Exhibit No.
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Document
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| 10.17 |
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Employment Agreement by and between The Limited, Inc.
and Leonard A. Schlesinger dated as of October 1, 1999. |
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| 11 |
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Statement re: Computation of Per Share
Earnings. |
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| 12 |
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Statement re: Computation of Ratio of Earnings to
Fixed Charges. |
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| 13 |
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Excerpts from the 1999 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 64 through 81. |
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| 21 |
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Subsidiaries of the Registrant. |
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| 23 |
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Consent of Independent Accountants. |
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| 24 |
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Powers of Attorney. |
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| 27 |
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Financial Data Schedule. |
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| 99 |
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Annual Report of The Limited, Inc. Savings and
Retirement Plan. |
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EXHIBIT 10.17
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of October 1, 1999 by and between The
Limited Inc., a Delaware corporation (the "Company"), and Leonard A. Schlesinger
(the "Executive") (hereinafter collectively referred to as "the parties").
WHEREAS, the Executive has served as a director of and consultant to
the Company and possesses an intimate knowledge of the business and affairs of
the Company and its policies, procedures, methods, and personnel; and
WHEREAS, the Company has determined that it is essential and in its
best interests to retain the services of key management personnel and to ensure
their continued dedication and efforts; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Board") has determined that it is in the best interests of the
Company to secure the services and employment of the Executive, and the
Executive is willing to render such services on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements of the parties contained herein, the parties hereby agree as follows:
1. Term. The initial term of employment under this Agreement shall
----
be for the period commencing on the date hereof (the "Commencement Date") and
ending on the sixth anniversary of the Commencement Date (the "Initial Term");
provided, however, that upon the expiration of the Initial Term, this Agreement
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shall be automatically extended for a period of one year, unless either the
Company or the Executive shall have given written notice to the other at least
ninety (90) days prior thereto that the term of this Agreement shall not be so
extended.
2. Employment.
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(a) Position. The Executive shall be employed as the Executive
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Vice President for Organization, Leadership and Human Resources, or such other
position of reasonably comparable or greater status and responsibilities, as may
be determined by the Board of Directors. The Executive shall perform the
duties, undertake the responsibilities, and exercise the authority customarily
performed, undertaken, and exercised by persons employed in a similar executive
capacity. The Executive shall report to the Chief Executive Officer.
(b) Obligations. The Executive agrees to devote his full business
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time and attention to the business and affairs of the Company. The foregoing,
however, shall not preclude the Executive from serving on corporate, civic, or
charitable boards or committees or managing personal investments, so long as
such activities do not interfere with the performance of the Executive's
responsibilities hereunder.
3. Base Salary. The Company agrees to pay or cause to be paid to the
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Executive during the term of this Agreement an annual base salary at the rate of
$575,000. This base salary will be subject to annual review and may be
increased from time to time by the Board considering factors such as the
Executive's responsibilities, compensation of similar executives within the
company and in
other companies, performance of the Executive, and other pertinent factors
(hereinafter referred to as the "Base Salary"). Such Base Salary shall be
payable in accordance with the Company's customary practices applicable to its
executives.
4. Equity Compensation. The Company shall grant to the Executive
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rights to receive 50,000 shares of the Company's common stock and options to
acquire 250,000 shares of the Company's common stock pursuant to the terms of
the agreements attached hereto as Exhibits A and B.
5. Employee Benefits. The Executive shall be entitled to participate
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in all employee benefit plans, practices, and programs maintained by the Company
and made available to senior executives generally and as may be in effect from
time to time. The Executive's participation in such plans, practices and
programs shall be on the same basis and terms as are applicable to senior
executives of the Company generally.
6. Bonus. The Executive shall be entitled to participate in the
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Company's applicable incentive compensation plan on such terms and conditions as
may be determined from time to time by the Board.
7. Other Benefits.
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(a) Life Insurance.
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(1) During the term of the Agreement, the Company shall
maintain term life insurance coverage on the life of the Executive in the amount
of $5,000,000, the proceeds of which shall be payable to the beneficiary or
beneficiaries designated by the Executive. The Executive agrees to undergo any
reasonable physical examination and other procedures as may be necessary to
maintain such policy. If the Company is not able to obtain such policy due to
Executive's physical examination results, an AD&D (accidental death and
dismemberment) policy of an equivalent amount will be obtained in lieu of the
term life insurance coverage.
(2) During the term of this Agreement, the Company shall be
entitled to maintain a "key person" term life insurance policy on the life of
the Executive, the proceeds of which shall be payable to the Company or its
designees. The Executive agrees to undergo any reasonable physical examination
and other procedures as may be necessary to maintain such policy.
(b) Expenses. Subject to applicable Company policies, the
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Executive shall be entitled to receive prompt reimbursement of all expenses
reasonably incurred by him in connection with the performance of his duties
hereunder or for promoting, pursuing, or otherwise furthering the business or
interests of the Company.
(c) Office and Facilities. The Executive shall be provided with
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appropriate offices and with such secretarial and other support facilities as
are commensurate with the Executive's status with the Company and adequate for
the performance of his duties hereunder.
8. Vacation. The Executive shall be entitled to annual vacation in
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accordance with the policies as periodically established by the Board for
similarly situated executives of the Company.
9. Termination. The Executive's employment hereunder is subject to
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the following terms and conditions:
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(a) Disability. The Company shall be entitled to terminate the
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Executive's employment after having established the Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or mental infirmity
which impairs the Executive's ability to substantially perform his duties under
this Agreement for a period of at least six months in any twelve-month calendar
period as determined in accordance with The Limited, Inc. Long-Term Disability
Plan.
(b) Cause. The Company shall be entitled to terminate the
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Executive's employment for "Cause" without prior written notice. For purposes of
this Agreement, "Cause" shall mean that the Executive (1) willfully failed to
perform his duties with the Company (other than a failure resulting from the
Executive's incapacity due to physical or mental illness); or (2) has plead
"guilty" or "no contest" to or has been convicted of an act which is defined as
a felony under federal or state law; or (3) engaged in willful misconduct in bad
faith which could reasonably be expected to materially harm the Company's
business or its reputation.
The Executive shall be given written notice by the Board of
termination for Cause, such notice to state in detail the particular act or acts
or failure or failures to act that constitute the grounds on which the proposed
termination for Cause is based. The Executive shall be entitled to a hearing
before the Board or a committee thereof established for such purpose and to be
accompanied by legal counsel. Such hearing shall be held within 15 days of
notice to the Company by the Executive, provided the Executive requests such
hearing within 30 days of the written notice from the Board of the termination
for Cause.
(c) Termination by the Executive. The Executive may terminate
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employment hereunder for "Good Reason" by delivering to the Company (1) a
Preliminary Notice of Good Reason (as defined below), and (2) not earlier than
thirty (30) days from the delivery of such Preliminary Notice, a Notice of
Termination. For purposes of this Agreement, "Good Reason" means (i) the
failure to continue the Executive in a capacity contemplated by Section 2
hereof; (ii) the assignment to the Executive of any duties materially
inconsistent with the Executive's positions, duties, authority,
responsibilities, and reporting requirements as set forth in Section 2 hereof;
(iii) a reduction in or a material delay in payment of the Executive's total
cash compensation and benefits from those required to be provided in accordance
with the provisions of this Agreement; (iv) the Company, the Board or any person
controlling the Company requires the Executive to be based outside of the United
States, other than on travel reasonably required to carry out the Executive's
obligations under the Agreement, or (v) the failure of the Company to obtain the
assumption in writing of its obligation to perform this Agreement by any
successor to all or substantially all of the assets of the Company within 15
days after a merger, consolidation, sale, or similar transaction; provided,
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however, that "Good Reason" shall not include (A) acts not taken in bad faith
- -------
which are cured by the Company in all respects not later than thirty (30) days
from the date of receipt by the Company of a written notice from the Executive
identifying in reasonable detail the act or acts constituting "Good Reason" (a
"Preliminary Notice of Good Reason") or (B) acts taken by the Company by reason
of the Executive's physical or mental infirmity which impairs the Executive's
ability to substantially perform his duties under this Agreement. A Preliminary
Notice of Good Reason shall not, by itself, constitute a Notice of Termination.
(d) Notice of Termination. Any purported termination for Cause
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by the Company or for Good Reason by the Executive shall be communicated by a
written Notice of Termination to the other two weeks prior to the Termination
Date (as defined below). For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which indicates the specific termination
-3-
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Any termination by the
Company other than for Cause or by the Executive without Good Reason shall be
communicated by a written Notice of Termination to the other party two (2) weeks
prior to the Termination Date. However, the Company may elect to pay the
Executive in lieu of two (2) weeks written notice. For purposes of this
Agreement, no such purported termination of employment shall be effective
without such Notice of Termination.
(e) Termination Date, Etc. "Termination Date" shall mean in the
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case of the Executive's death, the date of death, or in all other cases, the
date specified in the Notice of Termination; provided, however, that if the
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Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least thirty (30) days from
the date the Notice of Termination is given to the Executive.
10. Compensation Upon Termination.
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(a) If during the term of this Agreement (including any
extensions thereof), the Executive's employment is terminated by the Company for
Cause, by reason of the Executive's death, or if the Executive gives written
notice not to extend the term of this Agreement, the Company's sole obligation
hereunder shall be to pay the Executive the following amounts earned hereunder
but not paid as of the Termination Date: (i) Base Salary, (ii) reimbursement for
any and all monies advanced or expenses incurred pursuant to Section 7(b)
through the Termination Date, and (iii) any earned compensation which the
Executive had previously deferred (including any interest earned or credited
thereon) (collectively, "Accured Compensation"), provided, however, that if
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the Executive gives such written notice not to extend, the Company shall
continue to pay the premiums provided for in Section 7(a)(1) through the end of
the calendar year in which the Executive's termination occurs. The Executive's
entitlement to any other benefits shall be determined in accordance with the
Company's employee benefit plans then in effect.
(b) If the Executive's employment is terminated by the Company
other than for Cause or by the Executive for Good Reason, the Company's sole
obligation hereunder shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive the
Base Salary for a period of one (1) year following the Termination
Date; and
(iii) the Company shall continue to pay the premiums
provided for in Section 7(a)(1) hereof through the end of the calendar
year in which such termination occurs.
(c) If the Executive's employment is terminated by the Company
by reason of the Executive's Disability, the Company's sole obligation hereunder
shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive 100%
of the Base Salary for the first twelve months following the
Termination Date, 80% of the Base
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Salary for the second twelve months following the Termination Date,
and 60% of the Base Salary for the third twelve months following the
Termination Date; provided, however, that such Base Salary shall be
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reduced by the amount of any benefits the Executive receives by reason
of his Disability under the Company's relevant disability plan or
plans; and
(iii) if the Executive is disabled beyond thirty-six (36)
months, the Company shall continue to pay the Executive 60% of Base
Salary up to a maximum of $250,000 per year for the period of the
Executive's Disability, as defined in the Company's relevant
disability plans; provided, however, that such payments shall be
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reduced by the
amount of any benefits the Executive receives by reason of his
Disability under the Company's relevant disability plan or plans; and
(iv) the Company shall continue to pay the premiums
provided for in Section 7(a)(1) hereof through the end of the calendar
year in which such termination occurs.
(d) If the Executive's employment is terminated by reason of the
Company's written notice to the Executive of its decision not to extend the term
of this Agreement as contemplated in Section 1 hereof, the Company's sole
obligation hereunder shall be as follows:
(i) the Company shall pay the Executive the Accrued
Compensation;
(ii) the Company shall continue to pay the Executive the
Base Salary for a period of one (1) year following the expiration of
such term; and
(iii) the Company shall continue to pay the premiums
provided for in Section 7(a)(1) hereof through the end of the calendar
year in which the Executive's termination occurs.
(e) During the period the Executive is receiving salary
continuation pursuant to Section 10(b)(ii), 10(c)(ii), or 10(d)(ii) hereof, the
Company shall, at its expense, provide to the Executive and the Executive's
beneficiaries medical and dental benefits substantially similar in the aggregate
to those provided to the Executive immediately prior to the date of the
Executive's termination of employment; provided, however, that the Company's
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obligation with respect to the foregoing benefits shall be reduced to the extent
that the Executive or the Executive's beneficiaries obtains any such benefits
pursuant to a subsequent employer's benefit plans.
(f) The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation provided to the Executive in any subsequent employment.
11. Employee Covenants.
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(a) For the purposes of this Section 11, the term "Company"
shall include The Limited, Inc., Intimate Brands, Inc. and all their
subsidiaries and affiliates thereof.
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(b) Confidentiality. The Executive shall not, during the term
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of this Agreement and thereafter, make any Unauthorized Disclosure. For purposes
of this Agreement, "Unauthorized Disclosure" shall mean use by the Executive for
his own benefit or disclosure by the Executive to any person other than a person
to whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of duties as an executive of the Company or as may
be legally required, of any confidential information relating to the business or
prospects of the Company (including, but not limited to, any information and
materials pertaining to any Intellectual Property as defined below ; provided,
however, that such term shall not include the use or disclosure by the
Executive, without consent, of any publicly available information (other than
information available as a result of disclosure by the Executive in violation of
this Section 11(b)). This confidentiality covenant has no temporal, geographical
or territorial restriction.
(c) Non-Competition. During the Non-Competition Period described
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below, the Executive shall not, directly or indirectly, without the prior
written consent of the Company, own, manage, operate, join, control, be employed
by, consult with or participate in the ownership, management, operation or
control of, or be connected with (as a stockholder, partner, or otherwise), any
business, individual, partner, firm, corporation, or other entity that competes
or plans to compete, directly or indirectly, with the Company, or any of its
products; provided, however, that the "beneficial ownership" by the Executive
after termination of employment with the Company, either individually or as a
member of a "group," as such terms are used in Rule 13d of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of not more than two percent (2%) of the voting stock of any publicly
held corporation shall not be a violation of Section 11 of this Agreement.
The "Non-Competition Period" means the period the Executive
is employed by the Company plus one (1) year from the Termination Date if the
Executive's employment is terminated (i) by the Company for any reason, or (ii)
by the Executive for any reason.
(d) Non-Solicitation. During the No-Raid Period described
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below, the Executive shall not directly or indirectly solicit, induce or attempt
to influence any employee to leave the employment of the Company, nor assist
anyone else in doing so. Further, during the No-Raid Period, the Executive shall
not, either directly or indirectly, alone or in conjunction with another party,
interfere with or harm, or attempt to interfere with or harm, the relationship
of the Company, with any person who at any time was an employee, customer or
supplier of the Company, or otherwise had a business relationship with the
Company.
The "No-Raid Period" means the period the Executive is
employed by the Company plus one (1) year from the Termination Date if the
Executive's employment is terminated (i) by the Company for any reason, or (ii)
by the Executive for any reason.
