<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________
FORM 10-K/A
(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 30, 1999
----------------
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
------
THE LIMITED, INC.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1029810
- -------------------------------------- ------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
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 March 26, 1999: $8,328,048,488.
Number of shares outstanding of the registrant's Common Stock as of March 26,
1999: 228,165,712.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report to shareholders for the fiscal year
ended January 30, 1999 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 17, 1999 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, men's and children's apparel, women's intimate apparel, personal care
products, 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 primarily 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 30, 1999, the Company conducted its business in two primary
segments: (1) the Apparel segment, which derives its revenues from sales of
women's, men's and children's apparel; and (2) Intimate Brands, Inc. ("IBI") (a
corporation in which the Company holds an 84.5% interest), which derives its
revenues from sales of women's intimate and other apparel, and personal care
products and accessories.
Effective May 19, 1998, the Company completed a tax-free exchange offer to
establish Abercrombie & Fitch ("A&F") as an independent public company. Further
information regarding this transaction is contained in Note 3 of the Notes to
the Consolidated Financial Statements included in The Limited, Inc., 1998 Annual
Report to Shareholders, portions of which are annexed hereto as Exhibit 13 (the
"1998 Annual Report") and are incorporated herein by reference.
The following chart reflects the retail businesses and the number of stores in
operation for each segment at January 30, 1999 and January 31, 1998.
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NUMBER OF STORES
------------------------------------
RETAIL BUSINESSES
- -----------------
January 30, January 31,
1999 1998
---------------- ----------------
Apparel Businesses
- ------------------
Express 702 753
Lerner New York 643 746
Lane Bryant 730 773
The Limited 551 629
Structure 532 544
Limited Too 319 312
---------------- ----------------
Total Apparel 3,477 3,757
Intimate Brands
- ---------------
Victoria's Secret Stores 829 789
Bath & Body Works 1,061 921
---------------- ----------------
Total Intimate Brands 1,890 1,710
Other
- -----
Galyan's Trading Co. 14 11
Henri Bendel 1 6
Abercrombie & Fitch* - 156
---------------- ----------------
Total 5,382 5,640
================ ================
* - The A&F business was split off effective May 19, 1998 via a tax-free
exchange offer.
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>
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
1998 5,640 - 251 *(509) 5,382
</TABLE>
* Includes 159 stores from the May 19, 1998 split-off of A&F.
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 personal care products sold by the Company. During fiscal year 1998, the
Company purchased merchandise from approximately 4,700 suppliers and factories
located throughout the world. In addition to purchases through Mast and Gryphon,
the Company purchased merchandise in foreign markets and in the domestic market,
some of which is manufactured overseas. The Company's business is subject to a
variety of risks generally associated with doing business in foreign markets and
importing merchandise from abroad, such as political instability, currency and
exchange risks, and local business practice and political issues. The Company
has established formal policies and procedures designed to address such risks;
however, they remain beyond the Company's control. No more than 5% of goods
purchased originated from any single manufacturer.
3
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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.
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 retail 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 1998, the
highest inventory level was $1.6 billion at the November 1998 month-end and the
lowest inventory level was $1.0 billion at the May 1998 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 31%-owned credit
card processing venture, Alliance Data Systems, for customers of Express, Lerner
New York, Lane Bryant, Limited, Henri Bendel, Victoria's Secret Stores,
Victoria's Secret Catalogue, and Structure.
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.
APPAREL BUSINESSES
- ------------------
Express - is a leading specialty retailer of women's sportswear and accessories.
- -------
Express' strategy is to offer new, international fashion to its base of young,
style-driven women. Launched in 1980, Express had net sales of $1.4 billion in
1998 and operated 702 stores in 48 states.
Lerner New York - is a leading mall-based specialty retailer of women's
- ---------------
apparel. The business's strategy is to offer women's fashion with a "New York"
feel, under the umbrella of the New York & Company brand. Originally founded in
1918, Lerner New York was purchased by The Limited in 1985. Lerner New York had
net sales of $940 million in 1998 and operated 643 stores in 44 states.
Lane Bryant - is the leading specialty store retailer of full-figured women's
- -----------
apparel, offering knit tops, sweaters, pants, jeans and intimate apparel for
women size 14-plus. Originally founded in 1900, Lane Bryant was acquired by The
Limited in 1982. The business had net sales of $933 million in 1998 and
operated 730 stores in 46 states.
Limited - is a mall-based specialty store retailer. The business's strategy is
- --------
to focus on classic, sophisticated, modern sportswear for twenty-something
American women. Founded in 1963, Limited Stores had net sales of $757 million in
1998 and operated 551 stores in 47 states.
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Structure - is a leading mall-based specialty retailer of men's clothing,
- ---------
offering classic American sportswear. Structure operates 532 stores in 43
states and had net sales of $610 million in 1998.
Limited Too - established in 1987, sells apparel, lifestyle and personal care
- -----------
products for fashion-aware, trend-setting young girls, through 319 stores in 43
states. Limited Too had net sales of $377 million in 1998.
INTIMATE BRANDS
- ---------------
Victoria's Secret Stores - is one of the world's leading specialty retailers of
- ------------------------
women's intimate apparel and related products. Victoria's Secret Stores
(including Victoria's Secret Beauty) operates over 820 stores nationwide and had
net sales of $1.8 billion in 1998.
Victoria's Secret Catalogue- is a leading specialty catalogue retailer of
- ---------------------------
intimate and other women's apparel. At the end of 1998, Victoria's Secret
Catalogue launched its own web site, www.VictoriasSecret.com, through which its
products may be purchased worldwide. Victoria's Secret Catalogue mailed
approximately 406 million catalogues and had net sales of $759 million in 1998.
Bath & Body Works - is the leading mall-based specialty retailer of personal
- -----------------
care products. Launched in 1990, Bath & Body Works (including White Barn Candle
Company) operates over 1,050 stores nationwide and had net sales of $1.3
billion in 1998.
OTHER
- -----
Galyan's - is an operator of full-line sporting goods and apparel superstores in
- --------
the Midwestern United States. Galyan's operates 14 stores in six markets,
targeting sports enthusiasts. Acquired by The Limited in July 1995, Galyan's
had net sales of $220 million in 1998.
Henri Bendel - operates a single specialty store in New York City which features
- ------------
fashions for sophisticated, higher-income women. The business was purchased by
The Limited in 1988 and had net sales of $40 million in 1998. The Limited closed
five Henri Bendel stores during 1998.
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 1998 Annual Report and
is incorporated herein by reference. For the financial results of the Company's
reportable operating segments, see Note 13 of the Notes to the Consolidated
Financial Statements included in the 1998 Annual Report, incorporated herein by
reference.
Competition.
The sale of intimate and other apparel, 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
5
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national and regional catalogue merchandisers. Design, price, service, quality,
image presentation and fulfillment are the principal competitive factors in
catalogue and on-line 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 through stores, catalogues and the Internet.
Associate Relations.
On January 30, 1999, the Company employed approximately 126,800 associates,
92,300 of whom were part-time. In addition, temporary associates are hired
during peak periods, such as the Christmas season.
ITEM 2. PROPERTIES.
The Company's business is principally conducted from office, distribution and
shipping facilities located in the Columbus, Ohio area. Additional facilities
are located in New York City, New York; Indianapolis, Indiana; Andover,
Massachusetts; Kettering, Ohio; Rio Rancho, New Mexico and London, England.
The distribution and shipping facilities owned by the Company consist of nine
buildings located in the Columbus, Ohio area and one building in Indianapolis,
Indiana. Excluding office space, these buildings comprise approximately 6.3
million square feet.
Substantially all of the retail stores operated by the Company are located in
leased facilities, primarily in shopping centers throughout the continental
United States. The leases expire at various dates between 1999 and 2028 and
frequently have renewal options.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to 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
U.S. Customs Service. On November 26, 1997, ATMI served a motion to alter or
amend judgment and a motion to disqualify the presiding judge and to vacate the
order of dismissal. The motion to disqualify was denied on December 22, 1997,
but as a matter of his personal discretion, the presiding judge elected to
recuse himself from further proceedings and this matter was transferred to a
judge of the United States District Court for the Southern District of Ohio,
Western Division. On May 21, 1998, this judge denied all pending motions
seeking to alter, amend or vacate the judgment that had been entered in favor of
the Company.
6
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On June 5, 1998, ATMI appealed to the United States Court of Appeals for the
Sixth Circuit, where the matter remains pending.
On January 13, 1999, two complaints were filed against the Company and its
subsidiary, Lane Bryant, Inc., as well as other defendants, including many
national retailers. Both complaints relate to labor practices allegedly
employed on the island of Saipan, Commonwealth of the Northern Mariana Islands,
by apparel manufacturers unrelated to the Company (some of which have sold goods
to the Company) and seek injunctions, unspecified monetary damages, and other
relief. One complaint, on behalf of a class of unnamed garment workers, filed
in the United States District Court for the Central District of California,
Western Division, alleges violations of federal statutes, the United States
Constitution, and international law. On March 29, 1999, a motion was filed to
transfer this action to the United States District Court located on Saipan, and
the Company intends to file a motion to dismiss the complaint for failure to
state a claim upon which relief can be granted. The second complaint, filed by
a national labor union and other organizations in the Superior Court of the
State of California, San Francisco County, alleges unfair business practices
under California law. On March 29, 1999, the Company filed a motion seeking
dismissal of this complaint.
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
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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of January 30, 1999.
Leslie H. Wexner, 61, 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, 52, has been Vice Chairman and Chief Administrative Officer
of the Company since June 1997. Mr. Gilman was the Vice Chairman and Chief
Financial Officer of the Company from June 1993 to June 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, 48, has been Executive Vice President and 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, 64, has been President and Chief Executive Officer of Mast
Industries, Inc., a wholly-owned subsidiary of the Company, for more than five
years.
Arnold F. Kanarick, 58, 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
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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 1998 and 1997, approximate number of holders of common
stock, and quarterly cash dividend per share information of the Company's common
stock for the fiscal years 1998 and 1997 is set forth under the caption "Market
Price and Dividend Information" on page 22 of the 1998 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 1998 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 11 of the 1998 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 1998 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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", "- Committees of the Board of
Directors" and "- Security ownership of directors and management" on pages 4
through 9 of the Company's proxy statement for the Annual Meeting of
Shareholders to be held May 17, 1999 (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 15 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 11 through 15 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 8 and 9 of the Proxy Statement
and "SHARE OWNERSHIP OF PRINCIPAL STOCKHOLDERS" on page 21 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 - Nominees and directors" on
pages 4 through 6 of the Proxy Statement and "ELECTION OF DIRECTORS - Certain
relationships and related transactions" on pages 9 and 10 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 30,
1999, January 31, 1998 and February 1, 1997.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 30, 1999, January 31, 1998 and February 1, 1997.
Consolidated Balance Sheets as of January 30, 1999 and January 31, 1998.
Consolidated Statements of Cash Flows for the fiscal years ended January
30, 1999, January 31, 1998 and February 1, 1997.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a)(2) List of Financial Statement Schedules.
-------------------------------------
All schedules required to be filed as part of this report pursuant to ITEM
14(d) 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.
4. Instruments Defining the Rights of Security Holders.
4.1. Copy of the form of Global Security representing the Company's 7
1/2% Debentures due 2023, incorporated by reference to Exhibit 1
to the Company's Current Report on Form 8-K dated March 4, 1993.
4.2. Conformed copy of the Indenture dated as of March 15, 1988
between the Company and The Bank of New York, incorporated by
reference to Exhibit 4.1(a) to the Company's
11
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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 Company's Registration
Statement on Form S-8 (File No. 33-18533).
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 executive officers of the Company.
10.5. Supplemental schedule of directors and executive officers who
are parties to an Indemnification Agreement.
10.6. 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).
10.7. 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.
10.8. 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.
13
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10.9. 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.
10.10. 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.
10.11. The Limited, Inc. Incentive Compensation Performance Plan
incorporated by reference to Exhibit A to the Company's Proxy
Statement dated April 14, 1997.
10.12. Employment Agreement by and between The Limited, Inc. and
Kenneth B. Gilman dated as of May 20, 1997 with exhibits,
incorporated by reference to Exhibit 10.20 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31,
1998 (the "1997 Form 10-K").
10.13. Employment Agreement by and between The Limited, Inc. and Arnold
F. Kanarick dated as of May 20, 1997 with exhibits, incorporated
by reference to Exhibit 10.21 to the 1997 Form 10-K.
10.14. Employment Agreement by and between The Limited, Inc. and Martin
Trust dated as of May 20, 1997 with exhibits, incorporated by
reference to Exhibit 10.22 to the 1997 Form 10-K.
10.15. The 1998 Restatement of the Limited, Inc. 1993 Stock Option and
Performance Incentive Plan incorporated by reference to Exhibit A
to the Company's Proxy Statement dated April 20, 1998.
10.16. Employment Agreement by and between The Limited, Inc. and V. Ann
Hailey dated as of July 27, 1998 incorporated by reference to
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 1, 1998.
11. Statement re: Computation of Per Share Earnings.
12. Statement re: Computation of Ratio of Earnings to Fixed Charges.
13. Excerpts from the 1998 Annual Report to Shareholders including "Financial
Summary", "Management's Discussion and Analysis", "Consolidated Financial
Statements and Notes to Consolidated Financial Statements" and "Report of
Independent Accountants" on pages 3 through 22.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
14
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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 1998.
(c) Exhibits.
--------
The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedule.
----------------------------
Not applicable.
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 19, 1999
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 29, 1999:
Signature Title
--------- -----
/s/ LESLIE H. WEXNER* Chairman of the Board of Directors,
- ------------------------- President and Chief Executive Officer
Leslie H. Wexner
/s/ KENNETH B. GILMAN* Director, Vice Chairman and
- ------------------------ Chief Administrative Officer
Kenneth B. Gilman
/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
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/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>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- ----------------------------------------------------------------
3.2 Restated Bylaws of the Company.
10.4 Indemnification Agreement.
10.5 Supplemental Schedule of Directors and Executive Officers Who
are Parties to an Indemnification Agreement.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
13 Excerpts from the 1998 Annual Report to Shareholders including
"Financial Summary", "Management's Discussion and Analysis",
"Consolidated Financial Statements and Notes to Consolidated
Financial Statements" and "Report of Independent Accountants" on
pages 3 through 22.
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 3.2
-----------
RESTATED BYLAWS
OF
THE LIMITED, INC.
Adopted April 2, 1984
and as Amended
September 17, 1987
and
February 23, 1990
and
April 1, 1999
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meeting. The annual meeting of the stockholders of
-----------------------------
this corporation, for the purpose of fixing or changing the number of directors
of the corporation, electing directors and transacting such other business as
may come before the meeting, shall be held on such date, at such time and at
such place as may be designated by the Board of Directors.
Section 1.02. Special Meetings. Special meetings of the stockholders may
-------------------------------
be called at any time by the chairman of the board, the vice chairman of the
board, or in case of the death, absence or disability of the chairman of the
board and the vice chairman of the board, the president, or in case of the
president's death, absence, or disability, the vice-president, if any,
authorized to exercise the authority of the president, or a majority of the
Board of Directors acting with or without a meeting; provided, that if and to
the extent that any special meeting of stockholders may be called by any other
person or persons specified in any provision of the certificate of incorporation
or any amendment thereto or any certificate filed under Section 151(g) of the
Delaware General Corporation Law (or its successor statute as in effect from
time to time), then such special meeting may also be called by the person or
persons, in the manner, at the times and for the purposes so specified.
Section 1.03. Place of Meetings. Meetings of stockholders shall be held
--------------------------------
at the principal office of the corporation in the State of Ohio, unless the
Board of Directors decides that a meeting shall be held at some other place and
causes the notice thereof to so state.
Section 1.04. Notices of Meetings. Unless waived, a written, printed, or
----------------------------------
typewritten notice of each annual or special meeting, stating the date, hour and
place and the purpose or purposes thereof shall be served upon or mailed to each
stockholder of record entitled to vote or entitled to notice, not more than 60
days nor less than 10 days before any such meeting. If mailed, such notice
shall be directed to a stockholder at his or her address as the same appears on
the records of the corporation. If a meeting is adjourned to another time or
place and such
<PAGE>
adjournment is for 30 days or less and no new record date is fixed for the
adjourned meeting, no further notice as to such adjourned meeting need be given
if the time and place to which it is adjourned are fixed and announced at such
meeting. In the event of a transfer of shares after notice has been given and
prior to the holding of the meeting, it shall not be necessary to serve notice
on the transferee. Such notice shall specify the place where the stockholders
list will be open for examination prior to the meeting if required by Section
1.08 hereof.
Section 1.05. Fixing Date for Determination of Stockholders of Record. In
----------------------------------------------------------------------
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board shall not fix such a
record date, (i) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and (ii) in any case involving the determination of stockholders for any
purpose other than notice of or voting at a meeting of stockholders, the record
date for determining stockholders for such purpose shall be the close of
business on the day on which the Board of Directors shall adopt the resolution
relating thereto. Determination of stockholders entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of such
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 1.06. Organization. At each meeting of the stockholders, the
---------------------------
chairman of the board, or in his absence, the vice chairman of the board, or in
his absence, the president, or, in his absence, any vice-president, or, in the
absence of the chairman of the board, the vice chairman of the board, the
president and a vice-president, a chairman chosen by a majority in interest of
the stockholders present in person or by proxy and entitled to vote, shall act
as chairman, and the secretary of the corporation, or, if the secretary of the
corporation not be present, the assistant secretary, or if the secretary and the
assistant secretary not be present, any person whom the chairman of the meeting
shall appoint, shall act as secretary of the meeting.
Section 1.07. Quorum. A stockholders' meeting duly called shall not be
---------------------
organized for the transaction of business unless a quorum is present. Except as
otherwise expressly provided by law, the certificate of incorporation, these
bylaws, or any certificate filed under Section 151 (g) of the Delaware General
Corporation Law (or its successor statute as in effect from time to time), (i)
at any meeting called by the Board of Directors, the presence in person or by
proxy of holders of record entitling them to exercise at least one-third of the
voting power of the corporation shall constitute a quorum for such meeting and
(ii) at any meeting called other than by the Board of Directors, the presence in
person or by proxy of holders of record entitling them to exercise at least a
majority of the voting power of the corporation shall constitute a quorum for
such meeting. The stockholders present at a duly organized meeting can continue
to do business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a
2
<PAGE>
quorum. If a meeting cannot be organized because a quorum has not attended, a
majority in voting interest of the stockholders present may adjourn, or, in the
absence of a decision by the majority, any officer entitled to preside at such
meeting may adjourn the meeting from time to time to such time (not more than 30
days after the previously adjourned meeting) and place as they (or he) may
determine, without notice other than by announcement at the meeting of the time
and place of the adjourned meeting. At any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
Section 1.08. List of Stockholders. The secretary of the corporation
-----------------------------------
shall prepare and make a complete list of the stockholders of record as of the
applicable record date entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 1.09. Order of Business and Procedure. The order of business at
----------------------------------------------
all meetings of the stockholders and all matters relating to the manner of
conducting the meeting shall be determined by the chairman of the meeting, whose
decisions may be overruled only by majority vote of the stockholders present and
entitled to vote at the meeting in person or by proxy. Meetings shall be
conducted in a manner designed to accomplish the business of the meeting in a
prompt and orderly fashion and to be fair and equitable to all stockholders, but
it shall not be necessary to follow any manual of parliamentary procedure.
Section 1.10. Voting. (a) Each stockholder shall, at each meeting of the
---------------------
stockholders, be entitled to vote in person or by proxy each share or fractional
share of the stock of the corporation having voting rights on the matter in
question and which shall have been held by him and registered in his name on the
books of the corporation on the date fixed pursuant to Section 1.05 of these
bylaws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting.
(b) Shares of its own stock belonging to the corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto or by his proxy appointed by an instrument in writing or in any other
manner then permitted by law, subscribed by such stockholder or such
stockholder's attorney thereunto authorized in any manner then permitted by law
and delivered to the secretary of the meeting in sufficient time to permit the
necessary examination and tabulation thereof before the vote is taken; provided,
3
<PAGE>
however, that no proxy shall be valid after the expiration of three years after
its date of execution, unless the stockholder executing it shall have specified
therein the length of time it is to continue in force. At any meeting of the
stockholders all matters, except as otherwise provided in the certificate of
incorporation, in these bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and voting thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting or required by the certificate of incorporation. On a
vote by ballot each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and it shall state the number of shares voted.
Section 1.11. Inspectors. The Board of Directors, in advance of any
-------------------------
meeting of the stockholders, may appoint one or more inspectors to act at the
meeting. If inspectors are not so appointed, the person presiding at the
meeting may appoint one or more inspectors. If any person so appointed fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at the
meeting with strict impartiality and according to the best of his ability. The
inspectors so appointed shall determine the number of shares outstanding, the
shares represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies and shall receive votes, ballots,
waivers, releases, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, waivers, releases, or consents, determine and announce the results and
do such acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspectors
shall make a report in writing of any challenge, question or matter determined
by them and execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the facts stated and
of the vote as certified by them.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers of Board. The powers of the corporation
--------------------------------------
shall be exercised, its business and affairs conducted, and its property
controlled by the Board of Directors, except as otherwise provided by the law of
Delaware or in the certificate of incorporation.
Section 2.02. Number of Directors. The number of directors of the
----------------------------------
corporation (exclusive of directors to be elected by the holders of any one or
more series of Preferred Stock voting separately as a class or classes) shall
not be less than 9 nor more than 13, the exact number of directors to be such
number as may be set from time to time within the limits set forth above by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors. As used in these Bylaws, the term "whole Board" means the total
number of directors which the corporation would have if there were no vacancies.
4
<PAGE>
Section 2.03. Election of Directors. At each meeting of the stockholders
------------------------------------
for the election of directors, the persons receiving the greatest number of
votes shall be the directors.
Section 2.04. Nominations.
--------------------------
2.04.1. Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the election of
directors.
2.04.2. Such nominations, if not made by the Board of Directors,
shall be made by notice in writing, delivered or mailed by first class United
States mail, postage prepaid, to the secretary of the corporation not less than
14 days nor more than 50 days prior to any meeting of the stockholders called
for the election of directors; provided, however, that if less than 21 days'
notice of the meeting is given to stockholders, such written notice shall be
delivered or mailed, as prescribed, to the secretary of the corporation not
later than the close of the seventh day following the day on which notice of the
meeting was mailed to stockholders. Each such notice shall set forth (i) the
name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such nominee, and (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee.
