 million in 1996 and $33.3 million in 1995.
13. 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.
- ----------------------------------------------------------------------
(Thousands)
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
ESTIMATED FAIR VALUES OF
FINANCIAL INSTRUMENTS
- ----------------------------------------------------------------------
Long-Term Debt $(650,000) $(667,391) $(650,000) $(638,798)
......................................................................
Interest Rate Swaps $(328) $(5,345) $(351) $(5,267)
- ----------------------------------------------------------------------
14. Subsequent Event--Registration Statement for A&F Exchange Offer
On February 17, 1998, a registration statement was filed with the Securities and
Exchange Commission in connection with a plan to establish A&F as a fully
independent company via a tax-free exchange offer pursuant to which The Limited
shareholders will be given an opportunity to tender some or all of their shares
of The Limited in return for shares of A&F. The transaction is subject to
certain customary conditions.
15. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
(Thousands except per share amounts):
First Second Third Fourth
1997 QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Net Sales $1,829,780 $2,020,084 $2,070,559 $3,268,381
................................................................................
Gross Income 501,471 538,907 620,982 1,156,617
................................................................................
Net Income 24,873 27,574 79,682 85,261
................................................................................
Net Income Per Basic Share .09 .10 .29 .31
................................................................................
Net Income Per Diluted Share A.09 .10 A.29 A.31
1996 QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
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 Basic Share .09 .12 .59 .79
................................................................................
Net Income Per Diluted Share .09 .12 A.59 A.78
A Gains in connection with initial public offerings included an $8.6 million
($.02 per diluted share) pretax gain in the first quarter of 1997 in
connection with the Company's ownership portion of Brylane a 26% owned
(post-IPO) catalogue retailer and a $118.2 million ($.44 per diluted share)
gain in the third quarter of 1996 in connection with the IPO of a 15.8%
interest of A&F (see Note 1). Special charges included $276 million ($.57
per diluted share) in special and nonrecurring items and an additional $13
million ($.03 per diluted share) in inventory liquidation charges during
the fourth quarter of 1997, a net $62.8 million ($.14 per diluted share)
pretax gain during the third quarter of 1997 relating to the sale of
approximately one-half of the Company's investment in Brylane, and $12
million ($.02 per diluted share) in special and nonrecurring charges during
the fourth quarter of 1996 in connection with the sale of the Penhaligon's
business (see Note 2).
- --------------------------------------------------------------------------------
18
<PAGE>
financials
Market Price and Dividend Information
- --------------------------------------------------------------------------------
Market Price Cash Dividend
High Low Per Share
FISCAL YEAR END 1997
- ----------------------------------------------------------------------------
4th Quarter $27 1/4 $23 9/16 $.12
............................................................................
3rd Quarter 25 1/2 21 3/8 .12
............................................................................
2nd Quarter 22 5/16 18 5/8 .12
............................................................................
1st Quarter $20 1/8 $17 $.12
FISCAL YEAR END 1996
- ----------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange ("LTD") and
the London Stock Exchange. On January 31, 1998, there were 81,534 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 to be
approximately 241,000.
19
<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 Service Corporation (t) Delaware
Intimate Brands, Inc. (u) Delaware
Abercrombie & Fitch Stores, Inc. (v) 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 January 31, 1998.
(b) Express, Inc. is a wholly-owned subsidiary of Womanco, Inc., 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 Womanco, Inc., a Delaware
corporation and a wholly-owned subsidiary of the registrant.
(e) The Limited Stores, Inc. is a wholly-owned subsidiary of Womanco, Inc., a
Delaware corporation and a wholly-owned subsidiary of the registrant.
(f) Henri Bendel, Inc. is a wholly-owned subsidiary of Womanco, Inc., a
Delaware corporation and a wholly-owned subsidiary of the registrant.
(g) Structure, Inc. is a wholly-owned subsidiary of the registrant.
(h) Limited Too, Inc. is a wholly-owned subsidiary of the registrant.
(i) Galyan's Trading Company, Inc. is a wholly-owned subsidiary of the
registrant.