(e) Intellectual Property. The Executive agrees that all
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inventions designs and ideas conceived, produced, created, or reduced to
practice, either solely or jointly with others, during his employment with the
Company including those developed on his own time, which relates to or is useful
in the Company's business ("Intellectual Property") shall be owned solely by the
Company. The Executive understands that whether in preliminary or final form,
such Intellectual Property includes, for example, all ideas, inventions,
discoveries, designs, innovations, improvements, trade secrets, and other
intellectual property. All intellectual Property is either work made for hire
for the Company within the meaning of the United States Copyright Act, or, if
such Intellectual Property is
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determined not to be work made for hire, then the Executive irrevocably assigns
all rights, titles and interests in and to the Intellectual Property to the
Company, including all copyrights, patents, and/or trademarks. The Executive
agrees that he will, without any additional consideration, execute all documents
and take all other actions needed to convey his complete ownership of the
Intellectual Property to the Company so that the Company may own and protect
such Intellectual Property and obtain patent, copyright and trademark
registrations for it. The Executive also agrees that the Company may alter or
modify the Intellectual Property at the Company's sole discretion, and the
Executive waives all right to claim or disclaim authorship. The Executive
represents and warrants that any Intellectual Property that he assigns to the
Company, except as otherwise disclosed in writing at the time of assignment,
will be my sole, exclusive, original work. The Executive also represents that he
has not previously invented any Intellectual Property or has advised the Company
in writing of any prior inventions or ideas.
(f) Remedies. The Executive agrees that any breach of the terms
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of this Section 11 would result in irreparable injury and damage to the Company
for which the Company would have no adequate remedy at law; the Executive
therefore also agrees that in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and restraining order
to prevent, such breach and/or threatened breach and/or continued breach by the
Executive and/or any and all persons and/or entities acting for and/or with the
Executive, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Executive. The Executive and the Company
further agree that the provisions of the covenants not to compete and solicit
are reasonable and that the Company would not have entered into this Agreement
but for the inclusion of such covenants herein. Should a court determine,
however, that any provision of the covenants is unreasonable, either in period
of time, geographical area, or otherwise, the parties hereto agree that the
covenant should be interpreted and enforced to the maximum extent which such
court deems reasonable.
The provisions of this Section 11 shall survive any termination of
this Agreement, and the existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 11; provided, however, that this
paragraph shall not, in and of itself, preclude the Executive from defending
himself against the enforceability of the covenants and agreements of this
Section 11.
12. Limitation of Payments.
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(a) Gross-Up Payment. In the event it shall be determined
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that any payment or distribution of any type to or for the benefit of the
Executive, by the Company, any of its affiliates, any Person who acquires
ownership or effective control of the Company or ownership of a substantial
portion of the Company's assets (within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder) or any affiliate of such Person, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
collectively referred to as the "Excise Tax"), then
-7-
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Total Payments (not including any Gross-Up Payment).
(b) All determinations as to whether any of the Total Payments are
"parachute payments" (within the meaning of Section 280G of the Code), whether a
Gross-Up Payment is required, the amount of such Gross-Up Payment and any
amounts relevant to the last sentence of Subsection 12(a), shall be made by an
independent accounting firm selected by the Company from among the largest six
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations regarding the amount of any Gross-Up Payment
and any other relevant matter, both to the Company and the Executive within five
(5) days of the Termination Date, if applicable, or such earlier time as is
requested by the Company or the Executive (if the Executive reasonably believes
that any of the Total Payments may be subject to the Excise Tax). Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that the Company should have made Gross-Up Payments
("Underpayment"), or that Gross-Up Payments will have been made by the Company
which should not have been made ("Overpayments"). In either such event, the
Accounting Firm shall determine the amount of the Underpayment or Overpayment
that has occurred. In the case of an Underpayment, the amount of such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive. In the case of an Overpayment, the Executive shall, at the direction
and expense of the Company, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Company, and otherwise
reasonably cooperate with the Company to correct such Overpayment.
13. Employee Representation. The Executive expressly represents and
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warrants to the Company that the Executive is not a party to any contract or
agreement and is not otherwise obligated in any way, and is not subject to any
rules or regulations, whether governmentally imposed or otherwise, which will or
may restrict in any way the Executive's ability to fully perform the Executive's
duties and responsibilities under this Agreement.
14. Successors and Assigns.
----------------------
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns, and the Company shall
require any successor or assign to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. The
term "the Company" as used herein shall include any such successors and assigns
to the Company's business and/or assets. The term "successors and assigns" as
used herein shall mean a corporation or other entity acquiring or otherwise
succeeding to, directly or indirectly, all or substantially all the assets and
business of the Company (including this Agreement) whether by operation of law
or otherwise.
(b) Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, the Executive's
beneficiaries or legal representatives,
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except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal personal
representative.
15. Arbitration. Except with respect to the remedies set forth in
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Section 11(f) hereof, any controversy or claim between the Company or any of its
affiliates and the Executive arising out of or relating to this Agreement or its
termination shall be settled and determined by binding arbitration. The
American Arbitration Association, under its Commercial Arbitration Rules, shall
administer the binding arbitration. The arbitration shall take place in
Columbus, Ohio. The Company and the Executive shall appoint one person to act
as an arbitrator, and a third arbitrator shall be chosen by the first two
arbitrators (such three arbitrators, the "Panel"). The Panel shall have no
authority to award punitive damages against the Company or the Executive. The
Panel shall have no authority to add to, alter, amend, or refuse to enforce any
portion of the disputed agreements. The Company and the Executive each waive
any right to a jury trial or to a petition for stay in any action or proceeding
of any kind arising out of or relating to this Agreement or its termination.
16. Notice. For the purposes of this Agreement, notices and all other
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communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by registered or certified mail, return
receipt requested, postage prepaid, or upon receipt if overnight delivery
service or facsimile is used, addressed as follows:
To the Executive:
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Leonard A. Schlesinger
20 Garland Road
Lincoln, MA 01773
with a copy to:
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Andrew C. Liazos
McDermott, Will & Emery
28 State Street
Boston, MA 02109-1775
To the Company:
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The Limited, Inc.
3 Limited Parkway
Columbus, Ohio 43230
Attn: Secretary
17. Settlement of Claims. The Company's obligation to make the
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payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense, or other right which
the Company may have against the Executive or others.
18. Miscellaneous. No provision of this Agreement may be modified,
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waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other
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party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
19. Governing Law. This Agreement shall be governed by and construed
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and enforced in accordance with the laws of the State of Ohio without giving
effect to the conflict of law principles thereof.
20. Severability. The provisions of this Agreement shall be deemed
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severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
21. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, if any, understandings and arrangements, oral
or written, between the parties hereto with respect to the subject matter
hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
THE LIMITED, INC.
By:___________________________
Name: Leslie H. Wexner
Title: Chairman of the Board
____________________________
Leonard A. Schlesinger
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EXHIBIT 11
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THE LIMITED, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
Quarter Ended
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January 29, January 30,
2000 1999
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Net income $ 316,464 $ 228,174
Less: impact of IBI dilutive options and restricted
stock on consolidated income* (3,162) (2,245)
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Adjusted net income $ 313,302 $ 225,929
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Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 7,617 5,436
Weighted average treasury shares (164,600) (153,107)
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Weighted average used to calculate
net income per diluted share 222,471 231,783
============ ===========
Net income per diluted share $ 1.41 $ 0.97
============ ===========
Year Ended
--------------------------
January 29, January 30,
2000 1999
------------ -----------
Net income $ 460,759 $2,046,494
Less: impact of IBI dilutive options and restricted
stock on consolidated income* (5,636) (4,009)
------------ -----------
Adjusted net income $ 455,123 $2,042,485
============ ===========
Common shares outstanding:
Weighted average 379,454 379,454
Dilutive effect of stock options 8,200 5,412
Weighted average treasury shares (159,872) (138,547)
============ ===========
Weighted average used to calculate
net income per diluted share 227,782 246,319
------------ -----------
Net income per diluted share $ 2.00 $ 8.29
============ ===========
*Represents the impact of dilutive options and restricted stock at Intimate
Brands as a reduction to income.
EXHIBIT 12
----------
THE LIMITED, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(Thousands)
Year Ended
----------------------------------------------------------------------------------------
January 29, 2000 January 30, 1999 January 31, 1998 February 1, 1997 February 3, 1996
---------------- ---------------- ---------------- ---------------- ----------------
Adjusted Earnings
- -----------------
Pretax earnings $ 831,759 $2,351,494 $390,653 $ 675,088 $1,183,210
Portion of minimum rent ($671,960 in 1999, 223,987 229,747 246,162 237,419 223,100
$689,240 in 1998, $738,487 in 1997,
$712,258 in 1996, and $669,301 in 1995)
representative of interest
Interest on indebtedness 78,297 68,528 68,728 75,363 77,537
Minority interest 72,623 63,616 55,610 45,466 22,175
---------- ---------- ---------- ---------- ----------
Total earnings as adjusted $1,206,666 $2,713,385 $761,153 $1,033,336 $1,506,022
========== ========== ========== ========== ==========
Fixed Charges
- -------------
Portion of minimum rent representative of
interest $ 223,987 $ 229,747 $246,162 $ 237,419 $ 223,100
Interest on indebtedness 78,297 68,528 68,728 75,363 77,537
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 302,284 $ 298,275 $314,890 $ 312,782 $ 300,637
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 3.99x 9.10x 2.42x 3.30x 5.01x
========== ========== ========== ========== ==========
EXHIBIT 13
----------
FINANCIAL SUMMARY
(Thousands except per share amounts, ratios and store and associate data)
Summary of Operations @1999 @1998 1997 1996 @*/\1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales $9,723,334 $9,346,911 $9,188,804 $8,644,791 $7,881,437 $7,320,792
Gross income $3,357,477 $2,971,260 $2,795,482 $2,480,457 $2,076,702 $2,108,280
Operating income +$920,640 +$2,424,373 +$469,499 +$635,767 +$611,849 $796,189
Operating income
as a percentage of sales +9.5% +25.9% +5.1% +7.4% +7.8% 10.9%
Net income #$460,759 #$2,046,494 #$211,653 #$434,088 #$961,210 $446,543
Net income as a
percentage of sales #4.7% #21.9% #2.3% #5.0% #12.2% 6.1%
Per Share Results
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income #$2.10 #$8.50 #$.78 #$1.55 #$2.69 $1.25
Diluted net income #$2.00 #$8.29 #$.77 #$1.54 #$2.68 $1.25
Dividends $.60 $.52 $.48 $.40 $.40 $.36
Book value $9.99 $9.56 $7.28 $6.90 $8.86 $7.56
Weighted average diluted
shares outstanding 227,782 246,319 274,483 282,053 358,371 358,601
Other Financial Information
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $4,087,689 $4,549,708 $4,300,761 $4,120,002 $5,266,563 $4,570,077
Return on average assets #11% #46% #5% #9% #20% 10%
Working capital $1,008,071 $1,126,875 $1,001,348 $711,661 $1,962,260 $1,693,911
Current ratio 1.8 2.0 2.0 1.9 3.3 3.0
Capital expenditures $375,405 $347,356 $362,840 $361,202 $374,374 $319,676
Long-term debt $400,000 $550,000 $650,000 $650,000 $650,000 $650,000
Debt-to-equity ratio 19% 25% 33% 35% 21% 24%
Shareholders'equity $2,147,077 $2,166,959 $1,985,765 $1,869,127 $3,147,706 $2,704,756
Return on average
shareholders'equity #21% #99% #11% #17% #33% 17%
Comparable store
sales increase (decrease) 9% 6% 0% 3% (2%) (3%)
Stores and Associates at End of Year
- ------------------------------------------------------------------------------------------------------------------------------------
Total number of stores open 5,023 5,382 5,640 5,633 5,298 4,867
Retail selling square feet 23,592,000 26,316,000 28,400,000 28,405,000 27,403,000 25,627,000
Number of associates 114,600 126,800 131,000 123,100 106,900 105,600
Summary of Operations @1993 1992 *1991 1990 /\1989
- -----------------------------------------------------------------------------------------------------------------
Net sales $7,245,088 $6,944,296 $6,149,218 $5,253,509 $4,647,916
Gross income $1,958,835 $1,990,740 $1,793,543 $1,630,439 $1,446,635
Operating income +$701,556 $788,698 $712,700 $697,537 $625,254
Operating income
as a percentage of sales +9.7% 11.4% 11.6% 13.3% 13.5%
Net income #$390,999 #$455,497 $403,302 $398,438 $346,926
Net income as a
percentage of sales #5.4% #6.6% 6.6% 7.6% 7.5%
Per Share Results
- ------------------------------------------------------------------------------------------------------------------------------------
Basic net income #$1.09 #$1.26 $1.12 $1.11 $.97
Diluted net income #$1.08 #$1.25 $1.11 $1.10 $.96
Dividends $.36 $.28 $.28 $.24 $.16
Book value $6.82 $6.25 $5.19 $4.33 $3.45
Weighted average diluted
shares outstanding 363,234 363,738 363,594 362,044 361,288
Other Financial Information
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $4,135,105 $3,846,450 $3,418,856 $2,871,878 $2,418,486
Return on average assets #10% #13% 13% 15% 15%
Working capital $1,513,181 $1,063,352 $1,084,205 $884,004 $685,524
Current ratio 3.1 2.5 3.1 2.8 2.4
Capital expenditures $295,804 $429,545 $523,082 $428,844 $318,427
Long-term debt $650,000 $541,639 $713,758 $540,446 $445,674
Debt-to-equity ratio 27% 24% 38% 35% 36%
Shareholders'equity $2,441,293 $2,267,617 $1,876,792 $1,560,052 $1,240,454
Return on average
shareholders'equity #17% #22% 23% 28% 32%
Comparable store
sales increase (decrease) (1%) 2% 3% 3% 9%
Stores and Associates at End of Year
- ------------------------------------------------------------------------------------------------------------------------------------
Total number of stores open 4,623 4,425 4,194 3,760 3,344
Retail selling square feet 24,426,000 22,863,000 20,355,000 17,008,000 14,374,000
Number of associates 97,500 100,700 83,800 72,500 63,000
@ Includes the results of the following companies disposed of up to their
separation date: 1) Limited Too effective August 23, 1999; 2) Galyan's
effective August 31, 1999; 3) Abercrombie & Fitch ("A&F") effective May 19,
1998; 4) Alliance Data Systems effective January 31, 1996; and 5) Brylane,
Inc. effective August 31, 1993.
* Includes the results of Galyan's and Gryphon subsequent to their
acquisitions on July 2, 1995 and June 1, 1991.