2.04.3. Notice of nominations which are proposed by the Board of
Directors shall be given on behalf of the Board by the chairman of the meeting.
2.04.4. The chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Section 2.05. Resignations. Any director of the corporation may resign at
---------------------------
any time by giving written notice to the chairman of the board or the secretary
of the corporation. Such resignation shall take effect at the time specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 2.06. Vacancies. In the event that any vacancy shall occur in the
------------------------
Board of Directors, whether because of death, resignation, removal, newly
created directorships resulting from any increase in the authorized number of
directors, the failure of the stockholders to elect the whole authorized number
of directors, or any other reason, such vacancy may be filled by the vote of a
majority of the directors then in office, although less than a quorum. A
director elected to fill a vacancy, other than a newly created directorship,
shall hold office for the unexpired term of his predecessor.
Section 2.07. Removal of Directors. Directors may be removed only as
-----------------------------------
provided in the certificate of incorporation.
5
<PAGE>
Section 2.08. Place of Meeting. etc. The Board of Directors may hold
------------------------------------
any of its meetings at the principal office of the corporation or at such other
place or places as the Board of Directors may from time to time designate.
Directors may participate in any regular or special meeting of the Board of
Directors by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting of the Board of
Directors can hear each other and such participation shall constitute presence
in person at such meeting.
Section 2.09. Annual Meeting. A regular annual meeting of the Board of
-----------------------------
Directors shall be held each year at the same place as and immediately after the
annual meeting of stockholders, or at such other place and time as shall
theretofore have been determined by the Board of Directors and notice thereof
need not be given. At its regular annual meeting the Board of Directors shall
organize itself and elect the officers of the corporation for the ensuing year,
and may transact any other business.
Section 2.10. Regular Meetings. Regular meetings of the Board of
-------------------------------
Directors may be held at such intervals and at such time as shall from time to
time be determined by the Board of Directors. After such determination and
notice thereof has been once given to each person then a member of the Board of
Directors, regular meetings may be held at such intervals and time and place
without further notice being given.
Section 2.11. Special Meetings. Special meetings of the Board of
-------------------------------
Directors may be called at any time by the Board of Directors or by the chief
executive officer or by a majority of directors then in office to be held on
such day and at such time as shall be specified by the person or persons calling
the meeting.
Section 2.12. Notice of Meetings. Notice of each special meeting or,
---------------------------------
where required, each regular meeting, of the Board of Directors shall be given
to each director either by being mailed on at least the third day prior to the
date of the meeting or by being telegraphed or given personally or by telephone
on at least 24 hours notice prior to the date of meeting. Such notice shall
specify the place, date and hour of the meeting and, if it is for a special
meeting, the purpose or purposes for which the meeting is called. At any meeting
of the Board of Directors at which every director shall be present, even though
without such notice, any business may be transacted. Any acts or proceedings
taken at a meeting of the Board of Directors not validly called or constituted
may be made valid and fully effective by ratification at a subsequent meeting
which shall be legally and validly called or constituted. Notice of any regular
meeting of the Board of Directors need not state the purpose of the meeting and,
at any regular meeting duly held, any business may be transacted. If the notice
of a special meeting shall state as a purpose of the meeting the transaction of
any business that may come before the meeting, then at the meeting any business
may be transacted, whether or not referred to in the notice thereof. A written
waiver of notice of a special or regular meeting, signed by the person or
persons entitled to such notice, whether before or after the time stated therein
shall be deemed the equivalent of such notice, and attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director attends the meeting and prior to or at the commencement of such meeting
protests the lack of proper notice.
6
<PAGE>
Section 2.13. Quorum and Voting. At all meetings of the Board of
--------------------------------
Directors, the presence of a majority of the directors then in office shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the certificate of incorporation, or these bylaws, the vote of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. At all meetings of the Board of
Directors, each director shall have one vote.
Section 2.14. Committees. The Board of Directors may appoint an executive
-------------------------
committee and any other committee of the Board of Directors, to consist of one
or more directors of the corporation, and may delegate to any such committee any
of the authority of the Board of Directors, however conferred, other than the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation. No committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock unless the resolution
creating such committee expressly so provides. Each such committee shall serve
at the pleasure of the Board of Directors, shall act only in the intervals
between meetings of the Board of Directors and shall be subject to the control
and direction of the Board of Directors. Any such committee may act by a
majority of its members at a meeting or by a writing or writings signed by all
of its members. Any such committee shall keep written minutes of its meetings
and report the same to the Board of Directors at the next regular meeting of the
Board of Directors.
Section 2.15. Compensation. The Board of Directors may, by resolution
---------------------------
passed by a majority of those in office, fix the compensation of directors for
service in any capacity and may fix fees for attendance at meetings and may
authorize the corporation to pay the traveling and other expenses of directors
incident to their attendance at meetings, or may delegate such authority to a
committee of the board.
Section 2.16. Action by Consent. Any action required or permitted to be
--------------------------------
taken at any meeting of the board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the board or such committee.
ARTICLE III
OFFICERS
Section 3.01. General Provisions. The officers of the corporation shall
---------------------------------
be the chairman of the board (who shall be a director), a vice chairman of the
board (who shall be a director), a president, such number of vice-presidents as
the board may from time to time determine, a secretary and a treasurer. Any
person may hold any two or more offices and perform the duties
7
<PAGE>
thereof, except the offices of chairman of the board and vice chairman of the
board, or the offices of president and vice-president.
Section 3.02. Election, Terms of Office, and Qualification. The officers
-----------------------------------------------------------
of the corporation named in Section 3.01 of this Article III shall be elected by
the Board of Directors for an indeterminate term and shall hold office during
the pleasure of the Board of Directors.
Section 3.03. Additional Officers, Agents, etc. In addition to the
-----------------------------------------------
officers mentioned in Section 3.01 of this Article III, the corporation may have
such other officers or agents as the Board of Directors may deem necessary and
may appoint, each of whom or each member of which shall hold office for such
period, have such authority and perform such duties as may be provided in these
bylaws as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any officer the power to appoint any subordinate
officers or agents. In the absence of any officer of the corporation, or for
any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate, for the time being, the powers and duties, or any of
them, of such officer to any other officer, or to any director.
Section 3.04. Removal. Any officer of the corporation may be removed,
----------------------
either with or without cause, at any time, by resolution adopted by the Board of
Directors at any meeting, the notice (or waivers of notice) of which shall have
specified that such removal action was to be considered. Any officer appointed
not by the Board of Directors but by an officer or committee to which the Board
of Directors shall have delegated the power of appointment may be removed, with
or without cause, by the committee or superior officer (including successors)
who made the appointment, or by any committee or officer upon whom such power of
removal may be conferred by the Board of Directors.
Section 3.05. Resignations. Any officer may resign at any time by giving
---------------------------
written notice to the Board of Directors, or to the chairman of the board, the
vice chairman of the board, the president, or the secretary of the corporation.
Any such resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.06. Vacancies. A vacancy in any office because of death,
------------------------
resignation, removal, disqualification, or otherwise, shall be filled in the
manner prescribed in these bylaws for regular appointments or elections to such
office.
ARTICLE IV
DUTIES OF THE OFFICERS
Section 4.01. The Chairman of the Board. The chairman of the board shall
----------------------------------------
be chief executive officer of the corporation and shall have general supervision
over the property, business and affairs of the corporation and over its several
officers, subject, however, to the control of the Board of Directors. He shall,
if present, preside at all meetings of the stockholders and of the Board of
Directors. He may sign, with the secretary, treasurer or any other proper
8
<PAGE>
officer of the corporation thereunto authorized by the Board of Directors,
certificates for shares in the corporation. He may sign, execute and deliver in
the name of the corporation all deeds, mortgages, bonds, leases, contracts, or
other instruments either when specially authorized by the Board of Directors or
when required or deemed necessary or advisable by him in the ordinary conduct of
the corporation's normal business, except in cases where the signing and
execution thereof shall be expressly delegated by these bylaws to some other
officer or agent of the corporation or shall be required by law or otherwise to
be signed or executed by some other officer or agent, and he may cause the seal
of the corporation, if any, to be affixed to any instrument requiring the same.
Section 4.02. Vice Chairman of the Board. The vice chairman of the board
-----------------------------------------
shall perform such duties as are conferred upon him by these bylaws or as may
from time to time be assigned to him by the chairman of the board or the Board
of Directors. The authority of the vice chairman of the board to sign in the
name of the corporation all certificates for shares and deeds, mortgages,
leases, bonds, contracts, notes and other instruments, shall be coordinate with
like authority of the chairman of the board. In the absence or disability of
the chairman of the board, the vice chairman of the board shall perform all the
duties of the chairman of the board, and when so acting, shall have all the
powers of the chairman of the board.
Section 4.03. The President. The president shall perform such duties as
----------------------------
are conferred upon him by these bylaws or as may from time to time be assigned
to him by the chairman of the board or the vice chairman of the board or the
Board of Directors.
Section 4.04. Vice-Presidents. The vice-presidents shall perform such
------------------------------
duties as are conferred upon them by these bylaws or as may from time to time be
assigned to them by the Board of Directors, the chairman of the board, the vice
chairman of the board or the president. At the request of the chairman of the
board, in the absence or disability of the president, the vice-president,
designated by the chairman of the board shall perform all the duties of the
president, and when so acting, shall have all of the powers of the president.
Section 4.05. The Treasurer. The treasurer shall be the custodian of all
----------------------------
funds and securities of the corporation. Whenever so directed by the Board of
Directors, he shall render a statement of the cash and other accounts of the
corporation, and he shall cause to be entered regularly in the books and records
of the corporation to be kept for such purpose full and accurate accounts of the
corporation's receipts and disbursements. He shall have such other powers and
shall perform such other duties as may from time to time be assigned to him by
the Board of Directors, the chairman of the board or the vice chairman of the
board.
Section 4.06. The Secretary. The secretary shall record and keep the
----------------------------
minutes of all meetings of the stockholders and the Board of Directors in a book
to be kept for that purpose. He shall be the custodian of, and shall make or
cause to be made the proper entries in, the minute book of the corporation and
such other books and records as the Board of Directors may direct. He shall be
the custodian of the seal of the corporation, if any, and shall affix such seal
to such contracts, instruments and other documents as the Board of Directors or
any committee thereof may direct. He shall have such other powers and shall
perform such other duties as may from
9
<PAGE>
time to time be assigned to him by the Board of Directors, the chairman of the
board or the vice chairman of the board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 5.01. Indemnification. The corporation shall indemnify any person
------------------------------
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he, his testator, or
intestate is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a member of any committee or similar body against all expenses
(including attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding (including appeals) or the defense or settlement
thereof or any claim, issue, or matter therein, to the fullest extent permitted
by the laws of Delaware as they may exist from time to time.
Section 5.02. Insurance. The proper officers of the corporation, without
------------------------
further authorization by the Board of Directors, may in their discretion
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent for
another corporation, partnership, joint venture, trust or other enterprise,
against any liability.
Section 5.03. ERISA. To assure indemnification under this Article of all
--------------------
such persons who are or were "fiduciaries" of an employee benefit plan governed
by the Act of Congress entitled "Employee Retirement Income Security Act of
1974", as amended from time to time, the provisions of this Article V shall, for
the purposes hereof, be interpreted as follows: an "other enterprise" shall be
deemed to include an employee benefit plan; the corporation shall be deemed to
have requested a person to serve as an employee of an employee benefit plan
where the performance by such person of his duties to the corporation also
imposes duties on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to said Act of Congress shall
be deemed "fines"; and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
Section 5.04. Contractual Nature. The foregoing provisions of this
---------------------------------
Article V shall be deemed to be a contract between the corporation and each
director and officer who serves in such capacity at any time while this Section
is in effect, and any repeal or modification thereof shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.
10
<PAGE>
Section 5.05. Construction. For the purposes of this Article V,
---------------------------
references to "the corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director or officer of such constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body shall stand in the
same position under the provisions of this Article with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
Section 5.06. Non-Exclusive. The corporation may indemnify, or agree to
----------------------------
indemnify, any person against any liabilities and expenses and pay any expenses,
including attorneys' fees, in advance of final disposition of any action, suit
or proceeding, under any circumstances, if such indemnification and/or payment
is approved by the vote of the stockholders or of the disinterested directors,
or is, in the opinion of independent legal counsel selected by the Board of
Directors, to be made on behalf of an indemnitee who acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the corporation.
ARTICLE VI
DEPOSITORIES, CONTRACTS AND OTHER INSTRUMENTS
Section 6.01 Depositories. The chairman of the board, the vice
----------------------------
chairman of the board, the president, the treasurer, and any vice-president of
the corporation whom the Board of Directors authorizes to designate depositories
for the funds of the corporation are each authorized to designate depositories
for the funds of the corporation deposited in its name and the signatories and
conditions with respect thereto in each case, and from time to time, to change
such depositories, signatories and conditions, with the same force and effect as
if each such depository, the signatories and conditions with respect thereto and
changes therein had been specifically designated or authorized by the Board of
Directors; and each depository designated by the Board of Directors or by the
chairman of the board, the vice chairman of the board, the president, the
treasurer, or any such vice-president of the corporation, shall be entitled to
rely upon the certificate of the secretary or any assistant secretary of the
corporation setting forth the fact of such designation and of the appointment of
the officers of the corporation or of both or of other persons who are to be
signatories with respect to the withdrawal of funds deposited with such
depository, or from time to time the fact of any change in any depository or in
the signatories with respect thereto.
Section 6.02. Execution of Instruments Generally. In addition to the
-------------------------------------------------
powers conferred upon the chairman of the board in Section 4.01 and the vice
chairman of the board in Section 4.02 and except as otherwise provided in
Section 6.01 of this Article VI, all contracts and other instruments entered
into in the ordinary course of business requiring execution by the corporation
may be executed and delivered by the president, the treasurer, or any vice-
president
11
<PAGE>
and authority to sign any such contracts or instruments, which may be general or
confined to specific instances, may be conferred by the Board of Directors upon
any other person or persons. Any person having authority to sign on behalf of
the corporation may delegate, from time to time, by instrument in writing, all
or any part of such authority to any person or persons if authorized so to do by
the Board of Directors.
ARTICLE VII
SHARES AND THEIR TRANSFER
Section 7.01. Certificate for Shares. Every owner of one or more shares
-------------------------------------
in the corporation shall be entitled to a certificate, which shall be in such
form as the Board of Directors shall prescribe, certifying the number and class
of shares in the corporation owned by him. When such certificate is counter-
signed by an incorporated transfer agent or registrar, the signature of any of
said officers may be facsimile, engraved, stamped or printed. The certificates
for the respective classes of such shares shall be numbered in the order in
which they shall be issued and shall be signed in the name of the corporation by
the chairman of the board or the vice chairman of the board, or the president or
a vice-president, and by the secretary or an assistant secretary or the
treasurer or an assistant treasurer. A record shall be kept of the name of the
person, firm, or corporation owning the shares represented by each such
certificate and the number of shares represented thereby, the date thereof, and
in case of cancellation, the date of cancellation. Every certificate
surrendered to the corporation for exchange or transfer shall be cancelled and
no new certificate or certificates shall be issued in exchange for any existing
certificates until such existing certificates shall have been so cancelled.
Section 7.02. Lost, Destroyed and Mutilated Certificates. If any
---------------------------------------------------------
certificates for shares in this corporation become worn, defaced, or mutilated
but are still substantially intact and recognizable, the directors, upon
production and surrender thereof, shall order the same cancelled and shall issue
a new certificate in lieu of same. The holder of any shares in the corporation
shall immediately notify the corporation if a certificate therefor shall be
lost, destroyed, or mutilated beyond recognition, and the corporation may issue
a new certificate in the place of any certificate theretofore issued by it which
is alleged to have been lost or destroyed or mutilated beyond recognition, and
the Board of Directors may, in its discretion, require the owner of the
certificate which has been lost, destroyed, or mutilated beyond recognition, or
his legal representative, to give the corporation a bond in such sum and with
such surety or sureties as it may direct, not exceeding double the value of the
stock, to indemnify the corporation against any claim that may be made against
it on account of the alleged loss, destruction, or mutilation of any such
certificate. The Board of Directors may, however, in its discretion, refuse to
issue any such new certificate except pursuant to legal proceedings, under the
laws of the State of Delaware in such case made and provided.
Section 7.03. Transfers of Shares. Transfers of shares in the corporation
----------------------------------
shall be made only on the books of the corporation by the registered holder
thereof, his legal guardian, executor, or administrator, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
secretary of the corporation or with a transfer agent appointed by the
12
<PAGE>
Board of Directors, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by properly executed stock powers and
evidence of the payment of all taxes imposed upon such transfer. The person in
whose name shares stand on the books of the corporation shall, to the full
extent permitted by law, be deemed the owner thereof for all purposes as regards
the corporation.
Section 7.04. Regulations. The Board of Directors may make such rules and
--------------------------
regulations as it may deem expedient, not inconsistent with these bylaws
concerning the issue, transfer, and registration of certificates for shares in
the corporation. It may appoint one or more transfer agents or one or more
registrars, or both, and may require all certificates for shares to bear the
signature of either or both.
13
<PAGE>
ARTICLE VIII
SEAL
The Board of Directors may provide a corporate seal, which shall be
circular and contain the name of the corporation engraved around the margin and
the words "corporate seal", the year of its organization, and the word
"Delaware".
14
<PAGE>
EXHIBIT 10.4
------------
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of the _______ day of _______,
19___ by and between THE LIMITED, INC., a Delaware corporation (the "Company"),
and the undersigned (the "Indemnitee").
RECITALS
WHEREAS, it is essential to the Company that it attract and retain as
directors and officers the most capable persons available; and
WHEREAS, Indemnitee is a director or officer of the Company; and
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in the current environment; and
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company in an effective manner, and in order to induce Indemnitee to continue to
provide services to the Company as a director or officer thereof, the Company
wishes to provide in this Agreement for the indemnification of Indemnitee to the
fullest extent permitted by law and as set forth in this Agreement;
NOW THEREFORE, in consideration of the foregoing, the covenants contained
herein and Indemnitee's continued service to the Company, the Company and
Indemnitee, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings relative to the
foregoing.
"Change in control" shall be deemed to have occurred if, other than
as approved by a majority of the Board of Directors of the Company in office
immediately prior to such event (a) any person, other than (i) a trustee or
other fiduciary holding Voting Securities under an employee benefit plan of the
Company, (ii) a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock of
the Company or (iii) The Limited, Inc. ("The Limited"), any subsidiary of The
Limited or any successor to The Limited or any subsidiary thereof or (iv) Leslie
H. Wexner, his heirs, executors or administrators, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended) of Voting Securities representing 20% or more of the total voting power
represented by the Company's then outstanding Voting Securities, or (b) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (c) the stockholders
of the Company approve (i) a merger or consolidation of the Company with any
other corporation, other than (A) a merger or consolidation which would result
in the Voting Securities outstanding immediately prior thereto continuing to
<PAGE>
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation and (B) a merger or
consolidation with The Limited, any subsidiary of The Limited or any successor
to The Limited or any subsidiary thereof, or (ii) a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the Company (in
one transaction or a series of transactions) of all or substantially all of the
Company's assets.
"Claim" means (a) any threatened, pending or completed action, suit,
proceeding or arbitration or other alternative dispute resolution mechanism, or
(b) any inquiry, hearing or investigation, whether conducted by the Company or
any other Person, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or arbitration or other
alternative dispute resolution mechanism, in each case whether civil, criminal,
administrative or other (whether or not the claims or allegations therein are
groundless, false or fraudulent) and includes, without limitation, those brought
by or in the name of the Company or any director or officer of the Company.
"Company Agent" means serving as a director, officer, partner,
employee, agent, trustee or fiduciary of the Company, any Subsidiary or any
Other Enterprise.
"Covered Event" means any event or occurrence on or after the date of
this Agreement related to the fact that Indemnitee is or was a Company Agent or
related to anything done or not done by Indemnitee in any such capacity, and
includes, without limitation, any such event or occurrence (a) arising from
performance of the responsibilities, obligations or duties imposed by ERISA or
any similar applicable provisions of state or common law, or (b) arising from
any merger, consolidation or other business combination involving the Company,
any Subsidiary or any Other Enterprise, including without limitation any sale or
other transfer of all or substantially all of the business or assets of the
Company, any Subsidiary or any Other Enterprise.
"D & O Insurance" means the directors' and officers' liability
insurance of the Company in effect on the date of this Agreement, and any
replacement or substitute policies issued by one or more reputable insurers
providing in all respects coverage at least comparable to and in the same amount
as that provided by the policy in effect on the date of this Agreement.
"Determination" means a determination made by (a) a majority vote of
a quorum of Disinterested Directors; (b) Independent Legal Counsel, in a written
opinion addressed to the Company and Indemnitee; (c) the stockholders of the
Company; or (d) a decision by a court of competent jurisdiction not subject to
further appeal.
"Disinterested Director" shall be a director of the Company who is
not or was not a party to the Claim giving rise to the subject matter of a
Determination.
"Expenses" includes attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, copying costs, delivery services fees and other
expenses and obligations of any nature whatsoever paid or incurred in connection
with investigating, prosecuting or defending, being a witness in or
participating in (including on appeal), or preparing to prosecute or defend, be
a witness in or participate in any Claim, for which Indemnitee is or becomes
legally obligated to pay.
"Independent Legal Counsel" shall mean a law firm or a member of a
law firm that (a) neither is nor in the past five years has been retained to
represent in any material matter the Company, any Subsidiary, Indemnitee or any
other party to the Claim, (b) under applicable standards of professional conduct
then prevailing would not have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights to
<PAGE>
indemnification under this Agreement and (c) is reasonably acceptable to the
Company and Indemnitee.
"Loss" means any amount which Indemnitee is legally obligated to pay
as a result of any Claim, including, without limitation (a) all judgments,
penalties and fines, and amounts paid or to be paid in settlement, (b) all
interest, assessments and other charges paid or payable in connection therewith
and (c) any federal, state, local or foreign taxes imposed (net of the value to
Indemnitee of any tax benefits resulting from tax deductions or otherwise) as a
result of the actual or deemed receipt of any payments under this Agreement,
including the creation of the Trust.