<PAGE>
(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 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 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>
EXHIBIT 23
----------
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
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 and on Form S-4, Registration No. 333-46423 of our report dated
February 20, 1998, on our audits of the consolidated financial statements of the
Limited, Inc. and Subsidiaries as of January 31, 1998, and February 1, 1997, and
for the fiscal years ended January 31, 1998, February 1, 1997, and February 3,
1996, and the financial statement schedule of the Limited, Inc. and Subsidiaries
for the fiscal year 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 28, 1998
<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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/s/ ABIGAIL S. WEXNER
---------------------
Abigail S. 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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/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 1997 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 30th day of January, 1998.
/s/ RAYMOND ZIMMERMAN
---------------------
Raymond Zimmerman
<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 1997 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 30th day of January, 1998.
/s/ V. ANN HAILEY
-----------------
V. Ann Hailey
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE LIMITED, INC. AND SUBSIDIARIES FOR THE YEAR ENDED
JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 746,395
<SECURITIES> 0
<RECEIVABLES> 83,370
<ALLOWANCES> 0
<INVENTORY> 1,002,710
<CURRENT-ASSETS> 2,031,151
<PP&E> 3,104,612
<DEPRECIATION> 1,584,704
<TOTAL-ASSETS> 4,300,761
<CURRENT-LIABILITIES> 1,093,412
<BONDS> 650,000
0
0
<COMMON> 180,352
<OTHER-SE> 1,864,605
<TOTAL-LIABILITY-AND-EQUITY> 4,300,761
<SALES> 9,188,804
<TOTAL-REVENUES> 9,188,804
<CGS> 6,370,827
<TOTAL-COSTS> 6,370,827
<OTHER-EXPENSES> 2,124,663
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,728
<INCOME-PRETAX> 400,390
<INCOME-TAX> 183,000
<INCOME-CONTINUING> 217,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217,390
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.79
</TABLE>
<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> 1.55
<EPS-DILUTED> 1.54
</TABLE>
<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 3, 1996 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-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 1,645,731
<SECURITIES> 0
<RECEIVABLES> 77,516
<ALLOWANCES> 0
<INVENTORY> 958,953
<CURRENT-ASSETS> 2,800,032
<PP&E> 3,018,757
<DEPRECIATION> 1,277,301
<TOTAL-ASSETS> 5,266,563
<CURRENT-LIABILITIES> 716,575
<BONDS> 650,000
0
0
<COMMON> 180,352
<OTHER-SE> 3,020,689
<TOTAL-LIABILITY-AND-EQUITY> 5,266,563
<SALES> 7,881,437
<TOTAL-REVENUES> 7,881,437
<CGS> 5,793,905
<TOTAL-COSTS> 5,793,905
<OTHER-EXPENSES> 1,475,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,537
<INCOME-PRETAX> 1,184,511
<INCOME-TAX> 223,000
<INCOME-CONTINUING> 961,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 961,511
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.68
</TABLE>
<PAGE>
Exhibit 99
----------
Ary, Earman and Roepcke
Certified Public Accountants
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, 1997 and 1996, and the related statements of changes in net assets
available for benefits for each of the three years in the period ended December
31, 1997. 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
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 net assets available for benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 24, 1998.
2929 Kenny Road, Suite 280, Columbus, Ohio 43221
(614) 459-3868 FAX (614) 459-0219
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
ASSETS TOTAL Stock Fund Income Fund Fund Fund Fund
- ------ ------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $30,208,630) $ 68,513,782 $68,513,782 $ - $ - $ - $ -
Intimate Brands, Inc.