+ Operating income includes the effect of special and nonrecurring items of
$23,501 in 1999, $1,740,030 in 1998 and ($213,215) in 1997 (see Note 2 to
the Consolidated Financial Statements), ($12,000) in 1996, $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, net income includes the
effect of the following gains: 1) $11,002 related to Galyan's in 1999; 2)
$8,606 related to Brylane, Inc. in 1997; 3) $118,178 related to A&F in
1996; 4) $649,467 related to Intimate Brands, Inc. in 1995; and 5) $9,117
related to United Retail Group in 1992.
/\ Fifty-three-week fiscal year.
64 LTD AR 99
Management's Discussion and Analysis
Results of Operations
Net sales for the fourth quarter were $3.287 billion in 1999 and $3.256 billion
in 1998. Comparable store sales increased 5% for the quarter. Gross income
increased 12% to $1.306 billion in the fourth quarter of 1999 from $1.171
billion in 1998 and operating income increased to $608.9 million from $444.2
million in 1998. Net income was $316.5 million in the fourth quarter of 1999
versus $228.2 million in 1998, and earnings per share were $1.41 versus $0.97 in
1998. In the fourth quarter, operating income included the reserve reversal of
$36.6 million in downsizing costs that were initially recognized as special and
nonrecurring charges to operating income in 1997 (see Note 2 to the Consolidated
Financial Statements).
Net sales for the year increased 4% to $9.723 billion in 1999 from $9.347
billion in 1998. Gross income increased 13% to $3.357 billion in 1999 from
$2.971 billion in 1998 and operating income was $920.6 million in 1999 versus
$2.424 billion in 1998. Net income for 1999 was $460.8 million, or $2.00 per
share, compared to $2.046 billion, or $8.29 per share, last year.
There were a number of items in 1999 and 1998 that impacted the comparability
of the Company's results. See the "Other Data" section on pages 68 and 69 for a
discussion of the impact of these items on annual earnings.
Business highlights for 1999 include the following:
. Intimate Brands, Inc. ("IBI") reported sales of $4.511 billion in 1999, a 16%
increase from $3.886 billion in 1998. IBI's operating income increased 18% to
$793.5 million in 1999 from $670.8 million in 1998 and earnings per share
increased 21% to $1.81 in 1999 from $1.49 in 1998.
. Sales at Bath & Body Works, Intimate Brands' fastest growing business, grew
22% in 1999 to $1.550 billion. Operating income grew 24%. Sales at the
Victoria's Secret brand, encompassing Victoria's Secret Stores, Victoria's
Secret Beauty and Victoria's Secret Catalogue, grew 13% to $2.937 billion in
1999.
. The apparel businesses demonstrated strong progress in 1999 with an
improvement in operating income of $92.5 million in the fourth quarter and
$176.9 million for the year. Operating income improved at each apparel business.
. For apparel, gross margin as a percentage of sales improved by more than 4% of
sales in 1999. This improvement was driven by improved merchandise margins and
buying and occupancy expense leverage.
. In August 1999, the Company completed the spin-off of Limited Too ("TOO") to
Limited shareholders, and a third party purchased a 60% majority interest in
Galyan's Trading Co. ("Galyan's").
The following summarized financial data compares 1999 to the comparable periods
for 1998 and 1997 (millions):
% Change
Net Sales 1999 1998 1997 1999-98 1998-97
- -------------------------------------------------------------------------------------------------
Express $1,399 $1,356 $1,189 3% 14%
- -------------------------------------------------------------------------------------------------
Lerner New York 1,013 940 946 8% (1%)
- -------------------------------------------------------------------------------------------------
Lane Bryant 934 933 907 0% 3%
- -------------------------------------------------------------------------------------------------
Limited Stores 715 757 776 (6%) (2%)
- -------------------------------------------------------------------------------------------------
Structure 617 610 660 1% (8%)
- -------------------------------------------------------------------------------------------------
Other (principally Mast) 107 72 6 n/m n/m
- -------------------------------------------------------------------------------------------------
Total apparel businesses $4,785 $4,668 $4,484 3% 4%
- -------------------------------------------------------------------------------------------------
Victoria's Secret Stores 2,138 1,829 1,702 17% 7%
- -------------------------------------------------------------------------------------------------
Bath & Body Works 1,550 1,272 1,057 22% 20%
- -------------------------------------------------------------------------------------------------
Victoria's Secret Catalogue 799 759 734 5% 3%
- -------------------------------------------------------------------------------------------------
Other (principally Gryphon) 24 26 #125 n/m n/m
- -------------------------------------------------------------------------------------------------
Total Intimate Brands $4,511 $3,886 $3,618 16% 7%
- -------------------------------------------------------------------------------------------------
Henri Bendel 39 @40 83 (3%) (52%)
- -------------------------------------------------------------------------------------------------
Galyan's (through August 31, 1999) 165 220 160 n/m 38%
- -------------------------------------------------------------------------------------------------
TOO (through August 23, 1999) 223 377 322 n/m 17%
- -------------------------------------------------------------------------------------------------
A&F (through May 19, 1998) - 156 522 n/m n/m
- -------------------------------------------------------------------------------------------------
Total net sales $9,723 $9,347 $9,189 4% 2%
- -------------------------------------------------------------------------------------------------
Operating Income
- -------------------------------------------------------------------------------------------------
Apparel businesses $132 $(45) $34 393% (232%)
- -------------------------------------------------------------------------------------------------
Intimate Brands 794 671 563 18% 19%
- -------------------------------------------------------------------------------------------------
Other (29) 58 98 n/m n/m
- -------------------------------------------------------------------------------------------------
Subtotal 897 684 695 31% (2%)
- -------------------------------------------------------------------------------------------------
Special and nonrecurring items + 24 /\1,740 *(226)
- -------------------------------------------------------------------------------------------------
Total operating income $921 $2,424 $469
- -------------------------------------------------------------------------------------------------
# Includes Cacique sales prior to its closing effective January 31, 1998.
@ Five of six Henri Bendel stores were closed during the period February 1998
through July 1998.
+ 1999 special and nonrecurring items: 1) a $13.1 million charge for
transaction costs related to the TOO spin-off; and 2) the reserve reversal
of $36.6 million related to downsizing costs for Henri Bendel. These
special items relate to the "Other" category.
/\ 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
$12.5 million in valuation adjustments on investments) 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.
n/m not meaningful
99 AR LTD 65
The following summarized financial data compares 1999 to the comparable periods
for 1998 and 1997:
Comparable Store Sales 1999 1998 1997
- ------------------------------------------------------------------------------
Express 5% 16% (15%)
- ------------------------------------------------------------------------------
Lerner New York 12% 5% (5%)
- ------------------------------------------------------------------------------
Lane Bryant 5% 5% 1%
- ------------------------------------------------------------------------------
Limited Stores 5% 1% (7%)
- ------------------------------------------------------------------------------
Structure 4% (8%) (3%)
- ------------------------------------------------------------------------------
Total apparel businesses 6% 5% (7%)
- ------------------------------------------------------------------------------
Victoria's Secret Stores 12% 4% 11%
- ------------------------------------------------------------------------------
Bath & Body Works 11% 7% 11%
- ------------------------------------------------------------------------------
Total Intimate Brands 12% 5% *11%
- ------------------------------------------------------------------------------
Henri Bendel 7% (12%) (13%)
- ------------------------------------------------------------------------------
Galyan's (through August 31, 1999) 9% 5% 0%
- ------------------------------------------------------------------------------
TOO (through August 23, 1999) 9% 15% 20%
- ------------------------------------------------------------------------------
A&F (through May 19, 1998) - 48% 21%
- ------------------------------------------------------------------------------
Total comparable store sales 9% 6% 0%
- ------------------------------------------------------------------------------
* Includes Cacique sales prior to closing effective January 31, 1998.
% Change
Store Data 1999 1998 1997 1999-98 1998-97
- ------------------------------------------------------------------------------------------------------------------
Retail sales increase (decrease)
attributable to net new
and remodeled stores
(1998 change excludes impact
of closing Cacique)
- ------------------------------------------------------------------------------------------------------------------
Apparel businesses (4%) (3%) (1%)
- ------------------------------------------------------------------------------------------------------------------
Intimate Brands 7% 7% 14%
- ------------------------------------------------------------------------------------------------------------------
Retail sales per average
selling square foot
- ------------------------------------------------------------------------------------------------------------------
Apparel businesses $263 $238 $219 11% 9%
- ------------------------------------------------------------------------------------------------------------------
Intimate Brands $602 $558 $532 8% 5%
- ------------------------------------------------------------------------------------------------------------------
Retail sales per average
store (thousands)
- ------------------------------------------------------------------------------------------------------------------
Apparel businesses $1,541 $1,392 $1,276 11% 9%
- ------------------------------------------------------------------------------------------------------------------
Intimate Brands $1,844 $1,723 $1,661 7% 4%
- ------------------------------------------------------------------------------------------------------------------
Average store size at end
of year (retail selling square feet)
- ------------------------------------------------------------------------------------------------------------------
Apparel businesses 5,869 5,863 5,836 0% 0%
- ------------------------------------------------------------------------------------------------------------------
Intimate Brands 3,064 3,066 3,116 0% (2%)
- ------------------------------------------------------------------------------------------------------------------
Retail selling square feet at
end of year (thousands)
- ------------------------------------------------------------------------------------------------------------------
Apparel businesses 17,091 18,517 20,105 (8%) (8%)
- ------------------------------------------------------------------------------------------------------------------
Intimate Brands 6,466 5,794 5,328 12% 9%
- ------------------------------------------------------------------------------------------------------------------
Number of Stores
- ------------------------------------------------------------------------------------------------------------------
Beginning of year 5,382 5,640 5,633
- ------------------------------------------------------------------------------------------------------------------
Opened 295 251 315
- ------------------------------------------------------------------------------------------------------------------
Closed (301) (350) (190)
- ------------------------------------------------------------------------------------------------------------------
Businesses disposed of or closed
- ------------------------------------------------------------------------------------------------------------------
Galyan's (18) - -
- ------------------------------------------------------------------------------------------------------------------
TOO (335) - -
- ------------------------------------------------------------------------------------------------------------------
A&F - (159) -
- ------------------------------------------------------------------------------------------------------------------
Cacique - - (118)
- ------------------------------------------------------------------------------------------------------------------
End of year 5,023 5,382 5,640
- ------------------------------------------------------------------------------------------------------------------
Net Sales
Fourth Quarter
Net sales of $3.287 billion for the fourth quarter of 1999 increased 1% over
1998. A comparable store sales increase of 5% was partially offset by the loss
of sales from TOO and Galyan's and the net closure of stores in the apparel
businesses.
At IBI, net sales for the fourth quarter of 1999 increased 18% to $1.802
billion from $1.531 billion in 1998. The increase was due to an 11% increase in
comparable store sales, the net addition of 220 new stores and a 12% increase in
catalogue sales. At the apparel retail businesses, net sales for the fourth
quarter of 1999 decreased 3% to $1.434 billion from $1.486 billion in 1998. The
overall 1% increase in comparable store sales at the apparel businesses was
offset by a net closure of 246 stores.
Net sales of $3.256 billion for the fourth quarter of 1998 were 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 Abercrombie & Fitch ("A&F").
At IBI, net sales for the fourth quarter of 1998 increased 10% to
$1.531 billion from $1.397 billion in 1997. Excluding the impact of closing
Cacique, net sales grew 12%. The net sales increase, excluding Cacique, was
primarily due to an 8% increase in comparable store sales, the net addition of
180 new stores and a 6% increase in catalogue sales. At the apparel retail
businesses, net sales for the fourth quarter of 1998 increased 1% to $1.486
billion from $1.470 billion in 1997. The overall 5% increase in comparable store
sales at the apparel businesses was partially offset by a net closure of 287
stores.
Full Year
Net sales for the year were $9.723 billion in 1999 compared to $9.347 billion in
1998. Sales increased due to a 9% comparable store sales increase, partially
offset by the loss of sales from disposed businesses and the net closure of
stores in the apparel segment. Disposed businesses negatively impacted sales
growth due to the loss of: 1) A&F sales subsequent to the May 19, 1998
split-off; 2) TOO sales after its August 23, 1999 spin-off; and 3) Galyan's
sales following the third party purchase of a 60% majority interest effective
August 31, 1999.
In 1999, IBI sales increased 16% to $4.511 billion, due to a 12% increase in
comparable store sales, the net addition of 220 new stores and a 5% increase in
catalogue sales. Bath & Body Works led IBI with sales increasing 22% to $1.550
billion. The sales increase was primarily attributable to the net addition of
153 new stores (398,000 retail selling square feet), as well as an 11% increase
in comparable store sales. Victoria's Secret Stores' sales increased 17% to
$2.138 billion. The sales increase was primarily attributable to a 12% increase
in comparable store sales and the net addition of 67 new stores (274,000 retail
selling square feet). Victoria's Secret Catalogue's sales increased 5% to $799
million in 1999. The sales increase was attributable to an increased response
rate, higher sales per catalogue page and increased Internet sales through
www.VictoriasSecret.com.
In 1999, the apparel businesses reported a retail sales increase of 2% to
$4.678 billion from $4.596 billion in 1998. The sales increase was primarily due
to a 6% comparable store sales increase. All apparel businesses reported a
comparable store sales increase, led by Lerner New York, which reported an
increase of 12%. The effect of these increases on total sales was partially
offset by the net closure of 246 apparel stores (1.4 million retail selling
square feet), principally due to closures of underperforming locations.
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 activity prior to the split-off, 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 retail selling square feet.
In 1998, IBI sales increased 7% to $3.886 billion, due to the net addition of
180 stores (466,000 retail selling square feet) and a 5% increase in comparable
66 LTD AR 99
store sales. Bath & Body Works led IBI with sales increasing 20% to $1.272
billion. The sales increase was primarily attributable to the net addition of
140 new stores (319,000 retail selling square feet) and a 7% increase in
comparable store sales. 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 (147,000 retail
selling square feet). Victoria's Secret Catalogue's sales increased 3% to $759
million in 1998, primarily due to a response rate increase for the year.
In 1998, the apparel businesses reported a retail sales increase of 3% to
$4.596 billion from $4.478 billion in 1997. Sales increased $167 million at
Express, primarily driven by a comparable store sales increase of 16%.
Comparable store sales at Lerner New York and Lane Bryant increased 5%. The
effect of these increases on total sales was partially offset by an 8%
comparable store sales decrease at Structure, and the net reduction of 287
apparel stores (1.6 million retail selling square feet), principally due to
closures of underperforming locations.