"Other Enterprise" means any corporation (other than the Company or
any Subsidiary), partnership, joint venture, association, employee benefit plan,
trust or other enterprise or organization for which Indemnitee acts as a Company
Agent at the request of the Company or any Subsidiary. Indemnitee shall be
deemed to be acting as a Company Agent of an Other Enterprise at the request of
the Company with respect to any Other Enterprise in which the Company or any
Subsidiary has an investment as to which Indemnitee shall act as a Company Agent
from time to time. Indemnitee shall be deemed to be acting as a Company Agent of
an Other Enterprise at the request of the Company, if Indemnitee acts as a
Company Agent of an Other Enterprise at the written or oral request of the Board
of Directors of the Company or of any Subsidiary by which the Indemnitee is
employed from time to time, at the written or oral request of an Executive
Officer of the Company or of any Subsidiary by which the Indemnitee is employed
from time to time or if Indemnitee acts as a Company Agent of an Other
Enterprise by reason of being requested, elected, hired or retained to succeed
or assume the responsibilities of a Person who previously acted as a Company
Agent of an Other Enterprise at the request of the Company.
"Parent" shall have the meaning set forth in the regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended;
provided the term "Parent" shall not include the board of directors of a
corporation in its capacity as a board of directors, and provided further that
if the other party to any transaction referred to in Section 12.1.2 has no
Parent as so defined above, "Parent" shall mean such other party.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government (or any subdivision, department, commission or agency thereof), and
includes without limitation any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended.
"Potential Change in Control" shall be deemed to have occurred if (a)
the Company enters into an agreement or arrangement the consummation of which
would result in the occurrence of a Change in Control, (b) any Person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control or (c) the
Board of Directors of the Company adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
"Subsidiary" means any corporation of which more than 50 % of the
outstanding stock having ordinary voting power to elect a majority of the board
of directors of such corporation is now or hereafter owned, directly or
indirectly, by the Company.
"Trust" has the meaning set forth in Section 9.2.
"Voting Securities" means any securities of the Company which vote
generally in the election of directors.
Section 2. Indemnification.
2.1. General Indemnity Obligation.
-----------------------------
<PAGE>
2.1.1. Subject to the remaining provisions of this Agreement,
the Company hereby indemnifies and holds Indemnitee harmless for any Losses or
Expenses arising from any Claims relating to (or arising in whole or in part out
of) any Covered Event, including, without limitation, any Claim the basis of
which is any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or attempted by Indemnitee in
the capacity as a Company Agent, whether or not Indemnitee is acting or serving
in such capacity at the date of this Agreement, at the time liability is
incurred or at the time the Claim is initiated.
2.1.2. The obligations of the Company under this Agreement
shall apply to the fullest extent authorized or permitted by the provisions of
applicable law, as presently in effect or as changed after the date of this
Agreement, whether by statute or judicial decision (but, in the case of any
subsequent change, only to the extent that such change permits the Company to
provide broader indemnification than permitted prior to giving effect thereto).
2.1.3. Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company, unless the
Company has joined in or consented to the initiation of such Claim; provided,
the provisions of this Section 2.1.3 shall not apply following a Change in
Control to Claims seeking enforcement of this Agreement, the Certificate of
Incorporation or Bylaws of the Company or any other agreement now or hereafter
in effect relating to indemnification for Covered Events.
2.1.4. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the Losses
or Expenses paid with respect to a Claim but not, however, for the total amount
thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless
against the portion thereof to which Indemnitee is entitled.
2.1.5. Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating to (or arising in whole or in part out of)
a Covered Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Company shall indemnify and hold Indemnitee
harmless against all expenses incurred in connection therewith.
2.2. Indemnification for Serving as Witness and Certain Other Claims.
----------------------------------------------------------------
Notwithstanding any other provision of this Agreement, the Company hereby
indemnifies and holds Indemnitee harmless for all Expenses in connection with
(a) the preparation to serve or service as a witness in any Claim in which
Indemnitee is not a party, if such actual or proposed service as a witness arose
by reason of Indemnitee having served as a Company Agent on or the date of this
Agreement and (b) any Claim initiated by Indemnitee on or after the date of this
Agreement (i) for recovery under any directors' and officers' liability
insurance maintained by the Company or (ii) following a Change in Control, for
enforcement of the indemnification obligations of the Company under this
Agreement, the Certificate of Incorporation or Bylaws of the Company or any
other agreement now or hereafter in effect relating to indemnification for
Covered Events, regardless of whether Indemnitee ultimately is determined to be
entitled to such insurance recovery or indemnification, as the case may be.
Section 3. Limitations on Indemnification.
3.1. Coverage Limitations. No indemnification is available pursuant
---------------------
to the provisions of this Agreement:
3.1.1. If such indemnification is not lawful;
<PAGE>
3.1.2. If Indemnitee's conduct giving rise to the Claim with
respect to which indemnification is requested was knowingly fraudulent, a
knowing violation of law, deliberately dishonest or in bad faith or constituted
willful misconduct;
3.1.3. In respect of any Claim based upon or attributable to
Indemnitee gaining in fact any personal profit or advantage to which Indemnitee
was not legally entitled;
3.1.4. In respect of any Claim for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company within
the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended;
or
3.1.5. In respect of any Claim based upon any violation of
Section 174 of the Delaware General Corporation Law, as amended.
3.2. No Duplication of Payments. The Company shall not be liable
---------------------------
under this Agreement to make any payment otherwise due and payable to the extent
Indemnitee has otherwise actually received payment (whether under the
Certificate of Incorporation or the Bylaws of the Company, the D & O Insurance
or otherwise) of any amounts otherwise due and payable under this Agreement.
Section 4. Payments and Determinations.
4.1. Advancement and Reimbursement of Expenses. If requested by
------------------------------------------
Indemnitee, the Company shall advance to Indemnitee, no later than two business
days following any such request, any and all Expenses for which indemnification
is available under Section 2. Upon any Determination that Indemnitee is not
permitted to be indemnified for any expenses so advanced, Indemnitee hereby
agrees to reimburse the Company (or, as appropriate, any Trust established
pursuant to Section 9.2) for all such amounts previously paid. Such obligation
of reimbursement shall be unsecured and no interest shall be charged thereon.
4.2. Payment and Determination Procedures.
-------------------------------------
4.2.1. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, together with such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
4.2.2. Upon written request by Indemnitee for indemnification
pursuant to Section 4.2.1, a Determination with respect to Indemnitee's
entitlement thereto shall be made in the specific case (a) if a Change in
Control shall have occurred, as provided in Section 9.1; and (b) if a Change in
Control shall not have occurred, by (i) the Board of Directors by a majority
vote of a quorum of Disinterested Directors, (ii) Independent Legal Counsel, if
either (A) a quorum of Disinterested Directors is not obtainable or (B) a
majority vote of a quorum of Disinterested Directors otherwise so directs or
(iii) the stockholders of the Company (if submitted by the Board of Directors).
If a Determination is made that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within 10 days after such Determination.
4.2.3. If no Determination is made within 60 days after receipt
by the Company of a request for indemnification by Indemnitee pursuant to
Section 4.2.1, a Determination shall be deemed to have been made that Indemnitee
is entitled to the requested indemnification (and the Company shall pay the
related Losses and Expenses no later than 10 days after the expiration of such
60-day period), except where such indemnification is not lawful; provided,
however, that (a) such 60-day period may be extended for a reasonable time, not
to exceed an additional 30 days, if
<PAGE>
the Person or Persons making the Determination in good faith require such
additional time for obtaining or evaluating the documentation and information
relating thereto; and (b) the foregoing provisions of this Section 4.2.3 shall
not apply (i) if the Determination is to be made by the stockholders of the
Company and if (A) within 15 days after receipt by the Company of the request by
Indemnitee pursuant to Section 4.2.1 the Board of Directors has resolved to
submit such Determination to the stockholders at an annual meeting of the
stockholders to be held within 75 days after such receipt, and such
Determination is made at such annual meeting, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such Determination, such meeting is held for such purpose within 60 days
after having been so called and such Determination is made at such special
meeting, or (ii) if the Determination is to be made by Independent Legal
Counsel.
Section 5. D & O Insurance.
5.1. Current Policies. The Company hereby represents and warrants to
-----------------
Indemnitee that the D & O Insurance is in full force and effect.
5.2. Continued Coverage. The Company shall maintain the D & O
-------------------
Insurance for so long as this Agreement remains in effect. The Company shall
cause the D & O Insurance to cover Indemnitee, in accordance with its terms and
at all times such insurance is in effect, to the maximum extent of the coverage
provided thereby for any director or officer of the Company.
5.3. Indemnification. In the event of any reduction in, or
----------------
cancellation of, the D & O Insurance (whether voluntary or involuntary on behalf
of the Company), the Company shall, and hereby agrees to, indemnify and hold
Indemnitee harmless against any Losses or Expenses which Indemnitee is or
becomes obligated to pay as a result of the Company's failure to maintain the D
& O Insurance in effect in accordance with the provisions of Section 5.2, to the
fullest extent permitted by applicable law, notwithstanding any provision of the
Certificate of Incorporation or the Bylaws of the Company, or any other
agreement now or hereafter in effect relating to indemnification for Covered
Events. The indemnification available under this Section 5.3 is in addition to
all other obligations of indemnification of the Company under this Agreement and
shall be the only remedy of Indemnitee for a breach by the Company of its
obligations set forth in Section 5.2.
Section 6. Subrogation. In the event of any payment under this Agreement
to or on behalf of Indemnitee, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee against any Person
other than the Company or Indemnitee in respect of the Claim giving rise to such
payment. Indemnitee shall execute all papers reasonably required and shall do
everything reasonably necessary to secure such rights, including the execution
of such documents reasonably necessary to enable the Company effectively to
bring suit to enforce such rights.
Section 7. Notifications and Defense of Claims.
7.1. Notice by Indemnitee. Indemnitee shall give notice in writing to
---------------------
the Company as soon as practicable after Indemnitee becomes aware of any Claim
with respect to which indemnification will or could be sought under this
Agreement; provided the failure of Indemnitee to give such notice, or any delay
in giving such notice, shall not relieve the Company of its obligations under
this Agreement except to the extent the Company is actually prejudiced by any
such failure or delay.
7.2. Insurance. The Company shall give prompt notice of the
----------
commencement of any Claim relating to Covered Events to the insurers on the D &
O Insurance, if any, in accordance with the procedures set forth in the
respective policies in favor of Indemnitee. The Company shall thereafter take
all necessary action to cause such insurers to pay, on behalf of Indemnitee, all
amounts payable as a result of such Claims in accordance with the terms of such
policies.
<PAGE>
7.3. Defense.
--------
7.3.1. In the event any Claim relating to Covered Events is by
or in the right of the Company, Indemnitee may, at the option of Indemnitee,
either control the defense therefor or accept the defense provided under the D &
O Insurance; provided, however, that Indemnitee may not control the defense if
such decision would jeopardize the coverage provided by the D & O Insurance, if
any, to the Company or the other directors and officers covered thereby.
7.3.2. In the event any Claim relating to Covered Events is
other than by or in the right of the Company, Indemnitee may, at the option of
Indemnitee, either control the defense thereof, require the Company to defend or
accept the defense provided under the D & O Insurance; provided, however, that
Indemnitee may not control the defense or require the Company to defend if such
decision would jeopardize the coverage provided by the D & O Insurance to the
Company or the other directors and officers covered thereby. In the event that
Indemnitee requires the Company to so defend, or in the event that Indemnitee
proceeds under the D & O Insurance but Indemnitee determines that such insurers
under the D & O Insurance are unable or unwilling to adequately defend
Indemnitee against any such Claim, the Company shall promptly undertake to
defend any such Claim, at the Company's sole cost and expense, utilizing counsel
of Indemnitee's choice who has been approved by the Company. If appropriate, the
Company shall have the right to participate in the defense of any such Claim.
7.3.3. In the event the Company shall fail, as required by any
election by Indemnitee pursuant to Section 7.3.2, timely to defend Indemnitee
against any such Claim, Indemnitee shall have the right to do so, including
without limitation, the right (notwithstanding Section 7.3.4) to make any
settlement thereof, and to recover from the Company, to the extent otherwise
permitted by this Agreement, all Expenses and Losses paid as a result thereof.
7.3.4. The Company shall have no obligation under this
Agreement with respect to any amounts paid or to be paid in settlement of any
Claim without the express prior written consent of the Company to any related
settlement. In no event shall the Company authorize any settlement imposing any
liability or other obligations on Indemnitee without the express prior written
consent of Indemnitee. Neither the Company nor Indemnitee shall unreasonably
withhold consent to any proposed settlement.
Section 8. Determinations and Related Matters.
8.1. Presumptions.
-------------
8.1.1. If a Change in Control shall have occurred, Indemnitee
shall be entitled to a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement and the Company shall have the burden of
proof in rebutting such presumption.
8.1.2. The termination of any Claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, shall not adversely affect either the
right of Indemnitee to indemnification under this Agreement or the presumptions
to which Indemnitee is otherwise entitled pursuant to the provisions of this
Agreement nor create a presumption that Indemnitee did not meet any particular
standard of conduct or have a particular belief or that a court has determined
that indemnification is not permitted by applicable law.
8.2. Appeals; Enforcement.
---------------------
8.2.1. In the event that (a) a Determination is made that
Indemnitee shall not be entitled to indemnification under this Agreement, (b)
any Determination to be made by Independent
<PAGE>
Legal Counsel is not made within 90 days of receipt by the Company of a request
for indemnification pursuant to Section 4.2.1 or (c) the Company fails to
otherwise perform any of its obligations under this Agreement (including,
without limitation, its obligation to make payments to Indemnitee following any
Determination made or deemed to have been made that such payments are
appropriate), Indemnitee shall have the right to commence a Claim in any court
of competent jurisdiction, as appropriate, to seek a Determination by the court,
to challenge or appeal any Determination which has been made, or to otherwise
enforce this Agreement. If a Change of Control shall have occurred, Indemnitee
shall have the option to have any such Claim conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. Any such judicial
proceeding challenging or appealing any Determination shall be deemed to be
conducted de novo and without prejudice by reason of any prior Determination to
the effect that Indemnitee is not entitled to indemnification under this
Agreement. Any such Claim shall be at the sole expense of Indemnitee except as
provided in Section 9.3.
8.2.2. If a Determination shall have been made or deemed to
have been made pursuant to this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such Determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2,
except if such indemnification is unlawful.
8.2.3. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement. The Company
hereby consents to service of process and to appear in any such judicial or
arbitration proceedings and shall not oppose Indemnitee's right to commence any
such proceedings.
8.3. Procedures. Indemnitee shall cooperate with the Company and with
-----------
any Person making any Determination with respect to any Claim for which a claim
for indemnification under this Agreement has been made, as the Company may
reasonably require. Indemnitee shall provide to the Company or the Person making
any Determination, upon reasonable advance request, any documentation or
information reasonably available to Indemnitee and necessary to (a) the Company
with respect to any such Claim or (b) the Person making any Determination with
respect thereto.
Section 9. Change in Control Procedures.
9.1. Determinations. If there is a Change in Control, any
---------------
Determination to be made under Section 4 shall be made by Independent Legal
Counsel selected by Indemnitee and approved by the Company (which approval shall
not be unreasonably withheld). The Company shall pay the reasonable fees of the
Independent Legal Counsel and indemnify fully such Independent Legal Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
Independent Legal Counsel pursuant hereto.
9.2. Establishment of Trust. Following the occurrence of any
-----------------------
Potential Change in Control, the Company, upon receipt of a written request from
Indemnitee, shall create a Trust (the "Trust") for the benefit of Indemnitee,
the trustee of which shall be a bank or similar financial institution with trust
powers chosen by Indemnitee. From time to time, upon the written request of
Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy
any and all Losses and Expenses reasonably anticipated at the time of each such
request to be incurred by Indemnitee for which indemnification may be available
under this Agreement. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by mutual
agreement of Indemnitee and the Company or, if the Company and Indemnitee are
unable to reach such an agreement or, in any event, a Change in Control has
occurred, by Independent Legal Counsel (selected pursuant to Section 9.1). The
terms of the Trust shall provide that, except upon
<PAGE>
the prior written consent of Indemnitee and the Company, (a) the Trust shall not
be revoked or the principal thereof invaded, other than to make payments to
unsatisfied judgment creditors of the Company, (b) the Trust shall continue to
be funded by the Company in accordance with the funding obligations set forth in
this Section, (c) the Trustee shall promptly pay or advance to Indemnitee any
amounts to which Indemnitee shall be entitled pursuant to this Agreement, and
(d) all unexpended funds in the Trust shall revert to the Company upon a
Determination by Independent Legal Counsel (selected pursuant to Section 9.1) or
a court of competent jurisdiction that Indemnitee has been fully indemnified
under the terms of this Agreement. All income earned on the assets held in the
trust shall be reported as income by the Company for federal, state, local and
foreign tax purposes.
9.3. Expenses. Following any Change in Control, the Company shall be
---------
liable for, and shall pay the Expenses paid or incurred by Indemnitee in
connection with the making of any Determination (irrespective of the
determination as to Indemnitee's entitlement to indemnification) or the
prosecution of any Claim pursuant to Section 8.2, and the Company hereby agrees
to indemnify and hold Indemnitee harmless therefrom. If requested by counsel for
Indemnitee, the Company shall promptly give such counsel an appropriate written
agreement with respect to the payment of its fees and expenses and such other
matters as may be reasonably requested by such counsel.
Section 10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company, any
Subsidiary, any Other Enterprise or any Affiliate of the Company against
Indemnitee or Indemnitee's spouse, heirs, executors, administrators or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two-year period; provided, however, that if any
shorter period of limitations, whether established by statute or judicial
decision, is otherwise applicable to any such cause of action such shorter
period shall govern.
Section 11. Contribution. If the indemnification provisions of this
Agreement should be unenforceable under applicable law in whole or in part or
insufficient to hold Indemnitee harmless in respect of any Losses and Expenses
incurred by Indemnitee, then for purposes of this Section 11, the Company shall
be treated as if it were, or was threatened to be made, a party defendant to the
subject Claim and the Company shall contribute to the amounts paid or payable by
Indemnitee as a result of such Losses and Expenses incurred by Indemnitee in
such proportion as is appropriate to reflect the relative benefits accruing to
the Company on the one hand and Indemnitee on the other and the relative fault
of the Company on the one hand and Indemnitee on the other in connection with
such Claim, as well as any other relevant equitable considerations. For purposes
of this Section 11 the relative benefit of the Company shall be deemed to be the
benefits accruing to it and to all of its directors, officers, employees and
agents (other than Indemnitee) on the one hand, as a group and treated as one
entity, and the relative benefit of Indemnitee shall be deemed to be an amount
not greater than the Indemnitee's yearly base salary or Indemnitee's
compensation from the Company during the first year in which the Covered Event
forming the basis for the subject Claim was alleged to have occurred. The
relative fault shall be determined by reference to, among other things, the
fault of the Company and all of its directors, officers, employees and agents
(other than Indemnitee) on the one hand, as a group and treated as one entity,
and Indemnitee's and such group's relative intent, knowledge, access to
information and opportunity to have altered or prevented the Covered Event
forming the basis for the subject Claim.
Section 12. Miscellaneous Provisions.
12.1. Successors and Assigns, Etc.
----------------------------
12.1.1. This Agreement shall be binding upon and inure to the
benefit of (a) the Company, its successors and assigns (including any direct or
indirect successor by merger, consolidation or operation of law or by transfer
of all or substantially all of its assets) and (b)
<PAGE>
Indemnitee and the heirs, personal and legal representatives, executors,
administrators or assigns of Indemnitee.
12.1.2. The Company shall not consummate any consolidation,
merger or other business combination, nor will it transfer 50% or more of its
assets (in one or a series of related transactions), unless the ultimate Parent
of the successor to the business or assets of the Company shall have first
executed an agreement, in form and substance satisfactory to Indemnitee, to
expressly assume all obligations of the Company under this Agreement and agree
to perform this Agreement in accordance with its terms, in the same manner and
to the same extent that the Company would be required to perform this Agreement
if no such transaction had taken place; provided that, if the Parent is not the
Company, the legality of payment of indemnity by the Parent shall be determined
by reference to the fact that such indemnity is to be paid by the Parent rather
than the Company.
12.2. Severability. The provisions of this Agreement are severable.
-------------
If any provision of this Agreement shall be held by any court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
deemed to be modified to the minimum extent necessary to avoid a violation of
law and, as so modified, such provision and the remaining provisions shall
remain valid and enforceable in accordance with their terms to the fullest
extent permitted by law.
12.3. Rights Not Exclusive; Continuation of Right of Indemnification.
---------------------------------------------------------------
Nothing in this Agreement shall be deemed to diminish or otherwise restrict
Indemnitee's right to indemnification pursuant to any provision of the
Certificate of Incorporation or Bylaws of the Company, any agreement, vote of
stockholders or Disinterested Directors, applicable law or otherwise. This
Agreement shall be effective as of the date first above written and continue in
effect until no Claims relating to any Covered Event may be asserted against
Indemnitee and until any Claims commenced prior thereto are finally terminated
and resolved, regardless of whether Indemnitee continues to serve as an officer
of the Company, any Subsidiary or any Other Enterprise.
12.4. No Employment Agreement. Nothing contained in this Agreement
------------------------
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company, any Subsidiary or any Other Enterprise.
12.5. Subsequent Amendment. No amendment, termination or repeal of
---------------------
any provision of the Certificate of Incorporation or Bylaws of the Company, or
any respective successors thereto, or of any relevant provision of any
applicable law, shall affect or diminish in any way the rights of Indemnitee to
indemnification, or the obligations of the Company, arising under this
Agreement, whether the alleged actions or conduct of Indemnitee giving rise to
the necessity of such indemnification arose before or after any such amendment,
termination or repeal.
12.6. Notices. Notices required under this Agreement shall be given
--------
in writing and shall be deemed given when delivered in person or sent by
certified or registered mail, return receipt requested, postage prepaid. Notices
shall be directed to the Company Three Limited Parkway, Columbus, OH 43230,
Attention: Chairman of the Board, and to Indemnitee at the residential address
as shown on the Company's records (or such other address as either party may
designate in writing to the other).