(Cost $2,541,834) 3,027,342 - - - - -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $88,164,291) 88,164,291 - 88,164,291 - - -
Vanguard Index Trust - 500
Portfolio (Cost $49,301,042) 75,764,074 - - 75,764,074 - -
Vanguard U.S. Growth Portfolio
(Cost $46,374,763) 62,996,962 - - - 62,996,962 -
Vanguard Wellington Fund
(Cost $17,415,133) 19,115,007 - - - - 19,115,007
Temporary Investments (Cost
Approximates Fair Value) 308 241 - - - -
------------ ----------- ----------- ----------- ----------- -----------
Total Investments 317,581,766 68,514,023 88,164,291 75,764,074 62,996,962 19,115,007
Contribution Receivable from Employers 22,644,974 1,372,671 10,275,136 4,632,422 3,993,277 1,928,218
Receivable from Employers for Withheld
Participants' Contributions 1,395,711 91,947 391,319 391,168 333,773 156,157
Due from Brokers 1,655,464 1,543,543 - - - -
Interfund Transfers - 858,585 (35,679) 3,698 (2,722) (828,447)
Cash 417,865 - 368,110 49,755 - -
Accrued Interest and Dividends 4,297 693 1,410 1,086 769 166
Other 2,470 - 2,470 - - -
------------ ----------- ----------- ----------- ----------- -----------
Total Assets 343,702,547 72,381,462 99,167,057 80,842,203 67,322,059 20,371,101
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
- -----------
Cash Overdraft 418,897 - - - 36,843 382,054
Administrative Fees Payable 218,952 85,121 - - 127,701 5,551
------------ ----------- ----------- ----------- ----------- -----------
Total Liabilities 637,849 85,121 - - 164,544 387,605
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $343,064,698 $72,296,341 $99,167,057 $80,842,203 $67,157,515 $19,983,496
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
ASSETS Stock Fund
- ------ -----------
<S> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $30,208,630) $ -
Intimate Brands, Inc.
(Cost $2,541,834) 3,027,342
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $88,164,291) -
Vanguard Index Trust - 500
Portfolio (Cost $49,301,042) -
Vanguard U.S. Growth Portfolio
(Cost $46,374,763) -
Vanguard Wellington Fund
(Cost $17,415,133) -
Temporary Investments (Cost
Approximates Fair Value) 67
-----------
Total Investments 3,027,409
Contribution Receivable from Employers 443,250
Receivable from Employers for Withheld
Participants' Contributions 31,347
Due from Brokers 111,921
Interfund Transfers 4,565
Cash -
Accrued Interest and Dividends 173
Other -
-----------
Total Assets 3,618,665
-----------
LIABILITIES
- -----------
Cash Overdraft -
Administrative Fees Payable 579
-----------
Total Liabilities 579
-----------
NET ASSETS AVAILABLE FOR BENEFITS $ 3,618,086
===========
</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, 1996
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
ASSETS TOTAL Stock Fund Income Fund Fund Fund Fund
- ------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <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 - - - 46,268,660 -
Vanguard Wellington Fund
(Cost $9,986,245) 10,453,023 - - - - 10,453,023
Temporary Investments (Cost
Approximates Fair Value) 30,946 873 18,039 5,684 3,824 329
------------ ----------- ----------- ----------- ----------- -----------
Total Investments 254,080,299 60,825,578 82,407,552 53,142,668 46,272,484 10,453,352
Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265 4,396,598 1,667,242
Receivable from Employers for Withheld
Participants' Contributions 1,183,352 118,433 391,432 298,971 255,519 108,647
Due from Brokers 311,530 311,530 - - - -
Interfund Transfers - 4,686 (12,473) 12,645 (4,213) (2,507)
Accrued Interest and Dividends 4,553 1,089 1,772 847 682 131
------------ ----------- ----------- ----------- ----------- -----------
Total Assets 276,283,800 63,409,086 89,978,656 58,591,396 50,921,070 12,226,865
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers 122,686 - - - - -
Administrative Fees Payable 278,885 114,176 29,286 15,828 109,033 10,562
------------ ----------- ----------- ----------- ----------- -----------
Total Liabilities 401,571 114,176 29,286 15,828 109,033 10,562
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568 $50,812,037 $12,216,303
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
ASSETS Stock Fund
- ------ -----------
<S> <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) -