Gross Income
Fourth Quarter
The fourth quarter of 1999 gross income rate (expressed as a percentage of
sales) increased to 39.7% from 36.0% for the same period in 1998. The rate
increase was principally due to an increase in the merchandise margin rate and a
slight decrease in the buying and occupancy expense rate. The increase in the
merchandise margin rate was primarily attributable to improved inventory
management and merchandising strategies. The buying and occupancy expense rate
decrease was a result of sales leverage at IBI and the positive impact of
closing unprofitable, low productivity stores at the apparel businesses.
The fourth quarter of 1998 gross income rate increased to 36.0% from 35.2%
for the same period in 1997. The rate increase was principally due to a decrease
in the buying and occupancy expense rate as a result of sales leverage at IBI
and the benefit from store closings at the apparel businesses.
Full Year
In 1999, the gross income rate increased to 34.5% from 31.8% in 1998. The rate
increase was due to an increase in the merchandise margin rate and a decrease in
the buying and occupancy expense rate. The increase in the merchandise margin
rate was primarily attributable to improved inventory management and
merchandising strategies at the apparel businesses. The buying and occupancy
expense rate decrease was a result of sales leverage at IBI and the benefit from
store closings at the apparel businesses.
In 1998, the gross income rate increased to 31.8% from 30.4% in 1997. The
rate increase was due to an increase in the merchandise margin rate and a
decrease in the buying and occupancy expense rate. The gains in the merchandise
margin rate were due to an increase at IBI (the apparel businesses experienced a
decline). The buying and occupancy expense rate declined at IBI as a result of
sales leverage. The buying and occupancy expense rate also declined at the
apparel businesses due to sales leverage at Express and the benefit from store
closings at the apparel businesses.
General, Administrative and Store Operating Expenses
Fourth Quarter
The fourth quarter of 1999 general, administrative and store operating expense
rate (expressed as a percentage of sales) of 22.3% was flat compared to last
year. The improved expense leverage at IBI was offset by a lack of expense
leverage and investments in brand building activities at the apparel businesses.
The fourth quarter of 1998 general, administrative and store operating
expense rate increased to 22.3% from 21.6% for the same period in 1997. The rate
increase was attributable to: 1) a 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.
Full Year
In 1999, the general, administrative and store operating expense rate increased
to 25.3% from 24.5% in 1998. The rate increase was primarily attributable to a
rate increase at IBI due to investment in national advertising for Victoria's
Secret and additional store staffing for product extensions and new initiatives
in Victoria's Secret Stores, and a lack of expense leverage and investments in
brand building activities at the apparel businesses.
In 1998, the general, administrative and store operating expense rate
increased to 24.5% from 23.0% in 1997. The rate increase was primarily
attributable to: 1) a rate increase at IBI due to investment in national
advertising for Victoria's Secret and additional store staffing for product
extensions and new initiatives in Victoria's Secret Stores; 2) the inability to
leverage these expenses at the apparel businesses due to disappointing sales
performance; 3) compensation charges for restricted stock plans; and 4) Year
2000 information technology costs.
Special and Nonrecurring Items
During 1999, the Company recognized a $13.1 million charge for transaction costs
related to the TOO spin-off and a $36.6 million reserve reversal related to
costs for downsizing Henri Bendel store space in New York (see Note 2 to the
Consolidated Financial Statements).
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 0.86 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.
99 AR LTD 67
The $276 million special and nonrecurring charge was 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 $21 million and $32
million were paid in 1999 and 1998.
The above plan included $36.6 million in charges related to downsizing the
existing Henri Bendel store space in New York. The execution of the plan to
downsize the New York store was primarily based on negotiations with the
original landlord. However, a change in landlords ultimately resulted in the
termination of negotiations during the fourth quarter of 1999, which prevented
the successful completion of the original plan. As a result, the Company
reversed the $36.6 million liability through the special and nonrecurring items
classification.
Other than the reversal of the $36.6 million reserve, no amounts related to
the above plan were reversed or recorded to operating income during 1999 or
1998.
As of January 29, 2000, the Company had remaining restructuring liabilities
of $17.5 million related to the 1997 plan. This liability 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 2011. 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 continuing rent payments through
lease expiration.
The $86 million of impairment charges reduced depreciation by approximately
$18 million in 1999 and 1998 and will have a similar impact in 2000. The Cacique
business had a pretax operating loss of $17 million in 1997, its last year of
operations. Partially as a result of closing five of six locations, Henri
Bendel's pretax 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 $12.5 million in valuation adjustments on certain assets
where the carrying values were permanently impaired.
Operating Income
Fourth Quarter
The fourth quarter of 1999 operating income rate (expressed as a percentage of
sales) increased to 18.5% compared to 13.6% in 1998. Excluding the special and
nonrecurring item in 1999, the fourth quarter operating income rate increased to
17.4% in 1999 from 13.6% in 1998. The rate improvement was primarily driven by
gross margin improvement at the apparel businesses.
The fourth quarter of 1998 operating income rate was 13.6% versus 5.1% in
1997. Excluding special and nonrecurring items and the Henri Bendel inventory
liquidation charge in 1997, the fourth quarter operating income rate was 13.6%
in 1998 versus 14.0% 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 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.
Full Year
In 1999, the operating income rate was 9.5% versus 25.9% in 1998. Excluding
special and nonrecurring items in both years, the operating income rate was 9.2%
in 1999 versus 7.3% in 1998. The rate improvement was primarily driven by the
gross income rate increase of 2.7% which more than offset an increase in the
general, administrative and store operating expense rate. The majority of the
operating income rate increase resulted from gross margin improvement at the
apparel businesses.
In 1998, the operating income rate was 25.9% versus 5.1% in 1997. Excluding
special and nonrecurring items in both years and the Henri Bendel inventory
liquidation charge in 1997, the operating income rate was 7.3% in 1998 versus
7.6% 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 was more than offset by an operating
loss at Structure in 1998 (compared to a modest profit in 1997) and a
significant increase in the operating loss at Limited Stores.
Interest Expense
In 1999, the Company incurred $20.9 million and $78.3 million in interest
expense for the fourth quarter and year, compared to $19.3 million and $68.5
million in 1998 for the same periods. These increases were primarily the result
of increased borrowing levels. For the year, the impact of the increased
borrowing levels was partially offset by a lower average effective interest
rate.
Fourth Quarter Year
1999 1998 1999 1998 1997
- --------------------------------------------------------------------------------
Average daily
borrowings (millions) $968.6 $898.0 $969.6 $808.2 $835.9
- --------------------------------------------------------------------------------
Average effective
interest rate 8.65% 8.60% 8.08% 8.48% 8.22%
Other Income
In 1999, the Company earned $13.5 million and $51.0 million in interest income
for the fourth quarter and year, compared to $15.0 million and $59.3 million in
1998 for the same periods. These decreases were due to lower interest rates on
1999 balances and lower average invested cash balances, principally due to the
impact of a $750 million share repurchase, net of proceeds from the Galyan's
sale of $182 million and the TOO spin-off of $62 million (see the "Liquidity and
Capital Resources" section included herein).
Gain on Sale of Subsidiary Stock
As discussed in Note 1 to the Consolidated Financial Statements, effective
August 31, 1999, a third party purchased a 60% majority interest in Galyan's. As
a result, the Company recorded a pretax gain on sale of subsidiary stock of $11
million, offset by a $6 million provision for taxes. In addition, the revised
tax basis of the Company's remaining investment in Galyan's resulted in an
additional $7 million deferred tax expense.
During the first quarter of 1997, the Company recognized a gain of $8.6
million in connection with the initial public offering ("IPO") of Brylane.
Other Data
There were a number of significant transactions and events in 1999, 1998 and
1997 that impacted the comparability of the Company's results. These items are
more fully described in the "Special and Nonrecurring Items" section included
herein and in Note 2 to the Consolidated Financial Statements.
The following adjusted income information gives effect to: 1) the spin-off of
TOO on August 23, 1999 and the split-off of A&F on May 19, 1998, as if they
occurred on February 2, 1997; and 2) the special items described in the Notes to
Adjusted Income Information.
68 LTD AR 99
Management believes the presentation below provides a reasonable basis on which
to present the adjusted income information. Although the adjusted income
information should not be construed as an alternative to the reported results
determined in accordance with generally accepted accounting principles, it is
provided to assist in investors' understanding of the Company's results of
operations.
Adjusted Income Information
(Thousands except per share amounts)
1999 1998
As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $9,723,334 $(223,377) $9,499,957 $9,346,911 $(533,278) $8,813,633
- ------------------------------------------------------------------------------------------------------------------------------------
Gross income 3,357,477 (74,985) 3,282,492 2,971,260 (182,156) 2,789,104
- ------------------------------------------------------------------------------------------------------------------------------------
General, administrative and
store operating expenses (2,460,338) 68,014 (2,392,324) (2,286,917) 141,271 (2,145,646)
- ------------------------------------------------------------------------------------------------------------------------------------
Special and nonrecurring items, net 23,501 (23,501) - 1,740,030 (1,740,030) -
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 920,640 (30,472) 890,168 2,424,373 (1,780,915) 643,458
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense (78,297) - (78,297) (68,528) - (68,528)
- ------------------------------------------------------------------------------------------------------------------------------------
Other income, net 51,037 - 51,037 59,265 - 59,265
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest (72,623) - (72,623) (63,616) 1,180 (62,436)
- ------------------------------------------------------------------------------------------------------------------------------------
Gain on sale of subsidiary stock 11,002 (11,002) - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 831,759 (41,474) 790,285 2,351,494 (1,779,735) 571,759
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 371,000 (26,200) 344,800 305,000 (51,200) 253,800
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $460,759 $(15,274) $445,485 $2,046,494 $(1,728,535) $317,959
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $2.00 $1.93 $8.29 $1.35
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 227,782 227,782 246,319 232,481
- ------------------------------------------------------------------------------------------------------------------------------------
1997
As Reported Adjustments As Adjusted
- ---------------------------------------------------------------------------------------------
Net sales $9,188,804 $(843,767) $8,345,037
- ---------------------------------------------------------------------------------------------
Gross income 2,795,482 (283,327) 2,512,155
- ---------------------------------------------------------------------------------------------
General, administrative and
store operating expenses (2,112,768) 199,905 (1,912,863)
- ---------------------------------------------------------------------------------------------
Special and nonrecurring items, net (213,215) 213,215 -
- ---------------------------------------------------------------------------------------------
Operating income 469,499 129,793 599,292
- ---------------------------------------------------------------------------------------------
Interest expense (68,728) - (68,728)
- ---------------------------------------------------------------------------------------------
Other income, net 36,886 - 36,886
- ---------------------------------------------------------------------------------------------
Minority interest (55,610) 493 (55,117)
- ---------------------------------------------------------------------------------------------
Gain on sale of subsidiary stock 8,606 (8,606) -
- ---------------------------------------------------------------------------------------------
Income before income taxes 390,653 121,680 512,333
- ---------------------------------------------------------------------------------------------
Provision for income taxes 179,000 48,100 227,100
- ---------------------------------------------------------------------------------------------
Net income $211,653 $73,580 $285,233
- ---------------------------------------------------------------------------------------------
Earnings per share $0.77 $1.25
- ---------------------------------------------------------------------------------------------
Weighted average shares outstanding 274,483 227,408
- ---------------------------------------------------------------------------------------------
Notes to Adjusted Income Information
A) Excluded businesses
TOO and A&F results were excluded in determining adjusted results for all
years presented because these businesses have not been consolidated in the
Company's financial statements subsequent to their spin-off on August 23,
1999 (TOO) and split-off on May 19, 1998 (A&F). The captions affected by
this presentation were net sales, gross income and general, administrative
and store operating expenses. Additionally, minority interest was adjusted
for the minority interest in earnings of A&F for the periods presented. The
provision for income taxes was adjusted as described below (see item C).
B) Special items
The following special items were excluded in determining adjusted results:
. In 1999, the Company reversed a $36.6 million reserve related to
downsizing costs for Henri Bendel. The Company also recognized an
$11.0 million gain from the purchase by a third party of a 60%
majority interest in Galyan's and a $13.1 million charge for
transaction costs related to the TOO spin-off.
. In 1998, the Company recognized 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 a $276 million charge related to
implementation of initiatives to strengthen the Company's various
retail brands, a $62.8 million net gain related to the sale of
one-half of the Company's investment in Brylane, a $13.0 million Henri
Bendel inventory liquidation charge and an $8.6 million gain in
connection with the IPO of Brylane.
C) Provision for income taxes
The tax effect of these adjustments was calculated using the Company's
overall effective rate of 40%. Additionally, the Company's $11.0 million
pretax gain from the purchase by a third party of a 60% majority interest
in Galyan's in 1999 resulted in a $6.0 million provision for taxes, and the
revised tax basis of the Company's remaining investment in Galyan's
resulted in an additional $7.0 million deferred tax expense.
D) Weighted average shares outstanding
Total weighted average shares outstanding were reduced as of the beginning
of 1997 by the 47.1 million Limited shares tendered in the A&F split-off
transaction.
99 AR LTD 69
FINANCIAL CONDITION
The Company's balance sheet at January 29, 2000 provides continuing evidence of
financial strength and flexibility. The Company's long-term debt-to-equity
ratio declined to 19% at the end of 1999 from 25% in 1998 and working capital
decreased 11% to $1.008 billion in 1999 from $1.127 billion in 1998, primarily
due to an increase in the current portion of long-term debt. 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):
1999 1998 1997
- --------------------------------------------------------------------------------
Cash provided by
operating activities $586,326 $571,014 $558,367
- --------------------------------------------------------------------------------
Working capital $1,008,071 $1,126,875 $1,001,348
- --------------------------------------------------------------------------------
Capitalization
- --------------------------------------------------------------------------------
Long-term debt $400,000 $550,000 $650,000
- --------------------------------------------------------------------------------
Shareholders'equity 2,147,077 2,166,959 1,985,765
Total capitalization $2,547,077 $2,716,959 $2,635,765
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:
1999 1998 1997
- -----------------------------------------------------------------------------------
Debt-to-equity ratio 19% 25% 33%
(Long-term debt divided
by shareholders' equity)
- -----------------------------------------------------------------------------------
Debt-to-capitalization ratio 16% 20% 25%
(Long-term debt divided
by total capitalization)
- -----------------------------------------------------------------------------------
Interest coverage ratio 15x 14x 14x
(Income, excluding special and nonrecurring items
and gain on sale of subsidiary stock, before
interest expense, income taxes, depreciation
and amortization divided by interest expense)
- -----------------------------------------------------------------------------------
Cash flow to capital investment 156% 164% 154%
(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 34%, 35% and 36% of net sales in 1999, 1998 and 1997.
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 $586.3 million in 1999, $571.0
million in 1998 and $558.4 million in 1997 and continued to serve as the
Company's primary source of liquidity.