12.7. Governing Law. This Agreement shall be governed by and
--------------
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and performed in such state without giving effect
to the principles of conflict of laws.
12.8. Headings. The headings of the Sections of this Agreement are
---------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
<PAGE>
12.9. Counterparts. This Agreement may be executed in any number of
-------------
counterparts all of which taken together shall constitute one instrument.
12.10. Modification and Waiver. No supplement, modification or
------------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver or any of the provisions of this Agreement
shall constitute, or be deemed to constitute, a waiver of any other provision
hereof (whether or not similar) nor shall any such waiver constitute a
continuing waiver.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
THE LIMITED, INC. INDEMNITEE
By
-------------------------------- -----------------------------------
<PAGE>
EXHIBIT 10.5
------------
SUPPLEMENTAL SCHEDULE OF DIRECTORS AND
EXECUTIVE OFFICERS WHO ARE PARTIES TO
AN INDEMNIFICATION AGREEMENT
Signatory Capacity
- --------- --------
Eugene M. Freedman Director
E. Gordon Gee Director
Kenneth B. Gilman Director and Executive Officer
V. Ann Hailey Executive Officer
Arnold F. Kanarick Executive Officer
David T. Kollat Director
Claudine Malone Director
Leonard A. Schlesinger Director
Donald B. Shackelford Director
Allan R. Tessler Director
Martin Trust Director and Executive Officer
Abigail S. Wexner Director
Leslie H. Wexner Director and Executive Officer
Raymond Zimmerman Director
<PAGE>
EXHIBIT 11
----------
THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------
January 30, January 31,
1999 1998
----------- -------------
<S> <C> <C>
Net income $250,484 $85,261
Less: impact of IBI dilutive options and restricted
stock on consolidated income* (2,245) (197)
----------- -------------
Adjusted net income $248,239 $85,064
=========== =============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 5,436 4,165
Weighted average treasury shares (153,107) (106,900)
----------- -------------
Weighted average used to calculate
net income per diluted share 231,783 276,719
=========== =============
Net income per diluted share $1.07 $0.31
=========== =============
<CAPTION>
Year Ended
---------------------------
January 30, January 31,
1999 1998
----------- -------------
<S> <C> <C>
Net income $2,053,646 $217,390
Less: impact of IBI dilutive options and restricted
stock on consolidated income* (4,009) (144)
----------- -------------
Adjusted net income $2,049,637 $217,246
=========== =============
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 5,412 2,585
Weighted average treasury shares (138,547) (107,556)
----------- -------------
Weighted average used to calculate
net income per diluted share 246,319 274,483
----------- -------------
Net income per diluted share $8.32 $0.79
=========== =============
</TABLE>
Note: Exercise of the Wexner Agreement was determined not to dilute reported net
income per share.
* Represents the impact of dilutive options and restricted stock at Intimate
Brands as a reduction to income.
<PAGE>
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands)
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------------------------------
January 30, 1999 January 31, 1998 February 1, 1997 February 3, 1996 January 28, 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Adjusted Earnings
- -----------------
Pretax earnings 2,363,646 $400,390 $675,208 $1,184,511 $744,343
Portion of minimum rent 229,747 246,162 237,419 223,100 204,716
($689,240 in 1998, $738,487
in 1997, $712,258 in 1996,
$669,301 in 1995, and
$614,147 in 1994)
representative of interest
Interest on indebtedness 68,528 68,728 75,363 77,537 65,381
Minority interest 64,564 56,473 45,646 22,374 -
---------------- ---------------- ---------------- ---------------- ----------------
Total earnings as adjusted $2,726,485 $771,753 $1,033,636 $1,507,522 $1,014,440
================ ================ ================ ================ ================
Fixed Charges
- -------------
Portion of minimum rent
representative of interest 229,747 $246,162 $237,419 $223,100 $204,716
Interest on indebtedness 68,528 68,728 75,363 77,537 65,381
---------------- ---------------- ---------------- ---------------- ----------------
Total fixed charges $298,275 $314,890 $312,782 $300,637 $270,097
================ ================ ================ ================ ================
Ratio of earnings to fixed charges 9.14x 2.45x 3.30x 5.01x 3.76x
================ ================ ================ ================ ================
</TABLE>
<PAGE>
EXHIBIT 13
----------
FINANCIAL SUMMARY
(Thousands except per share amounts, ratios and store and associate data)
<TABLE>
<CAPTION>
.1998 .1997 1996 .*+1995 1994 .1993
Summary of Operations
<S> <C> <C> <C> <C> <C> <C>
Net sales $9,346,911 $9,188,804 $8,644,791 $7,881,437 $7,320,792 $7,245,088
- -----------------------------------------------------------------------------------------------------------------------
Gross income $2,997,966 $2,817,977 $2,496,579 $2,087,532 $2,114,363 $1,958,835
- -----------------------------------------------------------------------------------------------------------------------
Operating income #$2,437,473 #$480,099 #$636,067 #$613,349 $798,989 #$701,556
- -----------------------------------------------------------------------------------------------------------------------
Operating income
as a percentage of
sales #26.1% #5.2% #7.4% #7.8% 10.9% #9.7%
- -----------------------------------------------------------------------------------------------------------------------
Net income @$2,053,646 @$217,390 @$434,208 @$961,511 $448,343 @$390,999
- -----------------------------------------------------------------------------------------------------------------------
Net income as a
percentage of sales @22.0% @2.4% @5.0% @12.2% 6.1% @5.4%
- -----------------------------------------------------------------------------------------------------------------------
Per Share Results
Net income per basic
share @$8.52 @$.80 @$1.55 @$2.69 $1.25 @$1.09
- -----------------------------------------------------------------------------------------------------------------------
Net income per
diluted share @$8.32 @$.79 @$1.54 @$2.68 $1.25 @$1.08
- -----------------------------------------------------------------------------------------------------------------------
Dividends $.52 $.48 $.40 $.40 $.36 $.36
- -----------------------------------------------------------------------------------------------------------------------
Book value $9.86 $7.50 $7.09 $9.01 $7.72 $6.82
- -----------------------------------------------------------------------------------------------------------------------
Weighted average
diluted shares
outstanding 246,319 274,483 282,053 358,371 358,601 363,234
- -----------------------------------------------------------------------------------------------------------------------
Other Financial
Information
Total assets $4,549,708 $4,300,761 $4,120,002 $5,266,563 $4,570,077 $4,135,105
- -----------------------------------------------------------------------------------------------------------------------
Return on average
assets @46% @5% @9% @20% 10% @10%
- -----------------------------------------------------------------------------------------------------------------------
Working capital $1,070,249 $937,739 $638,204 $2,018,960 $1,750,111 $1,513,181
- -----------------------------------------------------------------------------------------------------------------------
Current ratio 1.9 1.9 1.7 3.5 3.2 3.1
- -----------------------------------------------------------------------------------------------------------------------
Capital expenditures $347,356 $362,840 $361,202 $374,374 $319,676 $295,804
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt $550,000 $650,000 $650,000 $650,000 $650,000 $650,000
- -----------------------------------------------------------------------------------------------------------------------
Debt-to-equity ratio 25% 32% 34% 20% 24% 27%
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity $2,233,303 $2,044,957 $1,922,582 $3,201,041 $2,760,956 $2,441,293
- -----------------------------------------------------------------------------------------------------------------------
Return on average
shareholders' equity @96% @11% @17% @32% 17% @17%
- -----------------------------------------------------------------------------------------------------------------------
Comparable store
sales increase
(decrease) 6% 0% 3% (2%) (3%) (1%)
- -----------------------------------------------------------------------------------------------------------------------
Stores and Associates
at End of Year
Total number of
stores open 5,382 5,640 5,633 5,298 4,867 4,623
- -----------------------------------------------------------------------------------------------------------------------
Selling square feet 26,316,000 28,400,000 28,405,000 27,403,000 25,627,000 24,426,000
- -----------------------------------------------------------------------------------------------------------------------
Number of associates 126,800 131,000 123,100 106,900 105,600 97,500
<CAPTION>
1992 *1991 1990 .+1989 1988
Summary of Operations
<C> <C> <C> <C> <C>
Net sales $6,944,296 $6,149,218 $5,253,509 $4,647,916 $4,070,777
- ------------------------------------------------------------------------------------------------------
Gross income $1,990,740 $1,793,543 $1,630,439 $1,446,635 $1,214,703
- ------------------------------------------------------------------------------------------------------
Operating income $788,698 $712,700 $697,537 $625,254 $467,418
- ------------------------------------------------------------------------------------------------------
Operating income
as a percentage of
sales 11.4% 11.6% 13.3% 13.5% 11.5%
- ------------------------------------------------------------------------------------------------------
Net income @$455,497 $403,302 $398,438 $346,926 $245,136
- ------------------------------------------------------------------------------------------------------
Net income as a
percentage of sales @6.6% 6.6% 7.6% 7.5% 6.0%
- ------------------------------------------------------------------------------------------------------
Per Share Results
Net income per basic
share @$1.26 $1.12 $1.11 $.97 $.68
- ------------------------------------------------------------------------------------------------------
Net income per
diluted share @$1.25 $1.11 $1.10 $.96 $.68
- ------------------------------------------------------------------------------------------------------
Dividends $.28 $.28 $.24 $.16 $.12
- ------------------------------------------------------------------------------------------------------
Book value $6.25 $5.19 $4.33 $3.45 $2.64
- ------------------------------------------------------------------------------------------------------
Weighted average
diluted shares
outstanding 363,738 363,594 362,044 361,288 360,186
Other Financial
Information
Total assets $3,846,450 $3,418,856 $2,871,878 $2,418,486 $2,145,506
- ------------------------------------------------------------------------------------------------------
Return on average
assets @13% 13% 15% 15% 12%
- ------------------------------------------------------------------------------------------------------
Working capital $1,063,352 $1,084,205 $884,004 $685,524 $567,639
- ------------------------------------------------------------------------------------------------------
Current ratio 2.5 3.1 2.8 2.4 2.2
- ------------------------------------------------------------------------------------------------------
Capital expenditures $429,545 $523,082 $428,844 $318,427 $288,972
- ------------------------------------------------------------------------------------------------------
Long-term debt $541,639 $713,758 $540,446 $445,674 $517,952
- ------------------------------------------------------------------------------------------------------
Debt-to-equity ratio 24% 38% 35% 36% 55%
- ------------------------------------------------------------------------------------------------------
Shareholders' equity $2,267,617 $1,876,792 $1,560,052 $1,240,454 $946,207
- ------------------------------------------------------------------------------------------------------
Return on average
shareholders' equity @22% 23% 28% 32% 29%
- ------------------------------------------------------------------------------------------------------
Comparable store
sales increase
(decrease) 2% 3% 3% 9% 8%
- ------------------------------------------------------------------------------------------------------
Stores and Associates
at End of Year
Total number of
stores open 4,425 4,194 3,760 3,344 3,497
- ------------------------------------------------------------------------------------------------------
Selling square feet 22,863,000 20,355,000 17,008,000 14,374,000 14,296,000
- ------------------------------------------------------------------------------------------------------
Number of associates 100,700 83,800 72,500 63,000 56,700
</TABLE>
. Includes the results of companies disposed of up to the disposition date.
Effective May 19, 1998, Abercrombie & Fitch ("A&F") was split off as an
independent company. 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 Alliance Data Systems.
*Includes the results of Gryphon subsequent to June 1, 1991, when the Company
acquired a controlling interest and Galyan's subsequent to the July 2, 1995
acquisition date.
# Includes the effect on operating income of special and nonrecurring items of
$1,740,030 in 1998, ($213,215) in 1997 and ($12,000) in 1996 (see Note 2 to
the Consolidated Financial Statements), $1,314 in 1995 and $2,617 in 1993.
Inventory liquidation charges of ($13,000) related to Henri Bendel store
closings are also included in 1997.
@ In addition to the items discussed in # above, includes 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 A&F in 1996 (see Note
1 to the Consolidated Financial Statements), $649,467 for a 16.9% interest in
Intimate Brands, Inc. in 1995, and $9,117 for United Retail Group in 1992.
+ Fifty-three-week fiscal year.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Net sales for the fourth quarter were $3.256 billion in 1998 and $3.268 billion
in 1997. Comparable store sales increased 6% for the quarter. Gross income was
$1.180 billion in the fourth quarter of 1998 versus $1.157 billion in 1997 and
operating income was $484 million versus $200 million in 1997. Net income was
$250.5 million in the fourth quarter of 1998 versus $85.3 million in 1997, and
earnings per share were $1.07 versus $.31 in 1997.
During the fourth quarter of 1997, the Company recognized $276 million in
special and nonrecurring charges and a $13 million cost of sales charge for
inventory liquidation at Henri Bendel. See the "Special and Nonrecurring Items"
and "Other Data" sections that follow for further discussion of these charges
and their impact on fourth quarter earnings.
Net sales for the year were $9.347 billion in 1998 versus $9.189 billion in
1997. Gross income was $2.998 billion in 1998 versus $2.818 billion in 1997 and
operating income was $2.437 billion in 1998 versus $480 million in 1997. In
1998, operating income included: 1) a $1.651 billion tax-free gain from the
split-off of Abercrombie & Fitch ("A&F") as an independent public company
effective May 19, 1998; 2) a $93.7 million gain from the sale of the Company's
remaining interest in Brylane, Inc. ("Brylane"), a catalogue retailer; and 3) a
$5.1 million charge for severance and other associate termination costs at Henri
Bendel. In 1997, operating income included a $13 million inventory liquidation
charge at Henri Bendel and a $213.2 million net charge consisting of the
aforementioned fourth quarter charges of $276 million, partially offset by a
$62.8 million third quarter net gain related principally to the sale of
approximately one-half of the Company's investment in Brylane.
Net income for 1998 was $2.054 billion, or $8.32 per share, compared to
$217.4 million, or $.79 per share last year. In addition to the items described
above, 1997 net income included a gain of $8.6 million in connection with the
initial public offering ("IPO") of Brylane. See the "Other Data" section that
follows for a discussion of the impact of these items on annual earnings.
Business highlights for 1998 include the following:
. Intimate Brands, Inc. ("IBI"), led by strong performances at Bath & Body Works
and Victoria's Secret Stores, recorded earnings per share of $1.59, compared to
$1.14 in 1997. The 1997 earnings per share included special and nonrecurring
charges of $.16 related to the closing of Cacique. Excluding the 1997 special
and nonrecurring charges, IBI operating income increased 19% and net income
increased 21%.
. The apparel businesses reported comparable store sales increases of 5% for the
quarter and 6% for the year. Express and Limited Too led this performance with
comparable store sales increases of 14% and 10% for the fourth quarter and 16%
and 15% for the year.
. In May 1998, A&F was split off as a fully independent company via a tax-free
exchange, pursuant to which The Limited shareholders tendered 47.1 million
shares of The Limited stock in return for shares of A&F. In connection with the
exchange, the Company recorded a $1.651 billion tax-free gain.
. In the first quarter of 1998, the Company sold its remaining 2.6 million
shares of Brylane for $51 per share, generating cash proceeds of $131 million
and a gain of $93.7 million.
. In the fourth quarter of 1998, IBI announced its intention to repurchase up to
$500 million of its common stock on a proportionate basis from both the open
market and The Limited, Inc. The Limited owns 84.5% of IBI. As of January 30,
1999, IBI had repurchased a total of 2.6 million shares for $95.5 million.
- --------------------------------------------------------------------------------
The following summarized financial data compares 1998 to the comparable periods
for 1997 and 1996 (millions):
% Change
1998 1997 1996 1998-97 1997-96
Net Sales
Express $1,356 $1,189 $1,386 14% (14%)
- --------------------------------------------------------------------------------
Lerner New York 940 946 1,045 (1%) (9%)
- --------------------------------------------------------------------------------
Lane Bryant 933 907 905 3% 0%
- --------------------------------------------------------------------------------
The Limited 757 776 855 (2%) (9%)
- --------------------------------------------------------------------------------
Structure 610 660 660 (8%) 0%
- --------------------------------------------------------------------------------
Limited Too 377 322 259 17% 24%
- --------------------------------------------------------------------------------
Other (principally Mast) 72 6 4 n/m n/m
- --------------------------------------------------------------------------------
Total Apparel businesses $5,045 $4,806 $5,114 5% (6%)
- --------------------------------------------------------------------------------
Victoria's Secret Stores 1,829 1,702 1,450 7% 17%
- --------------------------------------------------------------------------------
Bath & Body Works 1,272 1,057 753 20% 40%
- --------------------------------------------------------------------------------
Victoria's Secret Catalogue 759 734 684 3% 7%
- --------------------------------------------------------------------------------
. Other 26 125 110 n/m n/m
- --------------------------------------------------------------------------------
Total Intimate Brands $3,886 $3,618 $2,997 7% 21%
- --------------------------------------------------------------------------------
Galyan's Trading Co. 220 160 108 38% 48%
- --------------------------------------------------------------------------------
* Henri Bendel 40 83 91 (52%) (9%)
- --------------------------------------------------------------------------------
# Abercrombie & Fitch 156 522 335 (70%) 56%
- --------------------------------------------------------------------------------
Total net sales $9,347 $9,189 $8,645 2% 6%
- --------------------------------------------------------------------------------
Operating Income
Apparel businesses $(11) $46 $156 n/m (71%)
- --------------------------------------------------------------------------------
Intimate Brands 681 572 470 19% 22%
- --------------------------------------------------------------------------------
Other 27 88 22 n/m n/m
- --------------------------------------------------------------------------------
Subtotal 697 706 648 (1%) 9%
- --------------------------------------------------------------------------------
Special items @1,740 +(226) ++(12)
- --------------------------------------------------------------------------------
Total operating income $2,437 $480 $636
- --------------------------------------------------------------------------------
. Primarily Cacique sales prior to closing effective January 31, 1998.
* Five of six Henri Bendel stores were closed by September 1998.
# The A&F business was split off effective May 19, 1998 via a tax-free exchange
offer. Results up to this date are included in the consolidated financial
statements.
@ 1998 special and nonrecurring items: 1) a $1.651 billion tax-free gain on the
split-off of A&F; 2) a $93.7 million gain from the sale of the Company's
remaining interest in Brylane; and 3) a $5.1 million charge for severance and
other associate termination costs related to the closing of Henri Bendel
stores. These special items relate to the "Other" category.
+ 1997 special and nonrecurring items: 1) an $89.0 million charge for the
apparel businesses related to asset impairment and the closing and downsizing
of certain stores; 2) a $67.6 million charge for Intimate Brands related to
the closing of the Cacique business (effective January 31, 1998); and 3) a
$107.4 million charge related to the closing of five of six Henri Bendel
stores, $62.8 million of income related to the gain from the sale of
approximately one-half of the Company's interest in Brylane (net of a $12.5
million valuation adjustment on an investment) and a $12.0 million write-down
of a real estate investment to net realizable value, all of which relate to
the "Other" category. Additionally, includes a $13.0 million inventory
liquidation charge associated with the Henri Bendel closings.
++ 1996 special and nonrecurring item: a $12.0 million charge for revaluation of
certain assets in connection with Intimate Brands' April 1997 sale of
Penhaligon's.
n/m not meaningful
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
The following summarized financial data compares 1998 to the comparable periods
for 1997 and 1996:
1998 1997 1996
Comparable Store Sales
Express 16% (15%) (6%)
- --------------------------------------------------------------------------------
Lerner New York 5% (5%) 8%
- --------------------------------------------------------------------------------
Lane Bryant 5% 1% 0%
- --------------------------------------------------------------------------------
The Limited 1% (7%) 3%
- --------------------------------------------------------------------------------
Structure (8%) (3%) 7%
- --------------------------------------------------------------------------------
Limited Too 15% 20% 8%
- --------------------------------------------------------------------------------
Total Apparel businesses 6% (5%) 1%
- --------------------------------------------------------------------------------
Victoria's Secret Stores 4% 11% 5%
- --------------------------------------------------------------------------------
Bath & Body Works 7% 11% 11%
- --------------------------------------------------------------------------------
Total Intimate Brands 5% .11% .7%
- --------------------------------------------------------------------------------
Galyan's Trading Co. 5% 0% 12%
- --------------------------------------------------------------------------------
Henri Bendel (12%) (13%) (5%)
- --------------------------------------------------------------------------------
Abercrombie & Fitch
(through 5/19/98) 48% 21% 13%
- --------------------------------------------------------------------------------
Total comparable store
sales increase 6% 0% 3%
- --------------------------------------------------------------------------------
% Change
1998 1997 1996 1998-97 1997-96
Store Data
Retail sales increase
attributable to new
and remodeled stores
(1998 change excludes impact
of closing Cacique) 1% 6% 8%
- --------------------------------------------------------------------------------
Retail sales per
average selling
square foot $312 $295 $285 6% 4%
- --------------------------------------------------------------------------------
Retail sales per average
store (thousands) $1,533 $1,478 $1,453 4% 2%
- --------------------------------------------------------------------------------
Average store size
at end of year
(selling square feet) 4,890 5,035 5,043 (3%) 0%
- --------------------------------------------------------------------------------
Retail selling square
feet at end of year
(thousands) 26,316 28,400 28,405 (7%) 0%
Number of Stores
Beginning of year 5,640 5,633 5,298
- --------------------------------------------------------------------------------
Opened 251 315 470
- --------------------------------------------------------------------------------
Disposed *(159) (4) --
- --------------------------------------------------------------------------------
Closed (350) #(304) (135)
- --------------------------------------------------------------------------------
End of year 5,382 5,640 5,633
- --------------------------------------------------------------------------------
. Includes Cacique sales prior to closing effective January 31, 1998.
* Represents the split-off of A&F effective May 19, 1998.
# Includes 118 stores from the January 31, 1998 closing of Cacique.
- --------------------------------------------------------------------------------
Net Sales
1998 versus 1997
Net sales for the fourth quarter were $3.256 billion in 1998, essentially flat
compared to 1997 sales of $3.268 billion. A comparable store sales increase of
6% was offset by the loss of sales from A&F after its May 19, 1998 split-off.