Vanguard Wellington Fund
(Cost $9,986,245) -
Temporary Investments (Cost
Approximates Fair Value) 2,197
-----------
Total Investments 978,665
Contribution Receivable from Employers 165,818
Receivable from Employers for Withheld
Participants' Contributions 10,350
Due from Brokers -
Interfund Transfers 1,862
Accrued Interest and Dividends 32
-----------
Total Assets 1,156,727
-----------
LIABILITIES
- -----------
Due to Brokers 122,686
Administrative Fees Payable -
-----------
Total Liabilities 122,686
-----------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,034,041
===========
</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, 1997
------------------------------------
<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 in Net Unrealized
Appreciation $ 32,720,107 $11,589,154 $ - $12,275,975 $ 7,075,741 $ 1,233,096
Realized Gain on Sale of Securities 17,867,974 8,862,376 - 5,135,799 3,381,580 398,590
Interest 5,334,197 10,449 5,286,565 18,262 14,531 2,544
Dividends 1,474,398 1,422,393 - - - -
Mutual Funds' Earnings 5,548,382 - - 1,569,334 2,443,033 1,536,015
------------ ----------- ----------- ----------- ----------- -----------
Total Investment Income 62,945,058 21,884,372 5,286,565 18,999,370 12,914,885 3,170,245
------------ ----------- ----------- ----------- ----------- -----------
Contributions:
Employers 32,697,039 1,963,696 15,507,190 6,371,651 5,370,568 2,879,631
Participants 18,024,880 1,322,245 5,226,156 4,897,686 4,290,800 1,963,375
------------ ----------- ----------- ----------- ----------- -----------
Total Contributions 50,721,919 3,285,941 20,733,346 11,269,337 9,661,368 4,843,006
------------ ----------- ----------- ----------- ----------- -----------
Interfund Transfers - (6,914,328) (1,840,989) 3,344,531 2,288,479 1,827,162
------------ ----------- ----------- ----------- ----------- -----------
Administrative Expense (892,874) (204,971) (261,763) (203,185) (174,289) (42,505)
------------ ----------- ----------- ----------- ----------- -----------
Benefits to Participants (45,591,634) (9,049,583) (14,699,472) (11,143,418) (8,344,965) (2,030,715)
------------ ----------- ----------- ----------- ----------- -----------
Increase in Net Assets Available
for Benefits 67,182,469 9,001,431 9,217,687 22,266,635 16,345,478 7,767,193
Beginning Net Assets Available
for Benefits 275,882,229 63,294,910 89,949,370 58,575,568 50,812,037 12,216,303
------------ ----------- ----------- ----------- ----------- -----------
Ending Net Assets Available
for Benefits $343,064,698 $72,296,341 $99,167,057 $80,842,203 $67,157,515 $19,983,496
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
Stock Fund
------------
<S> <C>
Investment Income:
Increase in Net Unrealized
Appreciation $ 546,141
Realized Gain on Sale of Securities 89,629
Interest 1,846
Dividends 52,005
Mutual Funds' Earnings -
-----------
Total Investment Income 689,621
-----------
Contributions:
Employers 604,303
Participants 324,618
-----------
Total Contributions 928,921
-----------
Interfund Transfers 1,295,145
-----------
Administrative Expense (6,161)
-----------
Benefits to Participants (323,481)
-----------
Increase in Net Assets Available
for Benefits 2,584,045
Beginning Net Assets Available
for Benefits 1,034,041
-----------
Ending Net Assets Available
for Benefits $ 3,618,086
===========
</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, 1996
------------------------------------
<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 $ 2,868,839 $(6,465,140) $ - $ 5,621,065 $ 3,428,551 $ 344,996
Realized Gain (Loss) on Sale
of Securities 17,166,139 12,343,083 - 2,732,990 2,001,323 90,165
Interest 4,977,925 17,980 4,888,501 6,109 4,933 60,295
Dividends 1,400,891 1,395,032 - - - -
Mutual Funds' Earnings 5,229,593 - - 1,139,142 3,420,290 670,161
------------ ----------- ----------- --------- --------- -----------
Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306 8,855,097 1,165,617
------------ ----------- ----------- ----------- ----------- -----------
Contributions:
Employers 30,145,525 3,087,453 10,664,673 7,443,415 6,287,166 2,489,055
Participants 16,172,183 1,802,993 5,382,468 4,063,595 3,449,162 1,412,169
------------ ----------- ----------- ----------- ----------- -----------
Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010 9,736,328 3,901,224
------------ ----------- ----------- ----------- ----------- -----------
Interfund Transfers - (13,040,074) (3,485,681) 5,016,481 6,476,961 4,164,295
------------ ----------- ----------- ----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351) (2,040,825) (204,747)
------------ ----------- ----------- ----------- ----------- -----------
Administrative Expense (935,202) (258,452) (320,918) (125,949) (207,292) (22,591)
------------ ----------- ----------- ----------- ----------- -----------
Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433) (4,315,844) (585,243)
------------ ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064 18,504,425 8,418,555
Beginning Net Assets Available for
Benefits 238,509,271 72,562,446 88,526,961 41,314,504 32,307,612 3,797,748
------------ ----------- ----------- ----------- ----------- -----------
Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568 $50,812,037 $12,216,303
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
Stock Fund
------------
<S> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ (60,633)
Realized Gain (Loss) on Sale
of Securities (1,422)
Interest 107
Dividends 5,859
Mutual Funds' Earnings -
-----------
Total Investment Income (Loss) (56,089)
-----------
Contributions:
Employers 173,763
Participants 61,796
-----------
Total Contributions 235,559
-----------
Interfund Transfers 868,018
-----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan -
-----------
Administrative Expense -
-----------
Benefits to Participants (13,447)
-----------
Increase (Decrease) in Net Assets
Available for Benefits 1,034,041
Beginning Net Assets Available for
Benefits -
-----------
Ending Net Assets Available for Benefits $ 1,034,041
===========
</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, 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 $ 3,582,066 $ (9,559,767) $ - $ 7,535,683 $ 5,484,368 $ 121,782
Realized Gain on Sale of Securities 7,412,552 5,426,833 - 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-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 employment 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, 1997, there were 31,412 participants in the
Plan.
Effective January 1, 1997, the Plan allows for the associates of Galyans
Trading Company, Inc. who have met the eligibility requirements of the
Plan to participate in the Plan for purposes of electing voluntary
tax-deferred contributions only and will not be eligible to receive
allocations of Employers' contributions as noted below.
Effective October 1, 1997, the Plan's enrollment dates were changed from
quarterly to monthly.
On January 31, 1996, The Limited, Inc. sold 60% of its interest in World
Financial Network National Bank and transferred the assets and
liabilities allocated to the employees of World Financial Network
National Bank and its affiliates to the World Financial Network
National Bank Savings and Retirement Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA) as amended.
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, 1997, was
$160,000.
The Employers may provide a matching contribution of 100% of the
participant's voluntary contributions up to 3% of the participant's
total annual compensation.
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, 1997). This voluntary tax-deferred
contribution may be limited by Section 401(k) of the Internal Revenue
Code.
F-6
<PAGE>
Vesting
-------
A participant is fully and immediately vested for voluntary and rollover
contributions and is credited with a year of vesting service in the
Employers' contributions for each Plan year that they are credited
with at least 500 hours of service. A summary of vesting percentages
in the Employers' contributions follows:
<TABLE>
<CAPTION>
Years of Vested Service Percentage
-------------------------- -----------
<S> <C>
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
</TABLE>
Payment Of Benefits
-------------------
The full value of participants' accounts becomes payable upon retirement,
disability, or death. Upon termination of employment for any other
reason participants' accounts, to the extent vested, become payable.