The primary changes in cash provided by operating activities between 1999
and 1998 were due to significant improvement in net income excluding special
and nonrecurring items and working capital changes related to inventories and
income taxes. The cash used for inventories was significantly lower in 1999
than 1998 because of lower fall inventories at the apparel businesses, including
the impact of closed stores. The decrease in income tax accruals from 1998
primarily relates to a $112 million payment of taxes and interest in 1999
related to an Internal Revenue Service assessment.
The changes in cash provided by operating activities in 1998 compared to
1997 primarily related to an increase in inventories and an increase in income
tax accruals as the level of tax payments decreased from 1997.
Investing Activities
In 1999, investing activities included the following: 1) $351.6 million decrease
in restricted cash related to the rescission of the Contingent Stock Redemption
Agreement; 2) $182.0 million in proceeds from the third party purchase of a 60%
majority interest in Galyan's and the sale of related property; 3) $375.4
million in capital expenditures, $277.0 million of which was for new and
remodeled stores; and 4) $10.6 million in net proceeds from the acquisition,
development and sale of properties associated with the Easton project (see
"Easton Real Estate Investment" section on page 71). In 1998, major investing
activities included $347.4 million in capital expenditures, $236.5 million of
which was for new and remodeled stores, $131.3 million in proceeds from the sale
of the Company's remaining investment in Brylane, Inc. and $31.1 million in net
proceeds from the acquisition, development and sale of properties associated
with the Easton project.
Financing Activities
Financing activities in 1999 included proceeds of $300 million from floating
rate notes, $200 million of which was repaid during the year, and the repayment
of $100 million of term debt. The cash from the rescission of the Contingent
Stock Redemption Agreement and other available funds were used to repurchase
shares under a self-tender, which was funded June 14, 1999. A total of 15
million shares of the Company's common stock was repurchased at $50 per share,
resulting in a cash out flow of $750 million plus transaction costs. Cash
used for financing activities in 1999 also reflected an IBI stock repurchase
program initiated during January 1999. During 1999, IBI repurchased 1.6 million
shares from its public shareholders for $62.6 million. Additionally, IBI
repurchased 8.6 million shares of its stock from The Limited at the same
weighted average per share price, with no net cash flow impact to The
Limited. Financing activities also reflected $62 million in receipts from a
$50 million dividend and a $12 million repayment of advances to TOO in
connection with the August 23, 1999 spin-off. In addition, financing activities
included an increase in the quarterly dividend from $0.13 per share to $0.15 per
share, which was partially offset by a lower number of outstanding shares.
Also, on February 22, 2000, the Company repaid the remaining $100 million
of floating rate notes and announced that the Board of Directors approved a
$200 million stock repurchase program.
Financing activities in 1998 reflected an increase in the quarterly
dividend to $0.13 per share from $0.12 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.
Financing activities in 1998 also included three stock repurchases: one by
the Company and two by IBI. 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 4.7 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. As of January 30, 1999, IBI repurchased 0.4
million shares from public shareholders for $14.8 million. Additionally, IBI
repurchased 2.4 million shares from The Limited at the same weighted average per
share price, which had no cash flow impact to The Limited.
70 LTD AR 99
In connection with the split-off of A&F, the Company paid $47.6 million to
settle its intercompany balance at May 19, 1998.
At January 29, 2000 , 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 RETAIL SELLING SQUARE FEET
A summary of actual stores and retail selling square feet by business for 1999
and 1998 and the 2000 plan by business follows:
End of Year Change From
Plan 2000 1999 1998 2000-1999 1999-1998
- -------------------------------------------------------------------------------------------------------------
Express
Stores 680 688 702 (8) (14)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 4,377,000 4,429,000 4,511,000 (52,000) (82,000)
- -------------------------------------------------------------------------------------------------------------
Lerner New York
Stores 578 594 643 (16) (49)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 4,392,000 4,592,000 5,000,000 (200,000) (408,000)
- -------------------------------------------------------------------------------------------------------------
Lane Bryant
Stores 698 688 730 10 (42)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 3,392,000 3,343,000 3,517,000 49,000 (174,000)
- -------------------------------------------------------------------------------------------------------------
Limited Stores
Stores 415 443 551 (28) (108)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 2,546,000 2,749,000 3,371,000 (203,000) (622,000)
- -------------------------------------------------------------------------------------------------------------
Structure
Stores 487 499 532 (12) (33)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 1,936,000 1,978,000 2,118,000 (42,000) (140,000)
- -------------------------------------------------------------------------------------------------------------
Total apparel businesses
Stores 2,858 2,912 3,158 (54) (246)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 16,643,000 17,091,000 18,517,000 (448,000) (1,426,000)
- -------------------------------------------------------------------------------------------------------------
Victoria's Secret Stores
Stores 971 896 829 75 67
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 4,270,000 3,976,000 3,702,000 294,000 274,000
- -------------------------------------------------------------------------------------------------------------
Bath & Body Works
Stores 1,386 1,214 1,061 172 153
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 2,993,000 2,490,000 2,092,000 503,000 398,000
- -------------------------------------------------------------------------------------------------------------
Total Intimate Brands
Stores 2,357 2,110 1,890 247 220
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 7,263,000 6,466,000 5,794,000 797,000 672,000
- -------------------------------------------------------------------------------------------------------------
Henri Bendel
Stores 1 1 1 - -
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 35,000 35,000 35,000 - -
- -------------------------------------------------------------------------------------------------------------
Galyan's
Stores - - 14 - (14)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. - - 964,000 - (964,000)
- -------------------------------------------------------------------------------------------------------------
TOO
Stores - - 319 - (319)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. - - 1,006,000 - (1,006,000)
- -------------------------------------------------------------------------------------------------------------
Total retail businesses
Stores 5,216 5,023 5,382 193 (359)
- -------------------------------------------------------------------------------------------------------------
Retail selling square ft. 23,941,000 23,592,000 26,316,000 349,000 (2,724,000)
- -------------------------------------------------------------------------------------------------------------
Capital Expenditures
Capital expenditures amounted to $375.4 million, $347.4 million and $362.8
million for 1999, 1998 and 1997, of which $277.0 million, $236.5 million and
$194.4 million were for new stores and for remodeling of and improvements to
existing stores. Remaining capital expenditures are primarily related to
information technology, the Company's distribution centers and investments in
intellectual property assets. Capital expenditures in 1997 included $30.2
million related to construction of the Bath & Body Works distribution center.
The Company anticipates spending $475 to $500 million for capital
expenditures in 2000, of which $375 to $400 million will be for new stores and
for remodeling of and improvements to existing stores. Remaining capital
expenditures are primarily related to information technology, the Company's
distribution centers and investments in intellectual property assets. The
Company expects that substantially all 2000 capital expenditures will be funded
by net cash provided by operating activities.
The Company expects to increase retail selling square footage by
approximately 349,000 retail selling square feet in 2000. It is anticipated that
the increase will result from the addition of approximately 300 stores
(primarily within Intimate Brands), offset by the closing of 100 to 125 stores
(primarily within the 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 $53.6 million at
January 29, 2000 and $74.6 million at January 30, 1999.
In conjunction with the Easton development, the Company maintains an
indirect 43% operating interest in a partnership that owns the Easton Town
Center. The Company is a co-guarantor on a $110 million loan agreement to this
partnership. The 1999 year-end loan balance was $97.1 million. Current lease
income on the Easton Town Center is sufficient to meet debt service costs on
this partnership loan.
In 1999 and 1998, the Easton project was cash positive with proceeds of
$31.7 million in 1999 and $65.4 million in 1998 exceeding expenditures of $21.1
million in 1999 and $34.3 million in 1998. In 1997, expenditures for the Easton
development totaled $41.8 million and net sales proceeds totaled $31.7 million.
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.
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. 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
2000 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.
99 AR LTD 71
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------------
(Thousands except per share amounts)
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Net sales $9,723,334 $9,346,911 $9,188,804
- --------------------------------------------------------------------------------------------------------------
Costs of goods sold, occupancy and buying costs (6,365,857) (6,375,651) (6,393,322)
- --------------------------------------------------------------------------------------------------------------
Gross income 3,357,477 2,971,260 2,795,482
- --------------------------------------------------------------------------------------------------------------
General, administrative and store operating expenses (2,460,338) (2,286,917) (2,112,768)
- --------------------------------------------------------------------------------------------------------------
Special and nonrecurring items, net 23,501 1,740,030 (213,215)
- --------------------------------------------------------------------------------------------------------------
Operating income 920,640 2,424,373 469,499
- --------------------------------------------------------------------------------------------------------------
Interest expense (78,297) (68,528) (68,728)
- --------------------------------------------------------------------------------------------------------------
Other income, net 51,037 59,265 36,886
- --------------------------------------------------------------------------------------------------------------
Minority interest (72,623) (63,616) (55,610)
- --------------------------------------------------------------------------------------------------------------
Gain on sale of subsidiary stock 11,002 - 8,606
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 831,759 2,351,494 390,653
- --------------------------------------------------------------------------------------------------------------
Provision for income taxes 371,000 305,000 179,000
- --------------------------------------------------------------------------------------------------------------
Net income $460,759 $2,046,494 $211,653
- --------------------------------------------------------------------------------------------------------------
Net income per share:
- --------------------------------------------------------------------------------------------------------------
Basic $2.10 $8.50 $0.78
- --------------------------------------------------------------------------------------------------------------
Diluted $2.00 $8.29 $0.77
- --------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997 271,071 $180,352 $142,860 $3,472,801 $(1,926,886) $1,869,127
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 211,653 - 211,653
- ------------------------------------------------------------------------------------------------------------------------------------
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 $3,553,982 $(1,896,587) $1,985,765
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 2,046,494 - 2,046,494
- ------------------------------------------------------------------------------------------------------------------------------------
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 $5,470,689 $(3,641,296) $2,166,959
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 460,759 - 460,759
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends - - - (130,449) - (130,449)
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase of common stock,
including transaction costs (15,000) - - - (752,612) (752,612)
- ------------------------------------------------------------------------------------------------------------------------------------
Spin-off of Limited Too - - - (24,675) - (24,675)
- ------------------------------------------------------------------------------------------------------------------------------------
Rescission of contingent stock
redemption agreement - 9,375 7,639 334,586 - 351,600
- ------------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options and other 3,392 - 13,521 (1,539) 63,513 75,495
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 2000 214,964 $189,727 $178,374 $6,109,371 $(4,330,395) $2,147,077
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
72 LTD AR 99
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Thousands)
Assets January 29, 2000 January 30, 1999
- --------------------------------------------------------------------------------
Current assets
- --------------------------------------------------------------------------------
Cash and equivalents $817,268 $870,317
- --------------------------------------------------------------------------------
Accounts receivable 108,794 77,715
- --------------------------------------------------------------------------------
Inventories 1,050,913 1,119,670
- --------------------------------------------------------------------------------
Store supplies 99,916 98,797
- --------------------------------------------------------------------------------
Other 169,386 140,380
- --------------------------------------------------------------------------------
Total current assets 2,246,277 2,306,879
- --------------------------------------------------------------------------------
Property and equipment, net 1,229,612 1,361,761
- --------------------------------------------------------------------------------
Restricted cash - 351,600
- --------------------------------------------------------------------------------
Deferred income taxes 125,145 48,782
- --------------------------------------------------------------------------------
Other assets 486,655 480,686
- --------------------------------------------------------------------------------
Total assets $4,087,689 $4,549,708
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current liabilities
- --------------------------------------------------------------------------------
Accounts payable $256,306 $289,947
- --------------------------------------------------------------------------------
Current portion of long-term debt 250,000 100,000
- --------------------------------------------------------------------------------
Accrued expenses 579,442 661,784
- --------------------------------------------------------------------------------
Income taxes 152,458 128,273
- --------------------------------------------------------------------------------
Total current liabilities 1,238,206 1,180,004
- --------------------------------------------------------------------------------
Long-term debt 400,000 550,000
- --------------------------------------------------------------------------------
Other long-term liabilities 183,398 195,641
- --------------------------------------------------------------------------------
Minority interest 119,008 105,504
- --------------------------------------------------------------------------------
Contingent stock redemption agreement - 351,600
- --------------------------------------------------------------------------------
Shareholders' equity
- --------------------------------------------------------------------------------
Common stock 189,727 180,352
- --------------------------------------------------------------------------------
Paid-in capital 178,374 157,214
- --------------------------------------------------------------------------------
Retained earnings 6,109,371 5,470,689
- --------------------------------------------------------------------------------
6,477,472 5,808,255
- --------------------------------------------------------------------------------
Less: treasury stock, at average cost (4,330,395) (3,641,296)
- --------------------------------------------------------------------------------
Total shareholders' equity 2,147,077 2,166,959
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $4,087,689 $4,549,708
- --------------------------------------------------------------------------------
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
99 AR LTD 73
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(Thousands)
Operating Activities 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Net income $460,759 $2,046,494 $211,653
- -----------------------------------------------------------------------------------------------------------------------
Impact of Other Operating Activities on Cash Flows
- -----------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 272,443 286,000 313,292
- -----------------------------------------------------------------------------------------------------------------------
Special and nonrecurring items,net of income taxes (13,501) (1,705,030) 128,215
- -----------------------------------------------------------------------------------------------------------------------
Minority interest,net of dividends paid 50,517 40,838 33,873
- -----------------------------------------------------------------------------------------------------------------------
(Gain) loss on sale of subsidiary stock,net of income taxes 2,198 - (5,606)
- -----------------------------------------------------------------------------------------------------------------------
Change in Assets and Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Accounts receivable (36,775) 4,704 (14,033)
- -----------------------------------------------------------------------------------------------------------------------
Inventories (54,270) (153,667) (5,407)
- -----------------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses (20,201) 45,580 90,061
- -----------------------------------------------------------------------------------------------------------------------
Income taxes (83,637) 25,895 (149,832)
- -----------------------------------------------------------------------------------------------------------------------
Other assets and liabilities 8,793 (19,800) (43,849)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 586,326 571,014 558,367
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities
- -----------------------------------------------------------------------------------------------------------------------
Net proceeds (expenditures) related to
Easton real estate investment 10,635 31,073 (10,148)
- -----------------------------------------------------------------------------------------------------------------------
Capital expenditures (375,405) (347,356) (362,840)
- -----------------------------------------------------------------------------------------------------------------------
Proceeds from sale of property and related interests - - 234,976
- -----------------------------------------------------------------------------------------------------------------------
Net proceeds from partial sale of interest in subsidiary and investee 182,000 131,262 108,259
- -----------------------------------------------------------------------------------------------------------------------
Decrease in restricted cash 351,600 - -
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 168,830 (185,021) (29,753)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities
- -----------------------------------------------------------------------------------------------------------------------
Proceeds from floating rate notes 300,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Repayment of long-term debt (300,000) - -
- -----------------------------------------------------------------------------------------------------------------------
Repurchase of common stock,including transaction costs (752,612) (43,095) -
- -----------------------------------------------------------------------------------------------------------------------
Repurchase of Intimate Brands,Inc.common stock (62,639) (120,844) -
- -----------------------------------------------------------------------------------------------------------------------
Dividends paid (130,449) (124,203) (130,472)
- -----------------------------------------------------------------------------------------------------------------------
Dividend received from Limited Too 50,000 - -
- -----------------------------------------------------------------------------------------------------------------------
Settlement of Limited Too (1999) and Abercrombie & Fitch (1998)
intercompany accounts 12,000 (47,649) -
- -----------------------------------------------------------------------------------------------------------------------
Stock options and other 75,495 73,720 35,457
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (808,205) (262,071) (95,015)
- -----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (53,049) 123,922 433,599
- -----------------------------------------------------------------------------------------------------------------------
Cash and equivalents, beginning of year 870,317 746,395 312,796
- -----------------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year $817,268 $870,317 $746,395
- -----------------------------------------------------------------------------------------------------------------------
In 1999, noncash financing activities included a $25 million reduction to
retained earnings in connection with the spin-off of Limited Too (see Note 2)
and the pro rata purchase by IBI of 8.6 million shares of its common stock from
The Limited. In 1998, noncash financing activities included the addition of
$1.766 billion treasury stock as a result of the exchange of 40.5 million common
shares of Abercrombie & Fitch ("A&F") previously owned by the Company for 47.1
million shares of common stock of the Company. Additional noncash financing
activities included 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.