Net sales for the year were $9.347 billion in 1998 and $9.189 billion in 1997. A
6% comparable store sales increase was partially offset by the loss of A&F sales
following the May 19, 1998 split-off and by a net reduction in stores. Excluding
A&F, the Company added 246 new stores, remodeled 125 stores and closed 348
underperforming stores, 125 of which were closed at or near year-end. This net
reduction of 102 stores represents approximately 850,000 square feet of retail
selling space.
In 1998, IBI sales increased 7% to $3.886 billion, due to the net addition
of 180 stores, representing 466,000 new retail selling square feet, and a 5%
increase in comparable store sales. Bath & Body Works led IBI, with sales
increasing 20% to $1.272 billion, primarily attributable to the net addition of
140 new stores, representing 319,000 new retail selling square feet, and a 7%
increase in comparable store sales. Overall, Bath & Body Works' sales increase
was primarily driven by the brand's new, unique holiday product collections.
Victoria's Secret Stores' sales increased 7% to $1.829 billion. The sales
increase was primarily attributable to a 4% increase in comparable store sales,
and the net addition of 40 new stores representing 147,000 new retail selling
square feet. Victoria's Secret Catalogue's net sales increased 3% to $759
million in 1998, primarily due to a response rate increase for the year.
In 1998, the apparel businesses reported retail sales of $4.973 billion, a
4% increase versus 1997 sales of $4.800 billion. Sales increased $167 million at
Express and $55 million at Limited Too, primarily driven by comparable store
sales increases of 16% and 15%. Comparable store sales at Lerner New York and
Lane Bryant increased 5%. The effect of these increases on total net sales was
partially offset by an 8% comparable store sales decrease at Structure, and the
net reduction of 280 apparel stores, representing approximately 1.5 million
retail selling square feet, principally due to closures of underperforming
locations.
1997 versus 1996
Net sales for the fourth quarter of 1997 increased 10% to $3.268 billion
from $2.966 billion in 1996, due to 5% comparable store sales gains, the impact
of new and remodeled stores and increased catalogue sales.
Net sales for the year increased 6% to $9.189 billion in 1997 from $8.645
billion in 1996. Net sales at IBI increased $621 million due to the net addition
of 225 stores (excluding the impact of the Cacique and Penhaligon's store
closings), an 11% increase in comparable store sales and a 7% sales increase at
Victoria's Secret Catalogue. Additionally, A&F reported a $187 million sales
increase driven by a 21% increase in comparable store sales.
However, the 1997 sales increases at IBI and A&F were partially offset by
sales in the apparel businesses, which declined $308 million from 1996. The
decrease was due to a 5% decline in comparable store sales, and a net decrease
of 125 stores, principally from closing underperforming locations. Partially
offsetting these declines was a strong performance from Limited Too, which
generated a $63 million sales increase from a 20% increase in comparable store
sales.
Gross Income
The fourth quarter of 1998 gross income rate (expressed as a percentage of
sales) increased to 36.2% from 35.4% for the same period in 1997. The rate
increase was principally due to a 0.7% decrease in the buying and occupancy
rate. The buying and occupancy rate
5
<PAGE>
decrease was a result of sales leverage at IBI and the benefit from store
closings at the apparel businesses. The fourth quarter of 1997 gross income rate
increased to 35.4% from 33.0% for the same period in 1996. The merchandise
margin rate (representing gross income before deduction of buying and occupancy
costs) increased 2.3%, principally due to improved initial markup ("IMU").
For the year, the 1998 gross income rate increased to 32.1% from 30.7% in
1997. The rate increase was primarily due to a 0.9% increase in the merchandise
margin rate and a 0.5% decrease in the buying and occupancy rate. The gains in
the merchandise margin rate were due to an increase at the IBI businesses (the
apparel businesses experienced a decline). The buying and occupancy rate
declined at the IBI businesses as a result of sales leverage. The buying and
occupancy rate also declined at the apparel businesses due to sales leverage at
Express and Limited Too, as well as aggressive closings of oversized and
unprofitable stores over the past two years.
The 1997 gross income rate increased to 30.7% from 28.9% in 1996. The
merchandise margin rate increased 1.7%, principally due to improved IMU, while
the buying and occupancy rate was flat to the prior year.
General, Administrative and Store Operating Expenses
The fourth quarter of 1998 general, administrative and store operating expense
rate (expressed as a percentage of sales) increased to 21.4% from 20.8% for the
same period in 1997. The rate increase was attributable to: 1) a 0.8% rate
increase at IBI driven by investment in national advertising for Victoria's
Secret; 2) a lack of expense leverage at Limited Stores and Structure; and 3)
costs of direct mail and other targeted marketing efforts at the apparel
businesses.
The fourth quarter of 1997 general, administrative and store operating
expense rate increased to 20.8% from 18.7% in 1996. The rate increase was
attributable to: 1) a 2.5% rate increase at IBI that was driven by investment in
national advertising for Victoria's Secret; 2) the inability to leverage these
expenses at the women's apparel businesses due to disappointing sales
performance; and 3) compensation charges for restricted stock plans.
For the year, the 1998 general, administrative and store operating expense
rate increased to 24.6% from 23.1% in 1997. The rate increase was primarily
attributable to: 1) a 1.7% rate increase at IBI due to investment in national
advertising for Victoria's Secret, the growth of Bath & Body Works (with its
higher expense rate) in the overall mix of net sales, and additional store
staffing for product extensions and new initiatives in Victoria's Secret Stores;
2) the inability to leverage these expenses at the women's apparel businesses
due to disappointing sales performance; 3) compensation charges for restricted
stock plans; and 4) Year 2000 information technology costs.
The 1997 general, administrative and store operating expense rate increased
to 23.1% from 21.4% in 1996, primarily due to the same factors that affected the
fourth quarter of 1997.
Special and Nonrecurring Items
On May 19, 1998, the Company completed a tax-free exchange offer to
establish A&F as an independent company. A total of 47.1 million shares of the
Company's common stock were exchanged at a ratio of .86 of a share of A&F common
stock for each Limited share tendered. In connection with the exchange, the
Company recorded a $1.651 billion tax-free gain. This gain was measured based on
the $43 5/8 per share market value of the A&F common stock at the expiration
date of the exchange offer. The remaining 3.1 million A&F shares were
distributed through a pro rata spin-off to Limited shareholders.
Also during 1998, the Company recognized a gain of $93.7 million from the
sale of its remaining interest in Brylane. This gain was partially offset by a
$5.1 million charge, in accordance with Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits," for severance and other associate termination costs related to the
closing of five of six Henri Bendel stores. The severance charge was paid in
1998.
As a result of a plan adopted in connection with a 1997 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:
. A $68 million charge for the closing of the 118 store Cacique lingerie
business effective January 31, 1998. The amount was comprised of write-offs and
liquidations of store assets and accruals related to cancellations of
merchandise on order and other exit costs such as severance, service contract
termination fees and lease termination costs.
. An $82 million charge related to streamlining the Henri Bendel business from
six stores to one store (the five stores were closed by August 1, 1998), write-
offs of store assets, and accruals for contract cancellations and lease
termination costs.
. An $86 million impaired asset charge related to the apparel businesses and
Henri Bendel, covering certain store locations where the carrying values were
permanently impaired.
. A $28 million accrual for closing and downsizing oversized stores, primarily
within the Limited Stores, Lerner New York, Lane Bryant and Express businesses.
. 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 $276 million in special and nonrecurring charges were made up of the
following components: 1) asset write-downs of $67 million, all of which were
taken in 1997; 2) impaired asset charges of $86 million, all of which were taken
in 1997; 3) other liabilities such as severance and cancellations of merchandise
on order of $16 million, all of which were paid in 1998; and 4) store closing
and lease termination liabilities of $107 million, of which $32 million were
paid in 1998, leaving a $75 million liability at year-end.
The $75 million liability under the 1997 plan relates principally to future
payments and estimated settlement amounts for store closings and downsizings and
will continue until final payments to landlords are made, currently scheduled
through the year 2016. Unless settlements with landlords occur before the end of
such lease periods, completion will run the full lease term. In determining the
provision for lease obligations, the Company considered the amount of time
remaining on each store's lease and estimated the amount necessary for either
buying out the lease or continued rent payments.
No accruals related to these charges were reversed or recorded in operating
income during 1998.
The $86 million of impairment charges reduced depreciation by approximately
$18 million in 1998 and will have a similar impact in 1999. The Cacique business
had a pre-tax operating loss of $17 million in 1997, its last year of
operations. Henri Bendel's pre-tax operating loss improved by approximately $9
million in 1998 versus 1997, excluding reduced depreciation from the impairment
charge.
Additionally, the Company recognized a $13 million cost of sales charge in
the fourth quarter of 1997 for inventory liquidation charges at Henri Bendel in
accordance with EITF Issue No. 96-9, "Classification of Inventory Markdowns and
Other Costs Associated with a Restructuring."
The Company recognized a net $62.8 million gain during the third quarter of
1997 related to the sale of approximately one-half of its investment in Brylane.
This gain was net of valuation adjustments on certain assets where the carrying
values were permanently impaired.
In 1996, the Company recorded a $12 million special and nonrecurring charge
in connection with the April 1997 sale of Penhaligon's, a U.K.-based subsidiary
of IBI.
Operating Income
The fourth quarter of 1998 operating income rate (expressed as a percentage of
sales) was 14.9% versus 6.1% in 1997. Excluding special
6
<PAGE>
and nonrecurring items and the Henri Bendel inventory liquidation charge in
1997, the fourth quarter operating income rate was 14.9% in 1998 versus 15.0% in
1997. Significant gains in fourth quarter operating income at IBI were offset by
the loss of operating income from A&F after its May 19, 1998 split-off and lower
operating income at the apparel retail businesses. Strong results at Express and
Limited Too were more than offset by a significant fourth quarter operating loss
at Structure (which had an operating profit in 1997). Additionally, lower
profitability levels at Lerner New York and Lane Bryant also impacted the
apparel businesses' fourth quarter results.
The fourth quarter of 1997 operating income rate was 6.1% versus 13.9% in
1996. Excluding special and nonrecurring charges in both years and the Henri
Bendel inventory liquidation charge in 1997, the fourth quarter operating income
rate increased to 15.0% from 14.3% in 1996. This rate increase was due to a
higher gross income rate at IBI that more than offset general, administrative
and store operating expense rate increases.
For the year, the 1998 operating income rate was 26.1% versus 5.2% in 1997.
Excluding special and nonrecurring items in both years and the Henri Bendel
inventory liquidation charge in 1997, the operating income rate was 7.5% in 1998
versus 7.7% in 1997. In 1998, significant gains in the operating income rate at
IBI were offset by a lower operating income rate at the apparel businesses.
Operating income improvement at Express and continued favorable results at
Limited Too were more than offset by an operating loss at Structure in 1998
(compared to a modest profit in 1997) and significant growth in the operating
loss at Limited Stores.
The 1997 operating income rate was 5.2% versus 7.4% in 1996. Excluding
special and nonrecurring items in both years and the Henri Bendel inventory
liquidation charge in 1997, the operating income rate increased to 7.7% in 1997
from 7.5% in 1996, for the same reasons discussed above for the fourth quarter
of 1997.
Interest Expense
- --------------------------------------------------------------------------------
Fourth Quarter Year
1998 1997 1998 1997 1996
Average daily
borrowings (millions) $898.0 $891.4 $808.2 $835.9 $964.3
- --------------------------------------------------------------------------------
Average effective
interest rate 8.60% 8.07% 8.48% 8.22% 7.82%
- --------------------------------------------------------------------------------
Interest expense was $19.3 million in the fourth quarter of 1998, up $1.3
million over 1997. The increase was the result of financing fees, slightly
higher interest rates and increased borrowing levels. Interest expense for 1998
of $68.5 million was flat compared to $68.7 million in 1997 as lower average
borrowing levels were offset by higher interest rates.
Other Income
Other income was $15.0 million in both the fourth quarter of 1998 and 1997. For
the year 1998, other income increased $22.4 million to $59.3 million. The
increase was primarily due to interest earned on significantly higher average
cash balances during the first three quarters of 1998, which was primarily the
result of: 1) cash inflows totaling $343 million from the 1997 sales of the
Newport Tower office building in Jersey City, New Jersey, The Mall at Tuttle
Crossing in Columbus, Ohio, and one-half of the Company's interest in Brylane;
and 2) strong operating cash flows from the IBI businesses (see "Liquidity and
Capital Resources" following).
Gains in Connection with Initial Public Offerings
As discussed in Note 1 to the Consolidated Financial Statements, the Company
recognized a gain of $8.6 million during the first quarter of 1997, in
connection with the IPO of Brylane. In 1996, the Company recognized a $118.2
million tax-free gain in connection with the IPO of a 15.8% interest (8.05
million shares) of A&F.
Other Data
There were a number of significant events in fiscal years 1998 and 1997 that
impacted the comparability of the Company's earnings per share data and are more
fully described in the "Special and Nonrecurring Items" section herein and Note
2 to the Consolidated Financial Statements.
The information included in this section is not intended to be presented in
accordance with SEC guidelines for pro forma financial information but is
provided to assist in investors' understanding of the Company's results of
operations.
1998 versus 1997
Adjusted earnings per share in 1998 increased 11% to $1.46 from $1.31 in 1997,
adjusting for the impact of special items and reflecting the A&F split-off as if
it had occurred at the beginning of 1997. On the same basis, fourth quarter
adjusted earnings per share increased 11% to $1.07 in 1998 from $.96 in 1997.
The special items excluded from adjusted earnings per share were as
follows:
. In 1998, the Company recorded a $1.651 billion tax-free gain on the split-off
of A&F, a $93.7 million gain from the sale of the Company's remaining interest
in Brylane, and a $5.1 million charge for severance and other associate
termination costs at Henri Bendel.
. In 1997, the Company recognized $213.2 million in net special and nonrecurring
charges along with the $13.0 million Henri Bendel inventory liquidation charge.
. In 1997, the Company recognized a gain in connection with the IPO of Brylane
of $8.6 million (see Note 1 to the Consolidated Financial Statements).
The 1998 versus 1997 adjusted results exclude A&F net income of $7.5
million in 1998 and $48.3 million in 1997 and reflect adjusted taxes and
minority interest.
1997 versus 1996
Adjusted earnings per share increased 7% to $1.24 in 1997 from $1.16 in 1996,
adjusting for the impact of special items in 1997 (see above) and 1996 (see
following). On the same basis, fourth quarter adjusted earnings per share
increased 12% to $.91 from $.81 in 1996.
The special items excluded from 1996 adjusted earnings per share were as
follows:
. A $118.2 million tax-free gain in connection with the IPO of A&F.
. A $12.0 million special and nonrecurring charge related to the sale of
Penhaligon's.
. Approximately $10.5 million of interest income from temporarily investing
funds used to repurchase 85 million shares via a self-tender. The 1997 versus
1996 adjusted results include A&F full year net income in both years and reflect
adjusted taxes and minority interest.
7
<PAGE>
Financial Condition
The Company's balance sheet at January 30, 1999 provides continuing evidence of
financial strength and flexibility. The Company's long-term debt-to-equity ratio
declined to 25% at the end of 1998 from 32% in 1997, and working capital
increased 14% over 1997 to $1.1 billion. 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):
1998 1997 1996
Cash provided by
operating activities $571,014 $558,367 $701,445
- --------------------------------------------------------------------------------
Working capital $1,070,249 $937,739 $638,204
- --------------------------------------------------------------------------------
Capitalization:
- --------------------------------------------------------------------------------
Long-term debt $550,000 $650,000 $650,000
- --------------------------------------------------------------------------------
Shareholders' equity 2,233,303 2,044,957 1,922,582
- --------------------------------------------------------------------------------
Total capitalization $2,783,303 $2,694,957 $2,572,582
- --------------------------------------------------------------------------------
Additional amounts
available under long-term
credit agreements $1,000,000 $1,000,000 $1,000,000
- --------------------------------------------------------------------------------
The Company considers the following to be appropriate measures of liquidity and
capital resources:
1998 1997 1996
Debt-to-equity ratio 25% 32% 34%
(Long-term debt divided
by shareholders' equity)
- --------------------------------------------------------------------------------
Debt-to-capitalization ratio 20% 24% 25%
(Long-term debt divided
by total capitalization)
- --------------------------------------------------------------------------------
Interest coverage ratio 14x 14x 12x
(Income, excluding special
and nonrecurring items and
gains in connection with
initial public offerings,
before interest expense, income
taxes, depreciation, and
amortization divided by interest
expense)
- --------------------------------------------------------------------------------
Cash flow to capital
investment 164% 154% 194%
(Net cash provided by
operating activities divided
by capital expenditures)
- --------------------------------------------------------------------------------
The Company's operations are seasonal in nature and consist of two
principal selling seasons: Spring (the first and second quarters) and Fall (the
third and fourth quarters). The fourth quarter, including the Holiday season,
has accounted for 35%, 36% and 34% of net sales in 1998, 1997 and 1996.
Accordingly, cash requirements are highest in the third quarter as the Company's
inventory builds in anticipation of the Holiday season, which generates a
substantial portion of the Company's operating cash flow for the year.
Operating Activities
Net cash provided by operating activities was $571.0 million in 1998,
$558.4 million in 1997 and $701.4 million in 1996 and continued to serve as the
Company's primary source of liquidity.
The primary changes in cash provided by operating activities between 1998
and 1997 related to inventories and income taxes. The inventory increase of
$153.7 million was a result of: 1) a $62.2 million increase in inventory at IBI
primarily to support core basics at Victoria's Secret Stores; 2) increases at
the apparel businesses related to an increase in nonseasonal goods, basics, such
as denim and casual pants, and earlier delivery of Spring goods; and 3)
increased inventories for new stores at Galyan's. The inventory increase was
offset by a decrease in tax payments relative to 1997. The level of tax payments
in 1997 was unusually high due to the timing of tax payments and the settlement
of certain tax issues.
"On a comparable basis, the 1998 adjusted earnings per share of The Limited,
Inc. increased 11% to $1.46 from $1.31 in 1997. For the quarter, adjusted
earnings per share rose 11% to $1.07 from $.96 in 1997."
8
<PAGE>
Net cash provided by operating activities in 1997 decreased $143.1 million
from the prior year principally due to an increase in income tax payments.
Investing Activities
In 1998, investing activities included capital expenditures of $347.4 million,
$236.5 million of which was for new and remodeled stores. Also in 1998, the
Company received $131.3 million in proceeds from the sale of its remaining
interest in Brylane, and $31.1 million in net proceeds from the sale of
properties associated with the Easton project (see "Easton Real Estate
Investment" following). In 1997, investing activities included $235 million in
net proceeds from the sales of the Newport Tower and the Company's interest in
The Mall at Tuttle Crossing, 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.
Financing Activities
Cash used for financing activities in 1998 reflected an increase in the
quarterly dividend to $.13 per share from $.12 per share that was more than
offset by the reduction in shares outstanding from the split-off of A&F.
Dividends for 1998 were $6.3 million less than 1997. On February 1, 1999, the
Company announced a 15% increase in its quarterly dividend to $.15 per share.
Financing activities included three stock repurchases: one by the Company
and two by IBI, all initiated during 1998. First, to reduce the impact of
dilution from the exercise of stock options, the Company used $43 million of
proceeds from stock option exercises to repurchase 1.9 million Limited shares.
Second, in a repurchase completed in August 1998, IBI acquired 4.5 million
shares of its common stock for $106 million from its public shareholders. The
repurchased shares were specifically reserved to cover shares needed for
employee benefit plans. Finally, in January 1999, IBI announced its intention to
repurchase up to $500 million of its common stock. The purchases will be made on
a proportionate basis from both IBI public shareholders and The Limited. As of
January 30, 1999, IBI had repurchased 0.4 million shares from public
shareholders for $14.8 million. Additionally, IBI repurchased 2.2 million shares
from The Limited at the same weighted average per share price, which had no cash
flow impact to The Limited.
In connection with the split-off of A&F, the Company paid $47.6 million to
settle its intercompany balance at May 19, 1998.
Cash used for financing activities for 1997 reflected an increase in the
quarterly dividend to $.12 per share from $.10 per share in 1996. Financing
activities in 1996 included 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.
At January 30, 1999, the Company had available $1 billion under its
long-term credit agreement. Borrowings outstanding under the agreement are due
September 28, 2002. However, the revolving term of the agreement may be extended
an additional two years upon notification by the Company, subject to the
approval of the lending banks. 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 1998 and 1997
and the 1999 plan by business follows:
<TABLE>
<CAPTION>
End of Year Change From
Plan-1999 1998 1997 1999-98 1998-97
<S> <C> <C> <C> <C> <C>
Express
Stores 682 702 753 (20) (51)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 4,418,000 4,511,000 4,739,000 (93,000) (228,000)
- -----------------------------------------------------------------------------------------------------------------
Lerner New York
Stores 608 643 746 (35) (103)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 4,552,000 5,000,000 5,698,000 (448,000) (698,000)
- -----------------------------------------------------------------------------------------------------------------
Lane Bryant
Stores 710 730 773 (20) (43)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 3,427,000 3,517,000 3,735,000 (90,000) (218,000)
- -----------------------------------------------------------------------------------------------------------------
The Limited
Stores 499 551 629 (52) (78)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 3,067,000 3,371,000 3,790,000 (304,000) (419,000)
- -----------------------------------------------------------------------------------------------------------------
Structure
Stores 513 532 544 (19) (12)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 2,035,000 2,118,000 2,143,000 (83,000) (25,000)
- -----------------------------------------------------------------------------------------------------------------
Limited Too
Stores 359 319 312 40 7
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 1,152,000 1,006,000 979,000 146,000 27,000
- -----------------------------------------------------------------------------------------------------------------
Total Apparel Businesses
Stores 3,371 3,477 3,757 (106) (280)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 18,651,000 19,523,000 21,084,000 (872,000) (1,561,000)
- -----------------------------------------------------------------------------------------------------------------
Victoria's Secret
Stores 919 829 789 90 40
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 3,995,000 3,702,000 3,555,000 293,000 147,000
- -----------------------------------------------------------------------------------------------------------------
Bath & Body Works
Stores 1,231 1,061 921 170 140
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 2,499,000 2,092,000 1,773,000 407,000 319,000
- -----------------------------------------------------------------------------------------------------------------
Total Intimate Brands
Stores 2,150 1,890 1,710 260 180
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 6,494,000 5,794,000 5,328,000 700,000 466,000
- -----------------------------------------------------------------------------------------------------------------
Galyan's Trading Co.