Those participants with vested account balances greater than $5,000
($3,500 prior to January 1, 1997) 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 shares of
Employer Securities will have the option of receiving such amounts in
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 seven 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 to 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, 1997 and 1996,
is set forth below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Limited Stock Fund $ 377,704 $ 914,636
Fixed Income Fund 645,142 1,171,143
Index-500 Fund 489,489 371,539
U.S. Growth Fund 409,316 338,708
Wellington Fund 128,102 77,814
Intimate Brands Stock Fund 12,002 165
---------- ----------
$2,061,755 $2,874,005
========== ==========
</TABLE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1997, 1996 and 1995, are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Limited Stock Fund $ 345,937 $ 309,429 $ 268,411
Fixed Income Fund 2,715,821 3,178,025 1,691,327
Index-500 Fund 1,240,275 743,916 352,056
U.S. Growth Fund 1,028,955 692,299 295,948
Wellington Fund 269,006 36,468 -
Intimate Brands Stock Fund 9,983 - -
---------- ---------- ----------
$5,609,977 $4,960,137 $2,607,742
========== ========== ==========
</TABLE>
F-7
<PAGE>
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 participants' 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. The Plan has been amended
since receiving the determination letter. However, the Plan
administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the
applicable requirements of the Internal Revenue Code. Accordingly, the
following Federal income tax rules will apply to the Plan:
Voluntary tax-deferred contributions made under the Plan by a
participant and contributions made by the Employers to
participant accounts are generally not taxable until such amounts
are distributed.
The participants are not subject to Federal income tax on
interest, dividends, or gains in their particular accounts
until distributed.
The foregoing is only a brief summary of certain tax implications and
applies only to Federal tax regulations currently in effect.
(2) SUMMARY OF ACCOUNTING POLICIES
------------------------------
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. If available,
quoted market prices are used to value investments. The amounts for
investments that have no quoted market price are shown at their
estimated fair value, which is determined based on yields equivalent for
such securities or for securities of comparable maturity, quality, and
type as obtained from market makers.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
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.
Reclassification of Prior Year Information
------------------------------------------
Certain prior year information has been reclassified to conform with current
year presentation.
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>
(3) 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, 1997, 1996 and 1995 is
set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Limited Stock Fund $38,305,152 $26,715,998 $33,181,138
Fixed Income Fund - - -
Index-500 Fund 26,463,032 14,187,057 8,565,992
U.S. Growth Fund 16,622,199 9,546,458 6,117,907
Wellington Fund 1,699,874 466,778 121,782
Intimate Brands Stock Fund 485,508 (60,633) -
----------- ----------- -----------
$83,575,765 $50,855,658 $47,986,819
=========== =========== ===========
</TABLE>
The following is a summary of the net gain (loss) on securities sold or
distributed during the periods ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Realized
Proceeds Cost Gain (Loss)
----------- ----------- ------------
<S> <C> <C> <C>
Period Ended December 31, 1997
Limited Stock Fund $18,999,960 $10,137,584 $ 8,862,376
Fixed Income Fund 26,199,812 26,199,812 -
Index-500 Fund 15,205,435 10,069,636 5,135,799
U.S. Growth Fund 12,450,768 9,069,188 3,381,580
Wellington Fund 3,458,363 3,059,773 398,590
Intimate Brands Stock Fund 792,401 702,772 89,629
----------- ----------- -----------
$77,106,739 $59,238,765 $17,867,974
=========== =========== ===========
Period Ended December 31, 1996
Limited Stock Fund $24,864,301 $12,521,218 $12,343,083
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)
----------- ----------- -----------
$78,903,288 $61,737,149 $17,166,139
=========== =========== ===========
Period Ended December 31, 1995
Limited Stock Fund $ 9,577,761 $ 4,150,928 $ 5,426,833
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
----------- ----------- -----------
$42,601,951 $35,189,399 $ 7,412,552
=========== =========== ===========
</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 contracts 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, 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 July 1, 1995 the Wellington Fund was not an investment option
and prior to October 1, 1996 the Intimate Brands Stock Fund was not an
investment option.
F-9
<PAGE>
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant. There
are 5,216 participants in the Limited Stock Fund, 19,220 in the
Fixed Income Fund, 10,330 in the Index-500 Fund, 8,625 in the U.S.
Growth Fund, 5,854 in the Wellington Fund, and 1,602 in the Intimate
Brands Stock Fund at December 31, 1997.
Participants may make or change an investment direction as of the first
day of any month of the Plan year.
(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