74 LTD AR 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of The Limited, Inc.
(the "Company") and all significant subsidiaries which are more than 50 percent
owned and controlled. All significant intercompany balances and transactions
have been eliminated in consolidation. The consolidated financial statements
include the results of Abercrombie & Fitch ("A&F") through May 19, 1998, when it
was established as an independent company, Limited Too ("TOO") through August
23, 1999, when it was established as an independent company, and Galyan's
Trading Co. ("Galyan's") through August 31, 1999, when a third party purchased a
majority interest.
The consolidated financial statements also include the results of Intimate
Brands, Inc. ("IBI"), an 84.2%-owned subsidiary. Minority interest of $119.0
million and $105.5 million at January 29, 2000 and January 30, 1999, represents
a 15.8% and 15.5% interest in the net equity of IBI.
Investments in other entities (including joint ventures) where the Company
has the ability to signfiicantly influence operating and financial policies,
including Galyan's for periods after August 31, 1999, 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
1999, 1998 and 1997 represent the 52-week periods ended January 29, 2000,
January 30, 1999 and January 31, 1998.
Cash and Equivalents
Cash and equivalents include amounts on deposit with financial institutions
and money market investments with original 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, packaging and point-of-sale supplies, is
capitalized at the store opening date. In lieu of amortizing the initial
balance, subsequent shipments are expensed, except for new merchandise
presentation programs, which are capitalized. Store supplies are periodically
inventoried and adjusted as appropriate for changes in supply levels or costs.
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 $324 million, $303 million
and $275 million in 1999, 1998 and 1997.
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 15 years for building and leasehold 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.
Intangible Assets
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 IBI stock buyback in
1998 will reverse as the shares are reissued to cover shares needed for employee
benefit plans. The cost of intellectual property assets is amortized based on
the sell-through of the related products, over the shorter of the term of the
license agreement or the estimated useful life of the asset, not to exceed 10
years.
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 29, 2000, 500.0 million shares of $.50 par value common stock were
authorized and 379.5 million shares were issued. At January 29, 2000 and January
30, 1999, 215.0 million shares and 226.6 million shares were outstanding. Ten
million shares of $1.00 par value preferred stock were authorized, none of which
were issued.
On June 3, 1999, the Company completed an issuer tender offer by purchasing
15 million shares of its common stock at $50 per share and 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).
Revenue Recognition
The Company recognizes retail sales at the time the customer takes possession of
merchandise -- that is, the point of sale. Revenue for gift certificate sales
and store credits are recognized when they are redeemed. Revenue recognition for
layaway sales is deferred until final payment is made by the customer. Catalogue
sales are recorded upon shipment of merchandise. A reserve is provided for
projected merchandise returns based on prior experience.
In the fourth quarter of 1999, the Company changed its accounting for gift
certificates, store credits and layaway sales to the policy stated above. The
Company filed an amended Form 10-K for fiscal year ended January 30, 1999 and
restated the unaudited quarterly financial data in Note 13 to reflect this
accounting change.
99 AR LTD 75
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 resulted in a $0.02 reduction in 1999 earnings per diluted share,
a $0.01 reduction in 1998 earnings per diluted share and no impact on the 1997
calculation.
(Thousands)
Weighted Average Common Shares Outstanding 1999 1998 1997
- ---------------------------------------------------------------------------------------
Common shares issued 379,454 379,454 379,454
- ---------------------------------------------------------------------------------------
Treasury shares (159,872) (138,547) (107,556)
- ---------------------------------------------------------------------------------------
Basic shares 219,582 240,907 271,898
- ---------------------------------------------------------------------------------------
Dilutive effect of options
and restricted shares 8,200 5,412 2,585
- ---------------------------------------------------------------------------------------
Diluted shares 227,782 246,319 274,483
- ---------------------------------------------------------------------------------------
The computation of earnings per diluted share excludes options with an exercise
price that was greater than the average market price of the common shares. The
excluded options totaled 0.6 million, 3.2 million and 0.7 million shares of
common stock that were outstanding at year-end 1999, 1998 and 1997. In addition,
18.75 million shares that were previously subject to the Contingent Stock
Redemption Agreement (see Note 8) were excluded from the dilution calculation in
1998 and 1997 because their redemption would not have had a dilutive effect on
earnings per share.
Gain on Sale of Subsidiary Stock
Gains in connection with the sale of subsidiary stock are recognized in the
current year's income.
Effective August 31, 1999, an affiliate of Freeman, Spogli & Co. (together
with Galyan's management) purchased a 60% majority interest in Galyan's, with
the Company retaining a 40% interest. In addition, the Company sold certain
property for $71 million to a third party, which then leased the property to
Galyan's under operating leases. The Company received total cash proceeds from
these transactions of approximately $182 million, as well as subordinated debt
and warrants of $20 million from Galyan's. The transactions resulted in a third
quarter pretax gain on sale of subsidiary stock of $11 million, offset by a $6
million provision for taxes. In addition, the revised tax basis of the Company's
remaining investment in Galyan's resulted in an additional $7 million deferred
tax expense. During the first five years, interest (at 12% to 13%) on the
subordinated debt may be paid in kind rather than in cash.
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.
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 prior year amounts have been reclassified to conform with current
year presentation.
2. Special and Nonrecurring Items
On July 15, 1999, the Company's Board of Directors approved a formal plan to
spin-off Limited Too. The record date for the spin-off was August 11, 1999, with
The Limited, Inc. shareholders receiving one share of Too, Inc. (the successor
company to Limited Too) common stock for every seven shares of The Limited
common stock held on that date. The spin-off was completed on August 23, 1999.
The Company recorded the spin-off as a $25 million dividend, which represents
the carrying value of the net assets underlying the common stock distributed. As
part of the transaction, the Company received total proceeds of $62 million that
included a $50 million dividend from TOO and a $12 million repayment of advances
to TOO. During the second quarter of 1999, the Company recognized a $13.1
million charge for transaction costs related to the spin-off.
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 0.86 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 3.1 million 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 of Brylane 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 special and nonrecurring charge was made up of the
following components: 1) asset write-downs of $67 million, all of which were
76 LTD AR 99
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 $21 million and $32
million were paid in 1999 and 1998.
The above plan included $36.6 million in charges related to downsizing the
existing Henri Bendel store space in New York. The execution of the plan to
downsize the New York store was primarily based on negotiations with the
original landlord. However, a change in landlords ultimately resulted in the
termination of negotiations during the fourth quarter of 1999, which prevented
the successful completion of the original plan. As a result, the Company
reversed the $36.6 million liability through the special and nonrecurring items
classification.
Other than the reversal of the $36.6 million reserve, no amounts related to
the above plan were reversed or recorded to operating income during 1999 or
1998.
As of January 29, 2000, the Company had remaining restructuring liabilities
of $17.5 million relating to the 1997 plan. This liability 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 2011. 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 continuing rent payments through
lease expiration.
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.
3. Property and Equipment
(Thousands)
Property and Equipment, at Cost 1999 1998
- --------------------------------------------------------------------------------
Land, buildings and improvements $390,121 $411,483
- --------------------------------------------------------------------------------
Furniture, fixtures and equipment 2,016,237 1,930,906
- --------------------------------------------------------------------------------
Leaseholds and improvements 498,232 563,217
- --------------------------------------------------------------------------------
Construction in progress 40,237 108,478
- --------------------------------------------------------------------------------
Total 2,944,827 3,014,084
- --------------------------------------------------------------------------------
Less: accumulated depreciation and amortization 1,715,215 1,652,323
- --------------------------------------------------------------------------------
Property and equipment, net $1,229,612 $1,361,761
- --------------------------------------------------------------------------------
4. Leased Facilities, Commitments and Contingencies
Annual store rent is comprised of a fixed minimum amount and/or 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)
Rent Expense 1999 1998 1997
- --------------------------------------------------------------------------------
Store rent
Fixed minimum $ 635,543 $666,729 $714,995
- --------------------------------------------------------------------------------
Contingent 53,371 39,642 32,918
- --------------------------------------------------------------------------------
Total store rent 688,914 706,371 747,913
- --------------------------------------------------------------------------------
Equipment and other 32,201 22,511 23,492
- --------------------------------------------------------------------------------
Total rent expense $721,115 $728,882 $771,405
- --------------------------------------------------------------------------------
At January 29, 2000, the Company was committed to noncancelable leases with
remaining terms generally from one to twenty years. A substantial portion of
these commitments consist of store leases with initial terms ranging from ten to
twenty years, with options to renew at varying terms.
For leases that contain predetermined fixed escalations the minimum of
rentals and/or rent abatements, the Company recognizes the related rental
expense on a straight-line basis and records the difference between the
recognized rental expense and amounts payable under the leases as deferred lease
credits, which are included in other long-term liabilities. At January 29, 2000
and January 30, 1999, this liability amounted to $124.5 million and $139.6
million.
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 1999
year-end loan balance was $97.1 million.
(Thousands)
Minimum Rent Commitments Under Noncancelable Leases
- --------------------------------------------------------------------------------
2000 $596,281
- --------------------------------------------------------------------------------
2001 595,777
- --------------------------------------------------------------------------------
2002 552,118
- --------------------------------------------------------------------------------
2003 493,065
- --------------------------------------------------------------------------------
2004 432,455
- --------------------------------------------------------------------------------
Thereafter 1,074,838
- --------------------------------------------------------------------------------
5. Accrued Expenses
(Thousands)
Accrued Expenses 1999 1998
- --------------------------------------------------------------------------------
Compensation, payroll taxes and benefits $149,327 $157,785
- --------------------------------------------------------------------------------
Deferred revenue 125,500 106,900
- --------------------------------------------------------------------------------
Taxes, other than income 46,878 46,413
- --------------------------------------------------------------------------------
Interest 18,053 21,057
- --------------------------------------------------------------------------------
Other 239,684 329,629
- --------------------------------------------------------------------------------
Total $579,442 $661,784
- --------------------------------------------------------------------------------
99 AR LTD 77
6. Income Taxes
(Thousands)
Provision for Income Taxes 1999 1998 1997
- --------------------------------------------------------------------------------
Currently payable
- --------------------------------------------------------------------------------
Federal $389,000 $194,100 $304,300
- --------------------------------------------------------------------------------
State 58,000 38,800 33,800
- --------------------------------------------------------------------------------
Foreign 2,100 4,500 3,700
Total 449,100 237,400 341,800
Deferred
- --------------------------------------------------------------------------------
Federal (82,100) 53,100 (160,600)
- --------------------------------------------------------------------------------
State 4,000 14,500 (2,200)
- --------------------------------------------------------------------------------
Total (78,100) 67,600 (162,800)
- --------------------------------------------------------------------------------
Total provision $371,000 $305,000 $179,000
- --------------------------------------------------------------------------------
The foreign component of pretax income, arising principally from overseas
sourcing operations, was $41.5 million, $65.5 million and $62.3 million in 1999,
1998 and 1997.
Reconciliation Between the Statutory Federal
Income Tax Rate and the Effective Tax Rate 1999 1998 1997
- --------------------------------------------------------------------------------
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 0.5% 0.4% 0.6%
- --------------------------------------------------------------------------------
Total 40.0% 39.9% 40.1%
- --------------------------------------------------------------------------------
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, tax effects (if any) related to gains on sale
of subsidiary stock and minority interest.
(Thousands)
Effect of Temporary
Differences That Give Rise 1999 1998
to Deferred Income Taxes Assets Liabilities Total Assets Liabilities Total
==================================================================================================================
Tax under book
depreciation $56,100 - $56,100 $16,300 - $16,300
- ------------------------------------------------------------------------------------------------------------------
Undistributed
earnings of
foreign affiliates - $(28,100) (28,100) - $(104,900) (104,900)
- ------------------------------------------------------------------------------------------------------------------
Special and
nonrecurring items 37,100 - 37,100 63,200 - 63,200
- ------------------------------------------------------------------------------------------------------------------
Rent 54,900 - 54,900 65,300 - 65,300
- ------------------------------------------------------------------------------------------------------------------
Inventory 46,300 - 46,300 22,100 - 22,100
- ------------------------------------------------------------------------------------------------------------------
Investments in
afiliates - (37,100) (37,100) - (28,000) (28,000)
- ------------------------------------------------------------------------------------------------------------------
State income
taxes 34,000 - 34,000 27,700 - 27,700
- ------------------------------------------------------------------------------------------------------------------
Other, net 55,200 (54,800) 400 48,200 (24,400) 23,800
- ------------------------------------------------------------------------------------------------------------------
Total deferred
income taxes $283,600 $(120,000) $163,600 $242,800 $(157,300) $85,500
- ------------------------------------------------------------------------------------------------------------------
Income taxes payable included net current deferred tax assets of $38.5 million
and $36.7 million at January 29, 2000 and January 30, 1999.
Income tax payments were $408.8 million, $241.7 million and $410.8 million
for 1999, 1998 and 1997.