Stores 18 14 11 4 3
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 1,268,000 964,000 641,000 304,000 323,000
- -----------------------------------------------------------------------------------------------------------------
Henri Bendel
Stores 1 1 6 -- (5)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 35,000 35,000 113,000 -- (78,000)
- -----------------------------------------------------------------------------------------------------------------
Abercrombie & Fitch
Stores -- -- 156 -- (156)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft -- -- 1,234,000 -- (1,234,000)
- -----------------------------------------------------------------------------------------------------------------
Total Retail Businesses
Stores 5,540 5,382 5,640 158 (258)
- -----------------------------------------------------------------------------------------------------------------
Selling square ft 26,448,000 26,316,000 28,400,000 132,000 (2,084,000)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Capital Expenditures
Capital expenditures amounted to $347.4 million, $362.8 million and $361.2
million for 1998, 1997 and 1996, of which $236.5 million, $194.4 million and
$235.7 million were for new stores and for remodeling of and improvements to
existing stores. Remaining capital expenditures are primarily related to
information technology and the Company's distribution centers, and include $30.2
million in 1997 and $42.1 million in 1996 for constructing the Bath & Body Works
distribution center.
The Company anticipates spending $440 to $460 million for capital
expenditures in 1999, of which $330 to $350 million will be for new stores and
for remodeling of and improvements to existing stores, and $35 to $45 million of
which will be for information technology ($8 to $10 million of which is related
to Year 2000 expenditures). The Company expects that substantially all 1999
capital expenditures will be funded by net cash provided by operating
activities.
The Company expects to increase selling square footage by approximately
132,000 selling square feet in 1999. It is anticipated that the increase will
result from the addition of approximately 340 stores (primarily within Intimate
Brands and Limited Too), offset by the remodeling of approximately 230 stores
and the closing of 150 to 200 stores (primarily women's apparel businesses).
Easton Real Estate Investment
The Company's real estate investments include Easton, a 1,200 acre planned
community in Columbus, Ohio, that integrates office, hotel, retail, residential
and recreational space. The Company's investments in partnerships, land and
infrastructure within the Easton property were $74.6 million at January 30, 1999
and $105.4 million at January 31, 1998.
In conjunction with the Easton development, the Company maintains an
indirect 43% operating interest in a partnership that is developing the Easton
Town Center. The Company is a co-guarantor on a $110 million loan agreement to
this partnership. The 1998 year-end loan balance was $18.3 million. Sufficient
leases have already been signed for the Easton Town Center so that anticipated
rental income will exceed debt service costs.
In 1998, the Easton project was cash positive with proceeds of $65.4
million exceeding expenditures of $34.3 million by $31.1 million. Expenditures
for the Easton development totaled $41.8 million in 1997 and $48.1 million in
1996 and net sales proceeds totaled $31.7 million in 1997 and $10.7 million in
1996. In 1999, the Company expects cash proceeds from the Easton development to
exceed expenditures of $25 to $35 million.
Information Systems and "Year 2000" Compliance
The Year 2000 issue arises primarily from computer programs, commercial systems
and embedded chips that will be unable to properly interpret dates beyond the
year 1999. The Company utilizes a variety of proprietary and third-party
computer technologies--both hardware and software--directly in its businesses.
The Company also relies on numerous third parties and their systems' ability to
address the Year 2000 issue. The Company's critical information technology
("IT") functions include point-of-sale equipment, merchandise distribution,
merchandise and non-merchandise procurement, credit card and banking services,
transportation, and business and accounting management systems. The Company is
using both internal and external resources to complete its Year 2000
initiatives.
In order to address the Year 2000 issue, the Company established a program
management office to oversee, monitor and coordinate the company-wide Year 2000
effort. This office has developed and is implementing a Year 2000 plan. The
implementation includes five stages: i) awareness, ii) assessment, iii)
renovation/development, iv) validation, and v) implementation. There are several
areas of focus: 1) renovation of legacy systems throughout the Company; 2)
installation of new software packages to replace legacy systems at five of our
operating businesses; 3) assessment of Year 2000 readiness at key vendors and
suppliers; and 4) evaluating facilities and distribution equipment with embedded
computer technology.
The status of each area of focus is as follows:
1) All five stages of Year 2000 implementation for renovation of legacy
systems are nearly complete or have been completed for significant IT systems at
the Company's businesses.
2) Replacement of significant legacy systems with new software packages has
been completed for two of the Company's businesses and is underway for three
others. The validation and implementation stages of these new systems are
expected to be completed in or prior to the second quarter of 1999.
3) A vast network of vendors, suppliers, and service providers located both
within and outside the United States provide the Company with merchandise for
resale, supplies for operational purposes, and services. The Company has
identified key vendors, suppliers, and service providers and is making inquiries
to determine their Year 2000 status. The Company has obtained assurances from a
number of its key vendors regarding their Year 2000 status and expects to
complete this process by mid-1999. In addition, the Company is in the process of
conducting on-site assessments of certain of its key vendors to further assess
such vendors' progress and expects to complete this process by mid-1999. Also,
the Company, along with other major retail organizations, is participating in a
national industry Year 2000 survey of over 80,000 suppliers and vendors.
4) The Company also utilizes various facilities and distribution equipment
with embedded computer technology, such as conveyors, elevators, security
systems, fire protection systems, and energy management systems. The Company's
assessment of these systems is in process and all stages of its efforts are
expected to be completed in the second quarter of 1999.
The Company believes that the reasonably likely worst-case scenario would
involve short-term disruption of systems affecting its supply and distribution
channels. The Company is developing contingency plans, such as alternative
sourcing, and identifying the necessary actions that it would need to take if
critical systems or service providers were not Year 2000 compliant. The Company
expects to finalize these contingency plans by mid-1999.
At the present time, the Company is not aware of any Year 2000 issues that
are expected to affect materially its products, services, competitive position
or financial performance. However, despite the Company's significant efforts to
make its systems, facilities and equipment Year 2000 compliant, the compliance
of third-party service providers and vendors (including, for instance,
government entities
10
<PAGE>
and utility companies) is beyond the Company's control. Accordingly, the Company
can give no assurances that the failure of systems of other companies on which
the Company's systems rely, or the failure of key suppliers or other third
parties to comply with Year 2000 requirements, will not have a material adverse
effect on the Company.
Total expenditures incurred through 1998 related to remediation, testing,
conversion, replacement and upgrading system applications were $70 million.
Incremental expenses totaled $28 million in 1998. In addition, significant
internal payroll costs (not separately identified) were incurred relating to the
Company's Year 2000 initiatives.
Total remaining expenditures are expected to range from $15 to $20 million
through 2000. 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 1999 and 2000.
"An acknowledged leader in its field, Limited Technology Services provides a
solid foundation for our family of the world's best fashion brands."
Impact of Inflation
The Company's results of operations and financial condition are presented based
on 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 the effects of inflation, if any, on the results of operations and
financial condition have been minor.
Adoption of New Accounting Standards
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires that certain external costs and internal payroll
and payroll-related costs be capitalized during the application development and
implementation stages of a software development project and amortized over the
software's useful life. The SOP is effective in the first quarter of 1999 and
the Company does not anticipate that this SOP will have an adverse effect on the
Company's results of operations.
Additionally, SOP 98-5, "Reporting on the Costs of Start-Up Activities,"
was issued in April 1998. The SOP requires that entities expense start-up costs
and organization costs as they are incurred. The SOP is effective in the first
quarter of 1999 and the Company does not anticipate that this SOP will have an
adverse effect on the Company's results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report or made by management of the Company involve risks and uncertainties
and are subject to change based on various important factors, many of which may
be beyond the Company's control. Accordingly, the Company's future performance
and financial results may differ materially from those expressed or implied in
any such forward-looking statements. Among other things, the foregoing
statements as to costs and dates relating to the Year 2000 effort are
forward-looking and are based on the Company's current best estimates, which may
be proven incorrect as additional information becomes available. The Company's
Year 2000-related forward-looking statements are also based on assumptions about
many important factors, including the technical skills of employees and
independent contractors, the representations and preparedness of third parties,
the ability of vendors to deliver merchandise or perform services required by
the Company and the collateral effects of the Year 2000 issues on the Company's
business partners and customers. While the Company believes its assumptions are
reasonable, it cautions that it is impossible to predict factors that could
cause actual costs or timetables to differ materially from the expected results.
In addition to Year 2000 issues, 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 1999 and
beyond to differ materially from those expressed or implied in any
forward-looking statements included in this Report or otherwise made by
management: changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, availability of suitable
store locations at appropriate terms, ability to develop new merchandise and
ability to hire and train associates.
11
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands except per share amounts)
1998 1997 1996
<S> <C> <C> <C>
Net sales $9,346,911 $9,188,804 $8,644,791
- ------------------------------------------------------------------------------------------------------------------------------------
Costs of goods sold, occupancy and buying costs (6,348,945) (6,370,827) (6,148,212)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross income 2,997,966 2,817,977 2,496,579
- ------------------------------------------------------------------------------------------------------------------------------------
General, administrative and store operating expenses (2,300,523) (2,124,663) (1,848,512)
- ------------------------------------------------------------------------------------------------------------------------------------
Special and nonrecurring items, net 1,740,030 (213,215) (12,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 2,437,473 480,099 636,067
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense (68,528) (68,728) (75,363)
- ------------------------------------------------------------------------------------------------------------------------------------
Other income, net 59,265 36,886 41,972
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest (64,564) (56,473) (45,646)
- ------------------------------------------------------------------------------------------------------------------------------------
Gain in connection with initial public offerings -- 8,606 118,178
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,363,646 400,390 675,208
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 310,000 183,000 241,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $2,053,646 $217,390 $434,208
- ------------------------------------------------------------------------------------------------------------------------------------
Net income per share:
- ------------------------------------------------------------------------------------------------------------------------------------
Basic $8.52 $.80 $1.55
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted 8.32 $.79 $1.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(Thousands)
Common Stock Treasury Total
Shares Retained Stock, at Shareholders'
Outstanding Par Value Paid-In Capital Earnings Average Cost Equity
<S> <C> <C> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase of common 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
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 2,053,646 -- 2,053,646
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends -- -- -- (124,203) -- (124,203)
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase of common stock (1,890) -- -- -- (43,095) (43,095)
- ------------------------------------------------------------------------------------------------------------------------------------
Split-off of Abercrombie & Fitch (47,075) -- -- (5,584) (1,766,138) (1,771,722)
- ------------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and other 2,737 -- 9,196 -- 64,524 73,720
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1999 226,572 $180,352 $157,214 $5,537,033 $(3,641,296) $2,233,303
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
12
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(Thousands)
<TABLE>
<CAPTION>
January 30, 1999 January 31, 1998
<S> <C> <C>
Assets
Current assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents $870,317 $746,395
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts receivable 77,715 83,370
- -----------------------------------------------------------------------------------------------------------------------------------
Inventories 1,119,670 1,002,710
- -----------------------------------------------------------------------------------------------------------------------------------
Store supplies 98,797 99,167
- -----------------------------------------------------------------------------------------------------------------------------------
Other 151,685 99,509
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 2,318,184 2,031,151
- -----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 1,361,761 1,415,912
- -----------------------------------------------------------------------------------------------------------------------------------
Restricted cash 351,600 351,600
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 48,782 56,586
- -----------------------------------------------------------------------------------------------------------------------------------
Other assets 469,381 445,512
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $4,549,708 $4,300,761
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts payable $289,947 $300,703
- -----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term debt 100,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 681,515 676,715
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes 176,473 115,994
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,247,935 1,093,412
- -----------------------------------------------------------------------------------------------------------------------------------
Long-term debt 550,000 650,000
- -----------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 56,010 58,720
- -----------------------------------------------------------------------------------------------------------------------------------
Minority interest 110,860 102,072
- -----------------------------------------------------------------------------------------------------------------------------------
Contingent stock redemption agreement 351,600 351,600
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock 180,352 180,352
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in capital 157,214 148,018
- -----------------------------------------------------------------------------------------------------------------------------------
Retained earnings 5,537,033 3,613,174
- -----------------------------------------------------------------------------------------------------------------------------------
5,874,599 3,941,544
- ------------------------------------------------------------------------------------------------------------------------------------
Less: treasury stock, at average cost (3,641,296) (1,896,587)
- -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 2,233,303 2,044,957
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,549,708 $4,300,761
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
(Thousands)
1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net income $ 2,053,646 $ 217,390 $ 434,208
- -----------------------------------------------------------------------------------------------------------------------------------
Impact of Other Operating Activities on Cash Flows
Depreciation and amortization 286,000 313,292 289,643
- -----------------------------------------------------------------------------------------------------------------------------------
Special and nonrecurring items, net of income taxes (1,705,030) 128,215 7,200
- -----------------------------------------------------------------------------------------------------------------------------------
Minority interest, net of dividends paid 41,786 34,736 21,637
- -----------------------------------------------------------------------------------------------------------------------------------
Gain in connection with initial public offerings, net -- (5,606) (118,178)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in Assets and Liabilities
Accounts receivable 4,704 (14,033) 8,179
- -----------------------------------------------------------------------------------------------------------------------------------
Inventories (153,667) (5,407) (48,350)
- -----------------------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses 39,281 81,833 116,599
- -----------------------------------------------------------------------------------------------------------------------------------
Income taxes 30,895 (145,832) (5,915)
- -----------------------------------------------------------------------------------------------------------------------------------
Other assets and liabilities (26,601) (46,221) (3,578)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 571,014 558,367 701,445
- -----------------------------------------------------------------------------------------------------------------------------------
Investing Activities
Net proceeds (expenditures) related to
Easton real estate investment 31,073 (10,148) (37,434)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures (347,356) (362,840) (361,202)
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from sale of property and related interests -- 234,976 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from partial sale of interest in investee 131,262 108,259 --
- -----------------------------------------------------------------------------------------------------------------------------------
Businesses acquired -- -- (41,255)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (185,021) (29,753) (439,891)
- -----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Net proceeds from issuance and sale of subsidiary stock -- -- 118,178
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase of subsidiary common stock (120,844) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends paid (124,203) (130,472) (108,302)
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase of common stock (43,095) -- (1,615,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Settlement of Abercrombie & Fitch intercompany account (47,649) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Stock options and other 73,720 35,457 10,635
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (262,071) (95,015) (1,594,489)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 123,922 433,599 (1,332,935)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, beginning of year 746,395 312,796 1,645,731
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year $ 870,317 $ 746,395 $ 312,796
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1998, noncash financing activities include the addition of $1.766 billion
treasury stock as a result of the exchange of 40,484,545 common shares of
Abercrombie & Fitch ("A&F") previously owned by the Company for 47,075,052
shares of common stock of the Company. Additional noncash financing activities
include a $5.6 million dividend effected by a pro rata spin-off of the Company's
remaining shares of A&F (see Note 2). In 1997, noncash financing activities
included $2.2 million for stock issued in connection with the acquisition of
Galyan's.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
"We are growing shareholder value by focusing our talent, time, and capital
resources on the highest return opportunities.
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The Limited, Inc.
(the "Company") and all significant subsidiaries that are more than 50% owned
and controlled. All significant intercompany balances and transactions have been
eliminated in consolidation. The results of Abercrombie & Fitch ("A&F") are
included in the consolidated financial statements through May 19, 1998, the date
A&F was established as an independent company (see Note 2).
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 1998, 1997 and
1996 represent the 52-week periods ended January 30, 1999, January 31, 1998 and
February 1, 1997.
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, is capitalized at
the store opening date. Subsequent shipments are expensed, except for new
merchandise presentation programs, which are capitalized.
Catalogue and Advertising Costs
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 $303 million, $275 million
and $242 million in 1998, 1997 and 1996.
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 to 30 years for buildings and improvements and 3 to
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 over
30 years. Unamortized goodwill related to the $106 million Intimate Brands, Inc.
("IBI") stock buyback will reverse as the shares are reissued to cover shares
needed for employee benefit plans.
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
At January 30, 1999, five hundred million shares of $.50 par value common stock
are authorized and 379.5 million shares are issued. At January 30, 1999, and
January 31, 1998, 226.6 million shares and 272.8 million shares are outstanding.
Ten million shares of $1.00 par value preferred stock are authorized, none of
which have been issued.
On May 19, 1998, the Company acquired 47.1 million shares of its common
stock via a tax-free exchange offer to establish A&F as an independent company
(see Note 2).
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
with funds made available from a series of transactions that included: 1) the
initial public offering of a 16.9% interest in IBI; 2) the securitization of
Alliance Data Systems ("ADS," formerly WFN) credit card receivables; and 3) the
sale of a 60% interest in ADS.
Revenue Recognition
The Company records retail merchandise sales at the time the customer takes
possession of merchandise; that is, the point of sale. With respect to catalogue
sales, the Company records merchandise sales upon shipment of merchandise. A
reserve is provided for 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." Earnings per basic share is computed based on the weighted average
number of outstanding common shares. Earnings per diluted share includes the
weighted average effect of dilutive options and restricted stock on the weighted
average shares outstanding. Additionally, earnings per diluted share includes
the impact of the dilutive options and restricted stock at IBI as a reduction to
earnings. This reduction did not impact the 1997 or 1996 calculations, but
resulted in slightly more than a $.01 reduction in 1998 earnings per diluted
share.
16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Thousands)
1998 1997 1996
<S> <C> <C> <C>
Weighted Average Common Shares Outstanding
Common shares issued 379,454 379,454 379,454
- -------------------------------------------------------------------------------------------------
Treasury shares (138,547) (107,556) (98,755)
- -------------------------------------------------------------------------------------------------
Basic shares 240,907 271,898 280,699
- -------------------------------------------------------------------------------------------------
Dilutive effect of options
and restricted shares 5,412 2,585 1,354
- -------------------------------------------------------------------------------------------------
Diluted shares 246,319 274,483 282,053
- -------------------------------------------------------------------------------------------------
</TABLE>
The computation of earnings per diluted share excludes options to purchase
3.2 million, 0.7 million and 5.9 million shares of common stock that were
outstanding at year-end 1998, 1997 and 1996, because the options' exercise price
was greater than the average market price of the common shares. In addition, the
18.75 million shares subject to the Contingent Stock Redemption Agreement (see
Notes 5 and 9) are excluded from the dilution calculation because their
redemption would not have a dilutive effect on earnings per share.
"The Company had an operating cash flow of $571 million and a debt-to-equity
ratio of 25%."
Gains in Connection With Initial Public Offerings
Gains in connection with initial public offerings of subsidiaries are recognized
in the current year's income. In 1997, the Company recognized a 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 tax-free gain in connection with the IPO of a 15.8%
interest (8.05 million shares) of A&F.
Minority interest of $110.9 million at January 30, 1999, represents a 15.5%
interest in the net equity of IBI. 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
On May 19, 1998, the Company completed a tax-free exchange offer to establish
A&F as an independent company. A total of 47,075,052 shares of the Company's
common stock were exchanged at a ratio of .86 of a share of A&F common stock for
each Limited share tendered. In connection with the exchange, the Company
recorded a $1.651 billion tax-free gain. This gain was measured based on the
$43 5/8 per share market value of the A&F common stock at the expiration date of
the exchange offer. In addition, on June 1, 1998 a $5.6 million dividend was
effected through a pro rata spin-off to shareholders of the Company's remaining
3,115,455 A&F shares. Limited shareholders of record as of the close of trading
on May 29, 1998 received .013673 of a share of A&F for each Limited share owned
at that time.
During the first quarter of 1998, the Company recognized a gain of $93.7
million from the sale of 2.57 million shares at $51 per share, representing its
remaining interest in Brylane. This gain was partially offset by a $5.1 million
charge for severance and other associate termination costs related to the
closing of five of six Henri Bendel stores. The severance charge was paid in
1998.
As a result of a plan adopted in connection with a 1997 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 noncore
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:
. A $68 million charge for the closing of the 118 store Cacique lingerie
business effective January 31, 1998. The amount was comprised of write-offs and
liquidations of store assets and accruals related to cancellations of
merchandise on order and other exit costs such as severance, service contract
termination fees and lease termination costs.
. An $82 million charge related to streamlining the Henri Bendel business from
six stores to one store (the five stores were closed by August 1, 1998), write-
offs of store assets, and accruals for contract cancellations and lease
termination costs.
. An $86 million impaired asset charge related to the apparel businesses and
Henri Bendel, covering certain store locations where the carrying values were
permanently impaired.
. A $28 million accrual for closing and downsizing oversized stores, primarily
within the Limited Stores, Lerner New York, Lane Bryant and Express businesses.
. 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 $276 million in special and nonrecurring charges were made up of the
following components: 1) asset write-downs of $67 million, all of which were
taken in 1997; 2) impaired asset charges of $86 million, all of which were taken
in 1997; 3) other liabilities such as severance and cancellations of
merchandise on order of $16 million, all of which were paid in 1998; and 4)
store closing and lease termination liabilities of $107 million, of which $32
million were paid in 1998, leaving a $75 million liability at year-end.
The $75 million liability under the 1997 plan relates principally to future
payments and estimated settlement amounts for store closings and downsizings and
will continue until final payments to landlords are made, currently scheduled
through the year 2016. Unless settlements with landlords occur before the end of
such lease periods, completion will run the full lease term. In determining the
provision for lease obligations, the Company considered the amount of time
remaining on each store's lease and estimated the amount necessary for either
buying out the lease or continued rent payments.
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 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. These analyses indicated that undiscounted future cash flows
would be less than the carrying values of the respective 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.
No accruals related to these charges were reversed or recorded in operating
income during 1998.
17
<PAGE>
During the third quarter of 1997, the Company recognized a $75.3 million
gain in connection with the sale of 2.4 million shares of Brylane for $46 per
share, generating cash proceeds of $108 million. This gain was partially offset
by valuation adjustments of $12.5 million on certain assets where the carrying
values were permanently impaired.
In 1996, the Company recorded a $12 million special and nonrecurring charge
in connection with the April 1997 sale of Penhaligon's, a U.K.-based subsidiary
of IBI.
<TABLE>
<CAPTION>
3. Property and Equipment
- -----------------------------------------------------------------------------------------------
(Thousands)
1998 1997
<S> <C> <C>
Property and Equipment, At Cost
Land, buildings and improvements $411,483 $354,495
- -----------------------------------------------------------------------------------------------
Furniture, fixtures and equipment 1,930,906 1,951,172
- -----------------------------------------------------------------------------------------------
Leaseholds and improvements 563,217 539,047
- -----------------------------------------------------------------------------------------------
Construction in progress 108,478 155,585
- -----------------------------------------------------------------------------------------------
Total 3,014,084 3,000,299
- -----------------------------------------------------------------------------------------------
Less: accumulated depreciation and amortization 1,652,323 1,584,387
- -----------------------------------------------------------------------------------------------
Property and equipment, net $1,361,761 $1,415,912
- -----------------------------------------------------------------------------------------------
</TABLE>
4. Leased Facilities, Commitments and Contingencies
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)
1998 1997 1996
Rent Expense
Fixed minimum $666,729 $714,995 $687,095
- ------------------------------------------------------------------------
Contingent 39,642 32,918 25,341
- ------------------------------------------------------------------------
Total store rent 706,371 747,913 712,436
- ------------------------------------------------------------------------
Equipment and other 22,511 23,492 25,163
- ------------------------------------------------------------------------
Total rent expense $728,882 $771,405 $737,599
- ------------------------------------------------------------------------
At January 30, 1999, the Company was committed to noncancelable leases with
remaining terms generally from one to twenty years. A substantial portion of
these commitments consists of 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
1999 $643,828
- ------------------------------------------------------------------------
2000 632,785
- ------------------------------------------------------------------------
2001 602,868
- ------------------------------------------------------------------------
2002 563,468
- ------------------------------------------------------------------------
2003 502,880
- ------------------------------------------------------------------------
Thereafter 1,427,862
- ------------------------------------------------------------------------
The Company maintains an indirect 43% operating interest in a partnership that
is developing the Easton Town Center in Columbus, Ohio. The Company is a
co-guarantor on a $110 million loan agreement to this partnership. The 1998
year-end loan balance was $18.3 million.
5. Restricted Cash
At January 30, 1999, and 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, because it has been reserved for use in the event that the Wexner
Children's Trust, established by Leslie H. Wexner, the Company's principal
shareholder, exercises its opportunity to require the Company to redeem, or the
Company exercises its opportunity to redeem from the Trust, shares of The
Limited, Inc. common stock in accordance with the terms of the Contingent Stock
Redemption Agreement (see Note 9). Interest earnings of $17.9 million, $18.6
million, and $17.9 million in 1998, 1997 and 1996 on the segregated cash accrued
to the Company.
6. Accrued Expenses
- ------------------------------------------------------------------------------
(Thousands)
1998 1997
Accrued Expenses
Compensation, payroll taxes and benefits $157,785 $135,701
- ------------------------------------------------------------------------------
Rent 176,075 152,850
- ------------------------------------------------------------------------------
Taxes, other than income 46,413 42,321
- ------------------------------------------------------------------------------
Interest 21,057 21,129
- ------------------------------------------------------------------------------
Other 280,185 324,714
- ------------------------------------------------------------------------------
Total $681,515 $676,715
- ------------------------------------------------------------------------------
7. Income Taxes
- ------------------------------------------------------------------------------
(Thousands)
1998 1997 1996
Provision For Income Taxes
Currently payable
- ------------------------------------------------------------------------------
Federal $194,100 $304,300 $210,400
- ------------------------------------------------------------------------------
State 38,800 33,800 34,000
- ------------------------------------------------------------------------------
Foreign 4,500 3,700 2,400
- ------------------------------------------------------------------------------
Total 237,400 341,800 246,800
- ------------------------------------------------------------------------------
Deferred
- ------------------------------------------------------------------------------
Federal 58,100 (156,600) (13,800)
- ------------------------------------------------------------------------------
State 14,500 (2,200) 8,000
- ------------------------------------------------------------------------------
Total 72,600 (158,800) (5,800)
- ------------------------------------------------------------------------------
Total provision $310,000 $183,000 $241,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The foreign component of pretax income, arising principally from overseas
sourcing operations, was $65.5 million, $62.3 million and $45.9 million in 1998,
1997 and 1996.
18
<PAGE>
- -------------------------------------------------------------------------------
1998 1997 1996
Reconciliation Between the Statutory Federal
Income Tax Rate and the Effective Tax Rate
Federal income tax rate 35.0% 35.0% 35.0%
- -------------------------------------------------------------------------------
State income taxes, net of
Federal income tax effect 4.5% 4.5% 4.5%
- -------------------------------------------------------------------------------
Other items, net .4% .6% .5%
- -------------------------------------------------------------------------------
Total 39.9% 40.1% 40.0%
- -------------------------------------------------------------------------------
The reconciliation between the statutory Federal income tax rate and the
effective income tax rate on pretax earnings excludes the nontaxable gain from
the split-off of A&F in May 1998, the nontaxable gain from sale of subsidiary
stock in 1996, and minority interest.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(Thousands)
1998 1997
Assets Liabilities Total Assets Liabilities Total
<S> <C> <C> <C> <C> <C> <C>
Effect of Temporary Differences
That Give Rise to
Deferred Income Taxes
Tax under
(over) book
depreciation $16,300 -- $16,300 -- $(1,400) $(1,400)
- -----------------------------------------------------------------------------------------------------------
Undistributed
earnings of
foreign affiliates -- $(104,900) (104,900) -- (102,400) (102,400)
- -----------------------------------------------------------------------------------------------------------
Special and
nonrecurring
items 63,200 -- 63,200 $99,200 -- 99,200
- -----------------------------------------------------------------------------------------------------------
Rent 65,300 -- 65,300 62,100 -- 62,100
- -----------------------------------------------------------------------------------------------------------
Inventory 22,100 -- 22,100 43,700 -- 43,700
- -----------------------------------------------------------------------------------------------------------
Investments in
affiliates -- (28,000) (28,000) -- (24,900) (24,900)
- -----------------------------------------------------------------------------------------------------------
State income
taxes 27,700 -- 27,700 24,900 -- 24,900
- -----------------------------------------------------------------------------------------------------------
Other -- (24,400) (24,400) 18,500 -- 18,500
- -----------------------------------------------------------------------------------------------------------
Total deferred
income taxes $194,600 $(157,300) $37,300 $248,400 $(128,700) $119,700
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Income taxes payable included net current deferred tax liabilities of $11.5
million and net current deferred tax assets of $63.1 million at January 30, 1999
and January 31, 1998.
Income tax payments were $241.7 million, $410.8 million and $233.8 million
for 1998, 1997 and 1996.
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.
8. Long-Term Debt
- -------------------------------------------------------------
(Thousands)
1998 1997
Unsecured Long-Term Debt
7 1/2% Debentures due March 2023 $250,000 $250,000
- -------------------------------------------------------------
7 4/5% Notes due May 2002 150,000 150,000
- -------------------------------------------------------------
9 1/8% Notes due February 2001 150,000 150,000
- -------------------------------------------------------------
8 7/8% Notes due August 1999 100,000 100,000
- -------------------------------------------------------------
650,000 650,000
- -------------------------------------------------------------
Less: current portion of
long-term debt 100,000 --
- -------------------------------------------------------------
Total $550,000 $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 0.1% 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
30, 1999.
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 30, 1999.
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 30, 1999, 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.
Interest paid was $68.6 million, $69.1 million and $65.5 million in 1998,
1997 and 1996.
9. Contingent Stock Redemption Agreement
On March 17, 1996, the Company purchased from shareholders, via a self-tender
offer, 85 million shares of The Limited, Inc. common stock for $1.615 billion.
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 "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 circum-
19
<PAGE>
stances, lenders to the Trust, if any, also may exercise this opportunity. 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 5). The terms of this agreement were approved by the Company's
Board of Directors.
10. Stock Options and Restricted Stock
Under the Company's stock plans, associates may be granted up to a total of 29.8
million restricted shares and options to purchase the Company's common stock at
the market price on the date of grant. Options generally vest 25% per year over
the first four years of the grant. Of the options granted, 2.3 million options
in 1998 and 5.6 million options in 1997 had graduated vesting schedules over six
years. Virtually all options have a maximum term of ten years.
Under separate IBI stock plans, IBI associates may be granted up to a total
of 17.5 million restricted shares and options to purchase IBI's common stock at
the market price on the date of grant. As of January 30, 1999, options to
purchase 5.6 million IBI shares were outstanding, of which 882,000 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 share, including the impact of
options issued by IBI (and A&F in 1997 and 1996), would have been a reduction of
approximately $13.9 million or $.06 per share in 1998, $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 ($8.32, $5.79
and $4.72 during 1998, 1997 and 1996) was used to calculate the pro forma
compensation expense. The fair value was estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for 1998,
1997 and 1996: dividend yields of 2.2%, 2.8% and 2.8%; volatility of 29%, 27%
and 31%; risk-free interest rates of 5%, 6% and 5.25%; assumed forfeiture rates
of 20%, 15% and 20%; and expected lives of 6.3 years, 6.5 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.
Restricted Shares
Approximately 858,000, 2,120,000 and 468,000 restricted Limited shares were
granted in 1998, 1997 and 1996, with market values at date of grant of $27.4
million, $43.9 million and $8.3 million. 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. In 1997, 1.7 million restricted shares were
granted with a graduated vesting schedule over six years. These grants included
685,000 restricted shares with performance requirements, all of which have been
met.
Additionally, the expense recognized from the issuance of IBI and A&F
restricted stock grants impacted the Company's consolidated results. IBI granted
405,000, 1,442,000 and 169,000 restricted shares in 1998, 1997 and 1996. A&F
granted 540,000 and 50,000 restricted shares in 1997 and 1996. Vesting terms for
the IBI restricted shares are similar to those of The Limited. The market value
of restricted shares 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 in
1997 and 1996), amounted to $31.3 million in 1998, $29.0 million in 1997 and
$9.1 million in 1996.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Stock Options Outstanding at January 30, 1999
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$14 - $17 2,823,000 6.2 $17 1,529,000 $17
-------------------------------------------------------------------------
$18 - $22 6,362,000 7.7 $20 1,499,000 $21
-------------------------------------------------------------------------
$23 - $27 3,319,000 8.0 $26 593,000 $24
-------------------------------------------------------------------------
$28 - $33 345,000 9.3 $30 -- --
-------------------------------------------------------------------------
$14 - $34 2,074,000 7.5 $21 833,000 $19
-------------------------------------------------------------------------
$14 - $34 14,923,000 7.5 $21 4,454,000 $20
-------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Weighted Average
Number of Option Price
Shares Per Share
Stock Option Activity
<S> <C> <C>
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 end of year 5,249,000 $ 20.24
- ---------------------------------------------------------------------------
<CAPTION>
1997
<S> <C> <C>
- ---------------------------------------------------------------------------
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 end of year 4,907,000 $ 19.89
- ---------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 14,070,000 $ 19.70
- ---------------------------------------------------------------------------
Granted 3,885,000 26.32
- ---------------------------------------------------------------------------
Exercised (2,439,000) 18.62
- ---------------------------------------------------------------------------
Canceled (593,000) 24.26
- ---------------------------------------------------------------------------
Outstanding at end of year 14,923,000 $ 21.42
- ---------------------------------------------------------------------------
Options exercisable at end of year 4,454,000 $ 19.57
- ---------------------------------------------------------------------------
</TABLE>
20
<PAGE>
11. 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 $40.4
million in 1998, $36.4 million in 1997 and $36.2 million in 1996.
12. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Current Assets, Liabilities and Restricted Cash
The carrying value of cash equivalents, restricted cash, accounts receivable,
accounts payable, current portion of long-term debt, 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Thousands)
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Estimated Fair Values of the
Company's Financial Instruments
<S> <C> <C> <C> <C>
Long-term debt $(550,000) $(561,594) $(650,000) $(667,391)
- --------------------------------------------------------------------------------------------
Interest rate swap $(96) $(3,896) $(328) $(5,345)
- --------------------------------------------------------------------------------------------
</TABLE>
13. Segment Information
The Company has adopted SFAS No. 131. "Disclosures about Segments of an
Enterprise and Related Information." The Company determines operating segments
based on a business's operating characteristics. Reportable segments were
determined based on similar economic characteristics, the nature of products and
services, and the method of distribution. The apparel segment derives its
revenues from sales of women's, men's and children's apparel. The Intimate
Brands segment derives its revenues from sales of women's intimate and other
apparel, and personal care products and accessories. Sales outside the United
States were insignificant.
The Company and IBI have entered into intercompany agreements for services
that include merchandise purchases, capital expenditures, real estate management
and leasing, inbound and outbound transportation and corporate services. These
agreements specify that identifiable costs be passed through to IBI and that
other services-related costs be allocated in accordance with the intercompany
agreement. Costs are passed through and allocated to the apparel businesses in a
similar manner.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Thousands)
Apparel Intimate Reconciling
Businesses Brands .Other Items Total
Segment Information
1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $5,044,972 $3,885,753 $416,186 -- $9,346,911
- -------------------------------------------------------------------------------------------
Intersegment sales 401,309 -- -- *$(401,309) --
- -------------------------------------------------------------------------------------------
Depreciation and
amortization 136,491 101,221 48,288 -- 286,000
- -------------------------------------------------------------------------------------------
Operating income
(loss) (10,826) 680,849 27,420 #1,740,030 2,437,473
- -------------------------------------------------------------------------------------------
Total assets 1,270,059 1,448,077 1,825,712 @5,860 4,549,708
- -------------------------------------------------------------------------------------------
Capital expenditures 82,989 121,543 142,824 -- 347,356
1997
- -------------------------------------------------------------------------------------------
Net sales $4,806,450 $3,617,856 $764,498 -- $9,188,804
- -------------------------------------------------------------------------------------------
Intersegment sales 452,903 -- -- *$(452,903) --
- -------------------------------------------------------------------------------------------
Depreciation and
amortization 146,929 106,197 60,166 -- 313,292
- -------------------------------------------------------------------------------------------
Operating income 45,704 572,252 88,358 +(226,215) 480,099
- -------------------------------------------------------------------------------------------
Total assets 1,121,237 1,347,700 1,844,281 @(12,457) 4,300,761
- -------------------------------------------------------------------------------------------
Capital expenditures 78,481 124,275 160,084 -- 362,840
1996
- -------------------------------------------------------------------------------------------
Net sales $5,113,076 $2,997,340 $534,375 -- $8,644,791
- -------------------------------------------------------------------------------------------
Intersegment sales 427,861 -- -- *$(427,861) --
- -------------------------------------------------------------------------------------------
Depreciation and
amortization 153,929 85,573 50,141 -- 289,643
- -------------------------------------------------------------------------------------------
Operating income 155,843 470,142 22,082 ++(12,000) 636,067
- -------------------------------------------------------------------------------------------
Total assets 1,323,176 1,135,162 1,661,664 -- 4,120,002
- -------------------------------------------------------------------------------------------
Capital expenditures 100,371 123,630 137,201 -- 361,202
</TABLE>
. Included in the "Other" category are Galyan's Trading Co., Henri Bendel,
A&F (through May 19, 1998), noncore real estate, and corporate, none of
which are significant operating segments.
* Represents intersegment sales elimination.
# 1998 special and nonrecurring items: 1) a $1.651 billion tax-free gain on
the split-off of A&F;
2) a $93.7 million gain from the sale of the Company's remaining interest
in Brylane; and
3) a $5.1 million charge for severance and other associate termination
costs related to the closing of Henri Bendel stores. These special items
relate to the "Other" category.
@ Represents intersegment receivable/payable elimination.
+ 1997 special and nonrecurring items: 1) an $89.0 million charge for the
apparel businesses related to asset impairment and the closing and
downsizing of certain stores; 2) a $67.6 million charge for Intimate Brands
related to the closing of the Cacique business (effective January 31,
1998); and 3) a $107.4 million charge related to the closing of five of six
Henri Bendel stores, $62.8 million of income related to the gain from the
sale of approximately one-half of the Company's interest in Brylane (net of
a $12.5 million valuation adjustment on an investment), and a $12.0 million
write-down of a real estate investment to net realizable value, all of
which relate to the "Other" category. Additionally, includes a $13.0
million inventory liquidation charge associated with the Henri Bendel
closings.
++ 1996 special and nonrecurring item: a $12.0 million charge for revaluation
of certain assets in connection with Intimate Brands' April 1997 sale of
Penhaligon's.
- --------------------------------------------------------------------------------
21
<PAGE>
14. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
Summarized quarterly financial results for 1998 and 1997 (thousands except per
share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarters
<S> <C> <C> <C> <C>
Net sales $2,008,077 $2,083,101 $1,999,862 $3,255,871
- ---------------------------------------------------------------------------------
Gross income 586,670 614,714 616,743 1,179,839
- ---------------------------------------------------------------------------------
Net income 79,469 1,684,338 39,355 250,484
- ---------------------------------------------------------------------------------
Net income per share:
- ---------------------------------------------------------------------------------
Basic $0.29 $7.13 $0.17 $1.11
- ---------------------------------------------------------------------------------
Diluted 0.28 6.93 0.17 1.07
- ---------------------------------------------------------------------------------
1997 Quarters
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 share:
- ---------------------------------------------------------------------------------
Basic $0.09 $0.10 $0.29 $0.31
- ---------------------------------------------------------------------------------
Diluted 0.09 0.10 0.29 0.31
- ---------------------------------------------------------------------------------
</TABLE>
1998: Special and nonrecurring items included a $93.7 million gain in the first
quarter from the sale of the Company's remaining interest in Brylane, a
26% owned (post-IPO) catalogue retailer, a $5.1 million charge in the
first quarter for severance and other associate termination costs related
to the closing of Henri Bendel stores, and a $1.651 billion tax-free gain
in the second quarter on the split-off of A&F.
1997: Gains in connection with initial public offerings included an $8.6
million gain in the first quarter in connection with the Company's
ownership portion of Brylane. Special charges included $276 million in
special and nonrecurring items and an additional $13 million in inventory
liquidation charges during the fourth quarter, and a net $62.8 million
gain during the third quarter relating to the sale of approximately one-
half of the Company's investment in Brylane (net of a $12.5 million
valuation charge on an investment).
MARKET PRICE AND DIVIDEND INFORMATION
- ------------------------------------------------------------
Market Price Cash Dividend
High Low Per Share
Fiscal Year End 1998
4th quarter $34 1/8 $25 5/16 $0.13
- ------------------------------------------------------------
3rd quarter 27 3/16 20 7/8 0.13
- ------------------------------------------------------------
2nd quarter 36 1/4 26 13/16 0.13
- ------------------------------------------------------------
1st quarter 33 7/8 27 1/8 0.13
- ------------------------------------------------------------
Fiscal Year End 1997
4th quarter $27 1/4 $23 9/16 $0.12
- ------------------------------------------------------------
3rd quarter 25 1/2 21 3/8 0.12
- ------------------------------------------------------------
2nd quarter 22 5/16 18 5/8 0.12
- ------------------------------------------------------------
1st quarter 20 1/8 17 0.12
- ------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange ("LTD") and
the London Stock Exchange. On January 30, 1999, there were approximately 82,000
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 260,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Limited, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity, and cash flows present
fairly, in all material respects, the consolidated financial position of The
Limited, Inc. and its subsidiaries at January 30, 1999, and January 31, 1998,
and the consolidated results of their operations and their cash flows for each
of the three fiscal years in the period ended January 30, 1999 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these consolidated statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Columbus, Ohio
February 23, 1999
22
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Subsidiaries (a) of Incorporation
---------------- ----------------
Express, LLC (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 , LLC (p) Delaware
Bath & Body Works, Inc. (q) Delaware
Gryphon Development, Inc. (r) Delaware
Intimate Brands Service Corporation (s) Delaware
Intimate Brands, Inc. (t) 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 30, 1999.
(b) Express, LLC 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 Womanco, Inc., 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.
(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),
<PAGE>
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 and 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, LLC is a wholly-owned subsidiary of
Victoria's Secret Catalogue Holding LLC, a Delaware limited liability
company, 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) 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.
(s) Intimate Brands Service Corporation is a wholly-owned subsidiary of
Intimate Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(t) Intimate Brands, Inc. is a majority owned subsidiary of the registrant.
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Limited, Inc. on Form S-8, Registration Nos. 33-18533, 33-25005, 2-92277,
33-24829, 33-24507, 33-24828, 2-95788, 2-88919, 33-24518, 33-6965, 33-14049,
33-22844, 33-44041, 33-49871, 333-04927, 333-04941 and the registration
statements on Form S-3, Registration Nos. 33-20788, 33-31540, 33-42832 and
33-53366 and on Form S-4, Registration No. 333-46423 of our report dated
February 23, 1999, on our audits of the consolidated financial statements of The
Limited, Inc. and Subsidiaries as of January 30, 1999 and January 31, 1998 and
for the fiscal years ended January 30, 1999, January 31, 1998 and February 1,
1997, which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Columbus, Ohio
April 19, 1999
<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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/s/ V. ANN HAILEY
-----------------
V. Ann Hailey
<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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/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
fiscal year ended January 30, 1999 under the provisions of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission, Washington,
DC, 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 29th day of January, 1999.
/s/ KENNETH B. GILMAN
---------------------
Kenneth B. Gilman
<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 JANUARY 30, 1999 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-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 870,317
<SECURITIES> 0
<RECEIVABLES> 77,715
<ALLOWANCES> 0
<INVENTORY> 1,119,670
<CURRENT-ASSETS> 2,318,184
<PP&E> 3,014,084
<DEPRECIATION> 1,652,323
<TOTAL-ASSETS> 4,549,708
<CURRENT-LIABILITIES> 1,247,935
<BONDS> 550,000
0
0
<COMMON> 180,352
<OTHER-SE> 2,052,951
<TOTAL-LIABILITY-AND-EQUITY> 4,549,708
<SALES> 9,346,911
<TOTAL-REVENUES> 9,346,911
<CGS> 6,348,945
<TOTAL-COSTS> 6,348,945
<OTHER-EXPENSES> 2,300,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,528
<INCOME-PRETAX> 2,363,646
<INCOME-TAX> 310,000
<INCOME-CONTINUING> 2,053,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,053,646
<EPS-BASIC> 8.52
<EPS-DILUTED> 8.32
</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, 1998 and 1997, and the related statements of changes in net assets
available for benefits for the years then ended. 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, 1998 and 1997, and the changes in net assets available
for benefits for each of the years then ended, in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules of
assets held for investment purposes at December 31, 1998 and reportable
transactions in excess of 5% of the current value of plan assets for the year
ended December 31, 1998, are presented for the purpose of additional analysis
and are not a required part of the basic financial statements, but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
February 16, 1999.