The Internal Revenue Service has assessed the Company for additional taxes
and interest for the years 1992 to 1996 relating to the undistributed earnings
of foreign affiliates for which the Company has provided deferred taxes. On
September 7, 1999, the United States Tax Court sustained the position of the IRS
with respect to the 1992 year. In connection with an appeal of the Tax Court
judgment, the Company made a $112 million payment of taxes and interest for the
years 1992 to 1998 that reduced deferred tax liabilities. Management believes
the ultimate resolution of this matter will not have a material adverse effect
on the Company's results of operations or financial condition.
7. Long-Term Debt
(Thousands)
Unsecured Long-Term Debt 1999 1998
- --------------------------------------------------------------------------------
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 paid August 1999 - 100,000
- --------------------------------------------------------------------------------
Floating rate notes 100,000 -
- --------------------------------------------------------------------------------
650,000 650,000
- --------------------------------------------------------------------------------
Less:current portion of long-term debt 250,000 100,000
- --------------------------------------------------------------------------------
Total $400,000 $550,000
- --------------------------------------------------------------------------------
In May 1999, the Company issued $300 million of floating rate notes, consisting
of three individual series (Series A, B and C) of $100 million each. The notes
are senior, unsecured obligations and bear interest based on LIBOR, payable
quarterly in arrears.
The notes were originally repayable as follows: Series A due May 2000,
Series B due November 2000 and Series C due May 2001. However, on November
22, 1999, the Company redeemed the Series A and Series B notes. In addition, on
February 22, 2000, the Company redeemed the Series C notes. Accordingly, the
Series C notes are included in the current portion of long-term debt at January
29, 2000.
The Company maintains a $1 billion unsecured revolving credit agreement
(the "Agreement"), established on September 29, 1997 (the "Effective Date").
Borrowings outstanding under the Agreement, if any, 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 September 29, 2001, subject to the
approval of the lending banks. The Agreement has several borrowing options,
including interest rates which are based on either the lender's "Base Rate," as
defined, LIBOR, CD-based options or at a rate submitted under a bidding process.
Facilities fees payable under the Agreement are based on the Company's long-term
credit ratings, and currently approximate 0.1% of the committed amount per
annum.
The Agreement supports the Company's commercial paper program, which is
used from time to time to fund working capital and other general corporate
requirements. The Agreement contains covenants relating to the Company's working
capital, debt and net worth. No commercial paper or amounts under the Agreement
were outstanding at January 29, 2000 and January 30, 1999.
The Company has a shelf registration statement, under which up to $250
million of debt securities and warrants to purchase debt securities may be
issued.
At January 29, 2000, the Company had an interest rate swap that 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 $81.3 million, $68.6 million and $69.1 million in 1999,
1998 and 1997.
78 LTD AR 99
8. Contingent Stock Redemption Agreement and Restricted Cash
On May 3, 1999, the Company, Leslie H. Wexner, Chairman and CEO of the Company,
and The Wexner Children's Trust (the "Trust") entered into an agreement (the
"Rescission Agreement") rescinding the Contingent Stock Redemption Agreement
dated as of January 26, 1996, as amended, among the Company, Mr. Wexner and the
Trust. Pursuant to the Rescission Agreement, the rights and obligations of the
Company, Mr. Wexner and the Trust under the Contingent Stock Redemption
Agreement were terminated, and the Company utilized the $351.6 million of
restricted cash to purchase shares in the Company's tender offer, which expired
on June 1, 1999.
The Company earned interest of $4.1 million, $17.9 million and $18.6
million in 1999, 1998 and 1997 on the restricted cash.
9. Stock Options and Restricted Stock
Under the Company's stock plans, associates may be granted up to a total of 31.5
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, 2.5 million options
in 1999 and 2.3 million options in 1998 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 18.4 million restricted shares and options to purchase IBI's common stock at
the market price on the date of grant. As of January 29, 2000, options to
purchase 7.2 million IBI shares were outstanding, of which 1.4 million options
were exercisable. Under these plans, options generally vest over periods from
four to six years.
The Company measures compensation expense under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and no compensation expense has been
recognized for its stock option plans. In accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing model
discussed below. If compensation expense had been determined using the estimated
fair value of options under 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), would have been a reduction of approximately $18.7 million or $0.08
per share in 1999, $13.9 million or $0.06 per share in 1998 and $11.4 million or
$0.04 per share in 1997.
The weighted average per share fair value of options granted ($11.28, $8.32
and $5.79 during 1999, 1998 and 1997) 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 1999,
1998 and 1997: dividend yields of 2.1%, 2.2% and 2.8%; volatility of 32%, 29%
and 27%; risk-free interest rates of 7%, 5% and 6%; assumed forfeiture rates of
20%, 20% and 15%; and expected lives of 5.2 years, 6.3 years and 6.5 years. The
pro forma effect on net income for 1997 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 520,000, 858,000 and 2,120,000 restricted Limited shares were
granted in 1999, 1998 and 1997, with market values at date of grant of $18.5
million, $27.4 million and $43.9 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 1999 and 1997, 50,000 and 1,700,000
restricted shares were granted with a graduated vesting schedule over six years.
Approximately 157,000 and 685,000 restricted shares granted in 1999 and 1997
include 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 170,000,
425,000 and 1,514,000 restricted shares in 1999, 1998 and 1997. A&F granted
540,000 restricted shares in 1997. 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), amounted to $28.8
million in 1999, $31.3 million in 1998 and $29.0 million in 1997.
Stock Options Outstanding at January 29, 2000
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
- ------------------------------------------------------------------------------------
$14 - $21 8,064,000 6.6 $18 3,069,000 $18
- ------------------------------------------------------------------------------------
$22 - $26 3,571,000 7.3 $24 922,000 $23
- ------------------------------------------------------------------------------------
$27 - $33 3,551,000 8.9 $32 66,000 $29
- ------------------------------------------------------------------------------------
$34 - $47 1,101,000 9.6 $40 -- --
- ------------------------------------------------------------------------------------
$14 - $47 16,287,000 7.5 $24 4,057,000 $19
- ------------------------------------------------------------------------------------
Weighted Average
Number of Option Price
Stock Option Activity Shares Per Share
- --------------------------------------------------------------------------------
1997
Outstanding at beginning of year 9,199,000 $19.14
- --------------------------------------------------------------------------------
Granted 7,331,000 20.02
- --------------------------------------------------------------------------------
Exercised (1,377,000) 17.70
- --------------------------------------------------------------------------------
Canceled (1,083,000) 19.64
- --------------------------------------------------------------------------------
Outstanding at end of year 14,070,000 $19.70
- --------------------------------------------------------------------------------
Options exercisable at end of year 4,907,000 $19.89
- --------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
1999
- --------------------------------------------------------------------------------
Outstanding at beginning of year 14,923,000 $21.42
- --------------------------------------------------------------------------------
Granted 5,007,000 34.62
- --------------------------------------------------------------------------------
Exercised (2,674,000) 18.40
- --------------------------------------------------------------------------------
Canceled (969,000) 23.89
- --------------------------------------------------------------------------------
Outstanding at end of year 16,287,000 $24.06
- --------------------------------------------------------------------------------
Options exercisable at end of year 4,057,000 $19.36
- --------------------------------------------------------------------------------
10. 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 $40.9
million in 1999, $40.4 million in 1998 and $36.4 million in 1997.
99 AR LTD 79
11. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value.
Current Assets, Current Liabilities and Restricted Cash
The carrying value of cash equivalents, restricted cash, accounts 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 creditwor-
thiness of the swap counterparty.
(Thousands)
1999 1998
Estimated Fair Values of the Carrying Fair Carrying Fair
Company's Financial Instruments Amount Value Amount Value
- --------------------------------------------------------------------------------------------------
Long-term debt $(400,000) $(371,752) $(550,000) $(561,594)
- --------------------------------------------------------------------------------------------------
Interest rate swap $(1,351) $(1,351) $(96) $(3,896)
12. Segment Information
The Company identifies 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 and
men'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 not significant.
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 service-related costs be allocated in accordance with the intercompany
agreement. Costs are passed through and allocated to the apparel businesses in a
similar manner.
As a result of its spin-off, the operating results of TOO were reclassified
from the apparel segment to the "Other" category for all periods presented. The
operating results of Galyan's are included in the "Other" category. However,
subsequent to August 31, 1999, the Company includes only its 40% share of
Galyan's income or loss.
(Thousands)
Apparel Intimate Reconciling
Segment Information Businesses Brands + Other Items Total
- ---------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------
Net sales $4,785,328 $4,510,836 $427,170 - $9,723,334
- ---------------------------------------------------------------------------------------------------------------
Intersegment sales 570,659 - - * $(570,659) -
- ---------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 107,810 104,625 60,008 - 272,443
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) 131,728 793,516 (28,105) @ 23,501 920,640
- ---------------------------------------------------------------------------------------------------------------
Total assets 1,106,072 1,344,991 1,612,885 # 23,741 4,087,689
- ---------------------------------------------------------------------------------------------------------------
Capital expenditures 118,710 205,516 51,179 - 375,405
1998
- ---------------------------------------------------------------------------------------------------------------
Net sales $4,668,029 $3,885,753 $793,129 - $9,346,911
- ---------------------------------------------------------------------------------------------------------------
Intersegment sales 457,204 - - * $(457,204) -
- ---------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 126,438 101,221 58,341 - 286,000
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) (45,153) 670,849 58,647 /\1,740,030 2,424,373
- ---------------------------------------------------------------------------------------------------------------
Total assets 1,186,243 1,448,077 1,909,528 # 5,860 4,549,708
- ---------------------------------------------------------------------------------------------------------------
Capital expenditures 68,695 121,543 157,118 - 347,356
1997
- ---------------------------------------------------------------------------------------------------------------
Net sales $4,484,300 $3,617,856 $1,086,648 - $9,188,804
- ---------------------------------------------------------------------------------------------------------------
Intersegment sales 491,343 - - * $(491,343) -
- ---------------------------------------------------------------------------------------------------------------
Depreciation and
amortization 136,903 106,197 70,192 - 313,292
- ---------------------------------------------------------------------------------------------------------------
Operating income (loss) 33,726 563,152 98,836 ** (226,215) 469,499
- ---------------------------------------------------------------------------------------------------------------
Total assets 1,053,518 1,347,700 1,912,000 # (12,457) 4,300,761
- ---------------------------------------------------------------------------------------------------------------
Capital expenditures 73,691 124,275 164,874 - 362,840
+ Included in the "Other" category are Henri Bendel, TOO (through August 23,
1999), Galyan's (through August 31, 1999), A&F (through May 19, 1998),
non-core real estate, and corporate, none of which are significant
operating segments.
* Represents intersegment sales elimination.
# Represents intersegment receivable/payable elimination.
@ 1999 special and nonrecurring items: 1) a $13.1 million charge for
transaction costs related to the TOO spin-off; and 2) the reserve reversal
of $36.6 million related to downsizing costs for Henri Bendel. These
special items relate to the "Other" category.
/\ 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 income related to the gain from the sale
of approximately one-half of the Company's interest in Brylane (net of
$12.5 million in valuation adjustments on investments), 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.
80 LTD AR 99
13. Quarterly Financial Data (Unaudited)
Summarized quarterly financial results for 1999 and 1998 (thousands except per
share amounts)
1999 Quarters First Second Third Fourth
- --------------------------------------------------------------------------------
Net sales $2,104,798 $2,267,821 $2,064,105 $3,286,610
- --------------------------------------------------------------------------------
Gross income 653,368 727,647 670,249 1,306,213
- --------------------------------------------------------------------------------
Net income * 45,451 57,482 41,362 316,464
- --------------------------------------------------------------------------------
Net income per share:
- --------------------------------------------------------------------------------
Basic $0.20 $0.26 $0.19 $1.47
- --------------------------------------------------------------------------------
Diluted * 0.19 0.24 0.18 1.41
1998 Quarters
- --------------------------------------------------------------------------------
Net sales $2,008,077 $2,083,101 $1,999,862 $3,255,871
- --------------------------------------------------------------------------------
Gross income 581,655 609,584 609,178 1,170,843
- --------------------------------------------------------------------------------
Net income 89,659 1,688,068 40,593 228,174
- --------------------------------------------------------------------------------
Net income per share:
- --------------------------------------------------------------------------------
Basic $0.33 $7.15 $0.18 $1.01
- --------------------------------------------------------------------------------
Diluted 0.32 6.94 0.17 0.97
1999: Special and nonrecurring items included a $13.1 million charge in the
second quarter for transaction costs related to the TOO spin-off and
the reserve reversal of $36.6 million in the fourth quarter related to
downsizing costs for Henri Bendel.
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.
* In the fourth quarter of 1999, the Company changed its accounting for
gift certificates, store credits and layaway sales. The Company filed
an amended Form 10-K for fiscal year ended January 30, 1999 to reflect
this accounting change. Prior to this restatement, net income and net
income per diluted share amounts reported in the Company's 1999
quarterly reports on Form 10-Q were as follows: first quarter, $33.5
million and $0.14; second quarter, $52.4 million and $0.22; and third
quarter, $40.7 million and $0.18.
MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange ("LTD") and
the London Stock Exchange. On January 29, 2000 , there were approximately 80,500
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 230,000.
Market Price Cash Dividend
Fiscal Year End 1999 High Low Per Share
- ----------------------------------------------------------------------------
4th quarter $43 13/16 $30 1/2 $0.15
- ----------------------------------------------------------------------------
3rd quarter * 45 15/16 36 7/16 0.15
- ----------------------------------------------------------------------------
2nd quarter 50 1/8 44 3/16 0.15
- ----------------------------------------------------------------------------
1st quarter 44 34 1/4 0.15
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
* Limited Too was spun off to The Limited shareholders in the form of a dividend
valued at approximately $2.36 per share on the date of the spin-off (August 23,
1999).
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 financial position of The Limited, Inc. and its
subsidiaries at January 29, 2000 and January 30, 1999, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 29, 2000 (on pages 72-81) in conformity with accounting principles
generally accepted in the United States. 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 statements in accordance with auditing standards generally
accepted in the United States, 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 22, 2000
99 AR LTD 81
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
Mast Industries, Inc. (h) Delaware
Mast Industries (Far East) Limited (i) Hong Kong
Limited Distribution Services, Inc. (j) Delaware
Limited Service Corporation (k) Delaware
Womanco Service Corporation (l) Delaware
Victoria's Secret Stores, Inc. (m) Delaware
Victoria's Secret Catalogue, LLC (n) Delaware
Bath & Body Works, Inc. (o) Delaware
Gryphon Development, Inc. (p) Delaware
Intimate Brands Service Corporation (q) Delaware
Intimate Brands, Inc. (r) 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 29,
2000.
(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) Mast Industries, Inc. is a wholly-owned subsidiary of Mast
Industries (Delaware), Inc., a Delaware corporation and a wholly-
owned subsidiary of the registrant.