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, 1998
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
TOTAL Stock Fund Income Fund Fund
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments, at Fair Value:
At Quoted Market Price:
Common Stock:
The Limited, Inc. $ 70,799,467 $70,799,467 $ - $ -
Intimate Brands, Inc. 5,876,681 - - -
Abercrombie & Fitch Co 5,721,765 - - -
Mutual Funds:
Vanguard Retirement
Savings Trust Fund 89,083,764 - 89,083,764 -
Vanguard Index Trust
500 Portfolio 98,041,511 - - 98,041,511
Vanguard U.S. Growth
Portfolio 86,327,108 - - -
Vanguard Wellington
Fund 24,530,446 - - -
At Estimated Value:
Common Collective Trust 101,414 357 100,307 -
------------ ----------- ----------- ------------
Total Investments 380,482,156 70,799,824 89,184,071 98,041,511
Contribution Receivable
from Employers 25,548,732 1,590,209 10,942,273 5,475,740
Receivable from Employers
for Withheld Participants'
Contributions 1,906,944 117,898 448,468 565,248
Due from Brokers 197,476 149,399 - -
Interfund Transfers - 11,546 (52,641) 14,808
Accrued Interest and Dividends 4,286 580 1,627 1,007
------------ ----------- ----------- ------------
Total Assets 408,139,594 72,669,456 100,523,798 104,098,314
------------ ----------- ----------- ------------
LIABILITIES
- -----------
Administrative Fees Payable 86,807 24,554 9,463 8,650
Due to Brokers 673 345 - -
------------ ----------- ----------- ------------
Total Liabilities 87,480 24,899 9,463 8,650
------------ ----------- ----------- ------------
NET ASSETS AVAILABLE FOR
BENEFITS $408,052,114 $72,644,557 $100,514,335 $104,089,664
============ =========== ============ ============
<CAPTION>
<PAGE>
Intimate Abercrombie
U.S. Growth Wellington Brands & Fitch Co.
Fund Fund Stock Fund Stock Fund
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments, at Fair Value:
At Quoted Market Price:
Common Stock:
The Limited, Inc. $ - $ - $ - $ -
Intimate Brands, Inc. - - 5,876,681 -
Abercrombie & Fitch Co - - - 5,721,765
Mutual Funds:
Vanguard Retirement
Savings Trust Fund - - - -
Vanguard Index Trust
500 Portfolio - - - -
Vanguard U.S. Growth
Portfolio 86,327,108 - - -
Vanguard Wellington
Fund - 24,530,446 - -
At Estimated Value:
Common Collective Trust - - 345 405
----------- ----------- ---------- -----------
Total Investments 86,327,108 24,530,446 5,877,026 5,722,170
Contribution Receivable
from Employers 4,604,275 2,153,489 782,746 -
Receivable from Employers
for Withheld Participants'
Contributions 465,463 230,949 78,918 -
Due from Brokers - - 45,530 2,547
Interfund Transfers 24,857 18,149 (12,825 (3,894)
Accrued Interest and Dividends 639 289 136 8
----------- ----------- ---------- -----------
Total Assets 91,422,342 26,933,322 6,771,531 5,720,831
----------- ----------- ---------- -----------
LIABILITIES
- -----------
Administrative Fees Payable 44,140 - - -
Due to Brokers - - 328 -
----------- ----------- ---------- -----------
Total Liabilities 44,140 - 328 -
----------- ----------- ---------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $91,378,202 $26,933,322 $ 6,771,203 $ 5,720,831
=========== =========== =========== ===========
</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, 1997
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
TOTAL Stock Fund Income Fund Fund
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
- ------
Investments, at Fair Value:
At Quoted Market Price:
Common Stock:
The Limited, Inc. $ 68,513,782 $68,513,782 $ - $ -
Intimate Brands, Inc. 3,027,342 - - -
Mutual Funds:
Vanguard Investment Contract Trust 88,164,291 - 88,164,291 -
Vanguard Index Trust - 500
Portfolio 75,764,074 - - 75,764,074
Vanguard U.S. Growth Portfolio 62,996,962 - - -
Vanguard Wellington Fund 19,115,007 - - -
At Estimated Value:
Common Collective Trust 308 241 - -
------------ ----------- ----------- -----------
Total Investments 317,581,766 68,514,023 88,164,291 75,764,074
Contribution Receivable from Employers 22,644,974 1,372,671 10,275,136 4,632,422
Receivable from Employers for Withheld
Participants' Contributions 1,395,711 91,947 391,319 391,168
Due from Brokers 1,655,464 1,543,543 - -
Interfund Transfers - 858,585 (35,679) 3,698
Cash 417,865 - 368,110 49,755
Accrued Interest and Dividends 4,297 693 1,410 1,086
Other 2,470 - 2,470 -
------------ ----------- ----------- -----------
Total Assets 343,702,547 72,381,462 99,167,057 80,842,203
------------ ----------- ----------- -----------
LIABILITIES
- -----------
Cash Overdraft 418,897 - - -
Administrative Fees Payable 218,952 85,121 - -
------------ ----------- ----------- -----------
Total Liabilities 637,849 85,121 - -
------------ ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $343,064,698 $72,296,341 $99,167,057 $80,842,203
============ =========== =========== ===========
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Investments, at Fair Value:
At Quoted Market Price:
Common Stock:
The Limited, Inc. $ - $ - $ -
Intimate Brands, Inc. - - 3,027,342
Mutual Funds:
Vanguard Investment Contract Trust - - -
Vanguard Index Trust - 500
Portfolio - - -
Vanguard U.S. Growth Portfolio 62,996,962 - -
Vanguard Wellington Fund - 19,115,007 -
At Estimated Value:
Common Collective Trust - - 67
----------- ----------- -----------
Total Investments 62,996,962 19,115,007 3,027,409
Contribution Receivable from Employers 3,993,277 1,928,218 443,250
Receivable from Employers for Withheld
Participants' Contributions 333,773 156,157 31,347
Due from Brokers - - 111,921
Interfund Transfers (2,722) (828,447) 4,565
Cash - - -
Accrued Interest and Dividends 769 166 173
Other - - -
----------- ----------- -----------
Total Assets 67,322,059 20,371,101 3,618,665
----------- ----------- -----------
LIABILITIES
- -----------
Cash Overdraft 36,843 382,054 -
Administrative Fees Payable 127,701 5,551 579
----------- ----------- -----------
Total Liabilities 164,544 387,605 579
----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $67,157,515 $19,983,496 $ 3,618,086
=========== =========== ===========
</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, 1998
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
Total Stock Fund Income Fund Fund
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Net Appreciation
(Depreciation)in Fair
Value of Investments $ 56,085,295 $ 9,237,871 $ - $ 20,820,362
Mutual Funds' Earnings 15,139,419 - 5,452,457 1,523,923
Dividends 1,415,407 1,319,274 - -
Common Collective Trust's
Earnings 69,440 10,386 24,585 15,438
------------ ----------- ------------ ------------
Total Investment Income 72,709,561 10,567,531 5,477,042 22,359,723
------------ ----------- ------------ ------------
Contributions:
Employers 36,425,460 2,274,483 14,169,692 8,450,499
Participants 20,557,157 1,264,604 4,992,762 6,073,286
------------ ----------- ------------ ------------
Total Contributions 56,982,617 3,539,087 19,162,454 14,523,785
------------ ----------- ------------ ------------
Interfund Transfers - (5,047,007) (5,085,523) 3,791,862
------------ ----------- ------------ ------------
Administrative Expense (869,548) (148,065) (267,737) (257,344)
------------ ----------- ------------ ------------
Benefits to Participants (56,754,614) (7,279,308) (16,403,488) (15,588,092)
------------ ----------- ------------ ------------
Increase in Net Assets
Available for Benefits 72,068,016 1,632,238 2,882,748 24,829,934
Transfer of Net Assets
Available for Benefits to (7,080,600) (1,284,022) (1,535,470) (1,582,473)
Plan of Former Affiliate
Beginning Net Assets 343,064,698 72,296,341 99,167,057 80,842,203
Available for Benefits ------------ ----------- ------------ ------------
Ending Net Assets Available
for Benefits $408,052,114 $72,644,557 $100,514,335 $104,089,664
============ =========== ============ ============
<CAPTION>
Intimate Abercrombie
U.S. Growth Wellington Brands & Fitch Co.
Fund Fund Stock Fund Stock Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Net Appreciation
(Depreciation)in Fair
Value of Investments $ 19,999,819 $ (203,371) $ 1,010,617 $ 5,219,997
Mutual Funds' Earnings 5,429,608 2,733,431 - -
Dividends - - 96,133 -
Common Collective Trust's
Earnings 12,896 3,906 2,034 195
------------ ----------- ----------- -----------
Total Investment Income 25,442,323 2,533,966 1,108,784 5,220,192
------------ ----------- ----------- -----------
Contributions:
Employers 6,998,828 3,390,948 1,141,010 -
Participants 5,131,046 2,416,210 679,249 -
------------ ----------- ----------- -----------
Total Contributions 12,129,874 5,807,158 1,820,259 -
------------ ----------- ----------- -----------
Interfund Transfers 1,245,394 2,857,829 662,969 1,574,476
------------ ----------- ----------- -----------
Administrative Expense (122,370) (59,709) (11,360) (2,963)
------------ ----------- ----------- -----------
Benefits to Participants (12,559,377) (3,865,228) (370,431) (688,690)
------------ ----------- ----------- -----------
Increase in Net Assets
Available for Benefits 26,135,844 7,274,016 3,210,221 6,103,015
Transfer of Net Assets
Available for Benefits to (1,915,157) (324,190) (57,104) (382,184)
Plan of Former Affiliate
Beginning Net Assets 67,157,515 19,983,496 3,618,086 -
Available for Benefits ------------ ----------- ----------- -----------
Ending Net Assets Available
for Benefits $ 91,378,202 $26,933,322 $ 6,771,203 $ 5,720,831
============ =========== =========== ===========
</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, 1997
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
Total Stock Fund Income Fund Fund
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Investment Income:
Net Appreciation in Fair Value of
Investments $ 50,588,081 $20,451,530 $ - $17,411,774
Mutual Funds' Earnings 10,793,675 - 5,245,293 1,569,334
Dividends 1,474,398 1,422,393 - -
Common Collective Trust's Earnings 88,904 10,449 41,272 18,262
------------ ----------- ----------- -----------
Total Investment Income 62,945,058 21,884,372 5,286,565 18,999,370
------------ ----------- ----------- -----------
Contributions:
Employers 32,697,039 1,963,696 15,507,190 6,371,651
Participants 18,024,880 1,322,245 5,226,156 4,897,686
------------ ----------- ----------- -----------
Total Contributions 50,721,919 3,285,941 20,733,346 11,269,337
------------ ----------- ----------- -----------
Interfund Transfers - (6,914,328) (1,840,989) 3,344,531
------------ ----------- ----------- -----------
Administrative Expense (892,874) (204,971) (261,763) (203,185)
------------ ----------- ----------- -----------
Benefits to Participants (45,591,634) (9,049,583) (14,699,472) (11,143,418)
------------ ----------- ----------- -----------
Increase in Net Assets Available
for Benefits 67,182,469 9,001,431 9,217,687 22,266,635
Beginning Net Assets Available
for Benefits 275,882,229 63,294,910 89,949,370 58,575,568
------------ ----------- ----------- -----------
Ending Net Assets Available
for Benefits $343,064,698 $72,296,341 $99,167,057 $80,842,203
============ =========== =========== ===========
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
------------ ----------- -----------
<S> <C> <C> <C>
Investment Income:
Net Appreciation in Fair Value of
Investments $10,457,321 $ 1,631,686 $ 635,770
Mutual Funds' Earnings 2,443,033 1,536,015 -
Dividends - - 52,005
Common Collective Trust's Earnings 14,531 2,544 1,846
----------- ----------- -----------
Total Investment Income 12,914,885 3,170,245 689,621
----------- ----------- -----------
Contributions:
Employers 5,370,568 2,879,631 604,303
Participants 4,290,800 1,963,375 324,618
----------- ----------- -----------
Total Contributions 9,661,368 4,843,006 928,921
----------- ----------- -----------
Interfund Transfers 2,288,479 1,827,162 1,295,145
----------- ----------- -----------
Administrative Expense (174,289) (42,505) (6,161)
----------- ----------- -----------
Benefits to Participants (8,344,965) (2,030,715) (323,481)
----------- ----------- -----------
Increase in Net Assets Available
for Benefits 16,345,478 7,767,193 2,584,045
Beginning Net Assets Available
for Benefits 50,812,037 12,216,303 1,034,041
----------- ----------- -----------
Ending Net Assets Available
for Benefits $67,157,515 $19,983,496 $ 3,618,086
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<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.
Effective January 1, 1997, the Plan allowed for the associates of
Galyan's Trading Company, Inc. who met the eligibility
requirements of the Plan, to participate in the Plan for purposes
of electing voluntary tax-deferred contributions only. Effective
February 1, 1998, associates of Galyan's electing to participate
are 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.
The Limited, Inc. owned 84.2% of the outstanding Common Stock of
Abercrombie & Fitch Co. until the completion of a tax-free
exchange offer (the "Exchange Offer") on May 19, 1998,
establishing Abercrombie & Fitch Co. as an independent company
and, as a result, Abercrombie & Fitch Co.'s associates are no
longer participants in the Plan. Subsequent to the Exchange Offer,
the net assets available for benefits allocated to the former
participants employed by Abercrombie & Fitch Co. were transferred
to the Abercrombie & Fitch Savings and Retirement Plan.
The Abercrombie & Fitch Co. Stock Fund was established due to the
Exchange Offer. No additional contributions may be made to this
fund.
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 thereafter, 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, 1998, was $160,000.
The Employers may also provide a matching contribution of 100% of the
participant's voluntary contributions (50% for participants who
are associates of Galyan's) up to 3% of the participant's total
annual compensation.
F-5
<PAGE>
Participant Voluntary Contributions:
A participant may elect to make a voluntary tax-deferred contribution of 1% to
6% of his or her annual compensation up to the maximum permitted under
Section 402(g) of the Internal Revenue Code adjusted annually ($10,000 at
December 31, 1998). This voluntary tax-deferred contribution may be limited
by Section 401(k) of the Internal Revenue Code.
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:
Years of Vested Service Percentage
----------------------- ----------
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
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 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, 1998 and 1997, is set
forth below:
1998 1997
---------- ----------
Limited Stock Fund $ 210,766 $ 377,704
Fixed Income Fund 611,899 645,142
Index-500 Fund 778,834 489,489
U.S. Growth Fund 605,616 409,316
Wellington Fund 159,863 128,102
Intimate Brands Stock Fund 15,785 12,002
Abercrombie & Fitch Co. Stock
Fund 6,692 -
---------- ----------
$2,389,455 $2,061,755
========== ==========
F-6
<PAGE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1998 and 1997, are set forth below:
1998 1997
---------- ----------
Limited Stock Fund $ 172,668 $ 345,937
Fixed Income Fund 3,135,785 2,715,821
Index-500 Fund 1,292,792 1,240,275
U.S. Growth Fund 1,021,924 1,028,955
Wellington Fund 443,714 269,006
Intimate Brands Stock Fund 59,013 9,983
---------- ----------
$6,125,896 $5,609,977
========== ==========
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
------------------------------
Basis of Accounting
-------------------
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. The
preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's
management to use estimates and assumptions that affect the
accompanying financial statements and disclosures. Actual results
could differ from these estimates.
Income Recognition
------------------
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.
F-7
<PAGE>
Investment Valuation
--------------------
Mutual funds are stated at fair value as determined by quoted market
prices, which represents the net asset value of shares held by the
Plan at year end. Common stock is valued as determined by quoted
market price. The common collective trust, a money fund, uses an
estimated value of one dollar per share.
Net Appreciation (Depreciation) in Fair Value of Investments
------------------------------------------------------------
Net realized and unrealized appreciation (depreciation) is recorded in the
accompanying statement of changes in net assets available for benefits
as net appreciation (depreciation) in fair value of investments.
Benefit Payments
----------------
Benefits are recorded when paid.
Reclassification of Prior Year Information
------------------------------------------
Certain prior year information has been reclassified to conform with
current year presentation.
(3) INVESTMENTS
-----------
The Plan's investments are held by The Chase Manhattan Bank, as trustee of
the Plan. The following table presents balances for 1998 and 1997 for
the Plan's current investment options. Investments that represent 5
percent or more of the Plan's net assets are separately identified.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investments at Fair Value as Determined by
Quoted Market Price:
Common Stock:
The Limited, Inc. $ 70,799,467 $ 68,513,782
Other 11,598,446 3,027,342
Mutual Funds:
Vanguard Retirement Savings Trust Fund 89,083,764 -
Vanguard Investment Contract Trust - 88,164,291
Vanguard Index Trust - 500 Portfolio 98,041,511 75,764,074
Vanguard U.S. Growth Portfolio 86,327,108 62,996,962
Vanguard Wellington Fund 24,530,446 19,115,007
------------ ------------
380,380,742 317,581,458
Estimated Fair Value:
Common Collective Trust 101,414 308
------------ ------------
Total Investments at Fair Value $380,482,156 $317,581,766
============ ============
</TABLE>
The Plan's investments (including investments bought, sold, and held
during the year) appreciation in value for the years ended
December 31, 1998 and 1997, is set forth below:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investments at Fair Value as Determined
By Quoted Market Price:
Mutual Funds $ 40,616,810 $ 29,500,781
Common Stock 15,468,485 21,087,300
------------ ------------
Net Appreciation in Fair Value $ 56,085,295 $ 50,588,081
============ ============
</TABLE>
F-8
<PAGE>
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 Retirement Savings Trust Fund which was exchanged for the
prior investment in the Vanguard Investment Contract Trust, (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
corporation and an 84.5% owned subsidiary of The Limited, Inc.
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant.
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.
(6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
---------------------------------------------------
The following is a reconciliation of net assets available for benefits per
the financial statements to Form 5500:
1998 1997
------------ ------------
Net Assets Available for Benefits
Per the Financial Statements $408,052,114 $343,064,698
Amounts Allocated to Withdrawing
Participants (2,389,455) (2,061,755)
------------ ------------
Net Assets Available for Benefits
Per Form 5500 $405,662,659 $341,002,943
============ ============
The following is a reconciliation of benefits paid to participants per
the financial statements to Form 5500:
Benefits Paid to Participants Per the Financial
Statements $ 56,754,614
Amounts Allocated to Withdrawing Participants:
At December 31, 1998 2,389,455
At December 31, 1997 (2,061,755)
------------
Benefits Paid to Participants Per Form 5500 $ 57,082,314
============
Amounts allocated to withdrawing participants are recorded on Form 5500 for
benefit claims that have been processed and approved for payment prior
to December 31 but not yet paid as of that date.
F-9
<PAGE>
SCHEDULE I
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
-------------------------
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
----------------------------------------------------------
DECEMBER 31, 1998
-----------------
<TABLE>
<CAPTION>
Description of Investment Including Maturity
Identity of Issue, Borrower, Date, Rate of Interest, Collateral, Par or Current
Lessor, or Similar Party Maturity Value Cost Value
- ------ ------------------------------ ----------------------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
* The Limited, Inc. 2,430,883 Shares of Common Stock, Par Value $ 31,110,330 $ 70,799,467
$0.50
* Intimate Brands, Inc. 196,709 Shares of Common Stock, Class A 4,491,448 5,876,681
Abercrombie & Fitch Co. 80,873 Shares of Common Stock, Class A, Par 1,215,436 5,721,765
Value $0.01
The Vanguard Group 89,083,764 Shares of Vanguard Retirement 89,083,764 89,083,764
Savings Trust Fund
The Vanguard Group 860,391 Shares of Vanguard Index 500 58,699,848 98,041,511
Portfolio Fund
The Vanguard Group 2,302,670 Shares of Vanguard World Fund, U.S. 56,970,077 86,327,108
Growth Portfolio
The Vanguard Group 835,790 Shares of Vanguard Wellington Fund 23,749,124 24,530,446
* Chase Manhattan Bank 101,414 Shares of Chase Manhattan Bank Enhanced 101,414 101,414
Cash Investment Fund, a Common/Collective Trust,
7 Day Net annualized Yield on 12/31/98 of 5.48%
</TABLE>
* Represents a party in interest
The accompanying notes are an integral part of this schedule.
F-10
<PAGE>
SCHEDULE II
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
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ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
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FOR THE YEAR ENDED DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Current
Expense Value of
Identity Incurred Asset on
of Party Purchase Selling Lease With Cost Transaction Net Gain
Involved Description of Asset Price Price Rental Transaction of Asset Date or (Loss)
- -------------- -------------------- ------------ ------------ --------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> $ 8,020,702
* The Limited, The Limited, Inc. $ 8,020,702 $ - $ - $ 4,321,938 10,453,868 $6,131,930
Inc. Common Stock $10,453,868
- 15,475,462
The Vanguard Vanguard Investment 15,475,462 - - 103,639,753 103,639,753 -
Group Contract Trust 103,639,753
- 109,329,808
The Vanguard Vanguard Retirement 109,329,808 - - 18,721,596 18,721,596 -
Group Savings Trust Fund 18,721,596
- 23,002,542
The Vanguard Vanguard Index 500 23,002,542 - - 12,644,028 20,394,776 7,750,748
Group Portfolio Fund 20,394,776
- 22,654,992
The Vanguard Vanguard World Fund, 22,654,992 - - 10,849,865 21,434,658 10,584,793
Group U.S. Growth Portfolio 21,434,658
The Vanguard Vanguard Wellington 12,792,018 - 12,792,018
Group Fund 8,699,959 - - 6,177,858 8,699,959 2,522,101
* Chase Chase Manhattan Bank 74,644,066 - 74,644,066 -
Manhattan Enhanced Cash 74,542,960 - - 74,542,960 74,542,960
Bank Investment Fund
</TABLE>
*Represents a party in interest
The accompanying notes are an integral part of this schedule.
F-11