(i) Mast Industries (Far East) Limited is a wholly-owned subsidiary of
Mast Industries (Overseas), Inc., which is a wholly-owned
subsidiary of Mast Industries, Inc.
(j) Limited Distribution Services, Inc. is a wholly-owned subsidiary of
LTDSP, Inc., a Delaware corporation and a wholly-owned subsidiary
of the registrant.
(k) Limited Service Corporation is a majority owned subsidiary of Mast
Industries (Overseas), Inc.
(l) Womanco Service Corporation is a wholly-owned subsidiary of
Womanco, Inc., a Delaware corporation and a wholly-owned subsidiary
of the registrant.
(m) 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.
(n) 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.
(o) Bath & Body Works, Inc. is a wholly-owned subsidiary of Intimate
Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(p) 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.
(q) Intimate Brands Service Corporation is a wholly-owned subsidiary of
Intimate Brands, Inc., a Delaware corporation and a majority owned
subsidiary of the registrant.
(r) Intimate Brands, Inc. is a majority owned subsidiary of the
registrant.
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8, Registration Nos. 33-18533, 33-25005, 2-92277, 33-24829,
33-24507, 33-24828, 2-95788, 2-88919, 33-24518, 33-6965, 33-14049, 33-22844,
33-44041, 33-49871, 333-04927, 333-04941, and the Registration Statements on
Form S-3, Registration Nos. 33-20788, 33-31540, 33-42832, and 33-53366, of The
Limited, Inc. of our report dated February 22, 2000 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
April 24, 2000
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 29, 2000 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 28th day of January, 2000.
/s/ LESLIE H. WEXNER
--------------------
Leslie H. Wexner
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 29, 2000 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 28th day of January, 2000.
/s/ V. ANN HAILEY
-----------------
V. Ann Hailey
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 29, 2000 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 28th day of January, 2000.
/s/ ABIGAIL S. WEXNER
---------------------
Abigail S. Wexner
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 29, 2000 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 28th day of January, 2000.
/s/ MARTIN TRUST
----------------
Martin Trust
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 29, 2000 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 28th day of January, 2000.
/s/ EUGENE M. FREEDMAN
----------------------
Eugene M. Freedman
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 29, 2000 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 28th day of January, 2000.
/s/ E. GORDON GEE
-----------------
E. Gordon Gee
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 29, 2000 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 28th day of January, 2000.
/s/ LEONARD A. SCHLESINGER
--------------------------
Leonard A. Schlesinger
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 29, 2000 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 28th day of January, 2000.
/s/ DAVID T. KOLLAT
-------------------
David T. Kollat
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 29, 2000 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 28th day of January, 2000.
/s/ CLAUDINE MALONE
-------------------
Claudine Malone
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 29, 2000 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 28th day of January, 2000.
/s/ DONALD B. SHACKELFORD
-------------------------
Donald B. Shackelford
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 29, 2000 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 28th day of January, 2000.
/s/ ALLAN R. TESSLER
--------------------
Allan R. Tessler
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 29, 2000 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 28th day of January, 2000.
/s/ RAYMOND ZIMMERMAN
---------------------
Raymond Zimmerman
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 29, 2000 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 28th day of January, 2000.
/s/ KENNETH B. GILMAN
---------------------
Kenneth B. Gilman
5
1,000
YEAR
JAN-29-2000
JAN-31-1999
JAN-29-2000
817,268
0
108,794
0
1,050,913
2,246,277
2,944,827
1,715,215
4,087,689
1,238,206
400,000
0
0
189,727
1,957,350
4,087,689
9,723,334
9,723,334
6,365,857
6,365,857
2,460,338
0
78,297
831,759
371,000
460,759
0
0
0
460,759
2.10
2.00
EXHIBIT 99
----------
The Limited, Inc. Savings and Retirement Plan
Report on Audits of Financial Statements
As of and for the Years Ended December 31, 1999 and 1998
and Supplemental Schedule
As of December 31, 1999
Contents
Independent Auditor's Report........................................... 1
Financial Statements
Statements of Net Assets Available for Benefits........................ 2
Statements of Changes in Net Assets Available for Benefits............. 3
Notes to Financial Statements.......................................... 4
Supplementary Schedule
Schedule of Assets Held for Investment Purposes....................... 12
[LETTERHEAD OF ARY, EARMAN AND ROEPCKE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors of
The Limited, Inc. and 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 as of December 31,
1999 and 1998, 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, 1999 and 1998, and the changes in net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedule of
investments held for investment purposes is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is 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 schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 31, 2000.
-1-
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
-----------------------------------------------
DECEMBER 31, 1999 AND 1998
--------------------------
1999 1998
------------ ------------
ASSETS:
Investments $453,255,672 $380,482,156
Receivable for contributions:
Employers 28,574,143 25,548,732
Participants 1,709,157 1,906,944
------------ ------------
Total receivable contributions 30,283,300 27,455,676
------------ ------------
Due from brokers 120,275 197,476
Accrued interest and dividends 914,727 4,286
------------ ------------
Total assets 484,573,974 408,139,594
------------ ------------
LIABILITIES:
Administrative fees payable 27,626 86,807
Due to brokers - 673
------------ ------------
Total liabilities 27,626 87,480
------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $484,546,348 $408,052,114
============ ============
The accompanying notes are an integral part of these financial statements.
-2-
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------
1999 1998
------------- -------------
ADDITIONS:
Investment Income:
Net appreciation in fair value
of investments $ 77,211,144 $ 56,085,295
Mutual funds' earnings 12,083,572 15,139,419
Dividends 1,525,988 1,415,407
Investment contracts' earnings 816,931 -
Common collective trust's earnings 484,641 69,440
------------ ------------
Total investment income 92,122,276 72,709,561
------------ ------------
Contributions:
Employers 39,536,720 36,425,460
Participants 20,097,162 20,557,157
------------ ------------
Total contributions 59,633,882 56,982,617
------------ ------------
Total additions 151,756,158 129,692,178
------------ ------------
DEDUCTIONS:
Distributions to participants 56,199,313 56,754,614
Administrative expenses 1,061,328 869,548
------------ ------------
Total deductions 57,260,641 57,624,162
------------ ------------
Net increase prior to transfers 94,495,517 72,068,016
Transfer of net assets available for
benefits to plans of former affiliates (18,001,283) (7,080,600)
------------ ------------
Net increase 76,494,234 64,987,416
Net assets available for plan benefits:
Beginning of year 408,052,114 343,064,698
------------ ------------
End of year $484,546,348 $408,052,114
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
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. (Galyan's) 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 August 31, 1999, an affiliate of Freeman, Spogli & Co. (together
with Galyan's management) purchased a 60% interest in Galyan's. Subsequent
to the sale, the net assets available for benefits allocated to the former
participants employed by Galyan's were transferred to Galyan's retirement
plan.
Effective August 23, 1999, The Limited, Inc. completed the spin-off of Too,
Inc. (successor company to Limited Too). Subsequent to the spin-off, the
net assets available for benefits allocated to the former participants
employed by Limited Too were transferred to the Too, Inc. Savings and
Retirement Plan.
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.
During 1999 the plan was amended several times to among other things 1)
change the requirement for a participant to be active on the last day of
the annual payroll period to a requirement for a participant to be active
on the last day of the plan year as it relates to the Employers' service
and non-service retirement contribution, and 2) allow for the establishment
of unit values for one or more of the investment funds and permit the
accounts setting forth each participant's interest in such investment funds
to be maintained in terms of units.
-4-
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
-------------
Employers' 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, 1999, 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.
Participant's 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, 1999). This voluntary tax-deferred contribution may be
limited by Section 401(k) of the Internal Revenue Code.
Investment Options
------------------
The Limited, Inc. Common Stock Fund - invests primarily in common stock of
The Limited, Inc. with up to 3% of the fund being invested in money-market
instruments. The goal of the fund is capital growth and dividend income.
Intimate Brands, Inc. Common Stock Fund - invests primarily in common stock
of Intimate Brands, Inc., an 84.2% owned subsidiary of The Limited, Inc.,
with up to 3% of the fund being invested in money-market instruments. The
goal of the fund is capital growth and dividend income.
SARP Stable Value Fund - invests primarily in investment contracts, stable
value contracts and short-term investments. The goal of the fund is
preservation of principal and income while maximizing current income. This
investment option was not available until October 1, 1999.
Vanguard Retirement Savings Trust Fund - a mutual fund, investing in
investment contracts issued by insurance companies and banks. The goal of
the fund is to provide preservation of principal and income while
maximizing current income. This investment option is no longer available
after September 30, 1999.
-5-
Vanguard Institutional Index Fund - a mutual fund, investing in the 500
stocks that comprise the Standard & Poor's 500 Composite Stock Price Index
(S&P 500) in proportion to their weighting in the index. The goal of the
fund is long-term growth of capital and income from dividends. During 1999
this mutual fund replaced the Vanguard Index Trust 500 Portfolio investment
option, whose investment strategy and goals were similar.
Vanguard U.S. Growth Fund - a mutual fund, investing primarily in large-
capitalization stocks of seasoned U.S. companies with records of growth.
The goal of the fund is long-term capital growth.
Vanguard Wellington Fund - a mutual fund, investing 60-70% in the stocks of
well-established companies and 30-40% in long-term maturity corporate
bonds, Treasury Bonds and mortgage securities. The goal of the fund is
current income and long-term growth of capital. This investment option is
no longer available after September 30, 1999.
Janus Overseas Fund - a mutual fund, investing at least 65% of its total
assets in securities of issuers from at least five different countries,
excluding the United States. The goal of the fund is long-term capital
growth. This investment option was not available until October 1, 1999.
American Century Income & Growth Fund - a mutual fund, investing primarily
in common stocks selected from a universe of the 1,500 largest companies
traded in the U.S. The goal of the fund is dividend growth, current
income, and capital appreciation. This investment option was not available
until October 1, 1999.
AIM Balanced Fund (Class A) - a mutual fund, investing primarily in high-
yielding securities, including common stocks, preferred stocks, convertible
securities and bonds. The goal of the fund is high total return consistent
with preservation of capital. This investment option was not available
until October 1, 1999.
AXP Selective Fund (Class Y) - a mutual fund, investing primarily in
medium-to high-quality corporate bonds and other highly rated debt
instruments including government securities and short-term investments. The
goal of the fund is current income and preservation of capital. This
investment option was not available until October 1, 1999.
American Express Trust Long-Term Horizon (80:20) Fund - a common collective
trust, investing in a predetermined mix of growth, growth/income and income
investments. The goal of the fund is to create a diversified portfolio
with a moderate risk profile designed for individuals with long-term goals.
This investment option was not available until October 1, 1999.
American Express Trust Medium-Term Horizon (50:50) Fund - a common
collective trust, investing in a predetermined mix of growth,
growth/income, income, and money market (cash equivalents) investments. The
goal of the fund is to create a diversified portfolio with a conservative
risk profile designed for individuals with medium-term goals. This
investment option was not available until October 1, 1999.
American Express Trust Short-Term Horizon (25:75) Fund - a common
collective trust, investing in a predetermined mix of growth,
growth/income, income, and money market (cash equivalent) investments. The
goal of the fund is to create a diversified portfolio with a conservative
risk profile designed for individuals with short-term goals. This
investment option was not available until October 1, 1999.
-6-
Self-Directed Brokerage Account - allowing the participant to invest in
securities not offered otherwise. This investment option was not available
until October 1, 1999.
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 was $251,148 and $2,389,455 as of
December 31, 1999 and 1998, respectively.
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions, and
if so elected by the Employers, to reduce administrative expenses.
Forfeitures of $4,167,347 and $6,125,896 were used to reduce contributions
for the years ended December 31, 1999 and 1998, respectively. Forfeitures
of $405,187 were used to reduce administrative expenses for the year ended
December 31, 1999. No forfeitures were used to reduce administrative
expenses for the year ended December 31, 1998.
-7-
Expenses
--------
Participants are charged a quarterly fee based on their account balance.
Administrative expenses incurred in excess of the fees charged are paid by
the Employers. Prior to October 1, 1999, earnings from investments were
reduced by a predetermined amount to pay for administrative expenses with
any excess administrative fees being paid by the Employers.
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.
(2) SUMMARY OF ACCOUNTING POLICIES
------------------------------
Basis of Presentation
---------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting, including investment valuation and income recognition.
Estimates
---------
The Plan prepares its financial statements in conformity with generally
accepted accounting principles, which requires management to make estimates
and assumptions that affect the reported amounts of net assets available
for plan benefits at the date of the financial statements and the changes
in net assets available for plan benefits during the reporting period and,
when applicable, disclosures of contingent assets and liabilities at the
date of the financial statements. Actual results could differ from these
estimates.
Risks
-----
The plan provides for the various investment options as described in note
1. Any investment is exposed to various risks, such as interest rate,
market and credit. These risks could result in a material effect on
participants' account balances and the amounts reported in the statements
of net assets available for benefits and the statements of changes in net
assets available for benefits.
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.
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 are valued as determined by quoted market price.
The common collective trusts are valued on a daily basis. The value of
each unit is determined by subtracting total liabilities from the total
value of the assets, including accrued income, and dividing the amount
remaining by the number of units outstanding on the valuation date.
Investment contracts are recorded at contract value (Note 4).
Net Appreciation 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 in fair value of investments.
-8-
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 American Express Trust Company, as
trustee of the Plan. Prior to October 1, 1999 the Plan's investments were
held by The Chase Manhattan Bank, as trustee of the Plan. The following
table presents balances for 1999 and 1998 for the Plan's current investment
options. Investments that represent 5 percent or more of the Plan's net
assets are separately identified.
1999 1998
------------ ------------
Investments at fair value as determined by:
Quoted market price:
Common stock:
The Limited, Inc. $ 94,235,093 $ 70,799,467
Other 19,385,157 11,598,446
------------ ------------
113,620,250 82,397,913
------------ ------------
Warrants 2,594 -
------------ ------------
Mutual funds:
Vanguard Institutional Index Fund 110,157,390 -
Vanguard U.S. Growth Portfolio 98,740,931 86,327,108
AIM Balanced Class A Fund 27,398,996 -
Vanguard Retirement Savings Trust - 89,083,764
Vanguard Index Trust - 500 Portfolio - 98,041,511
Vanguard Wellington Fund - 24,530,446
Other 3,702,543 -
------------ ------------
239,999,860 297,982,829
------------ ------------
353,622,704 380,380,742
Contract cost:
Investment contracts 73,258,446 -
Estimated fair value:
Common collective trusts 26,374,522 101,414
------------ ------------
Total investments at fair value $453,255,672 $380,482,156
============ ============
The Plan's investments (including investments bought, sold, and held during
the year) appreciation (depreciation) in value for the years ended December
31, 1999 and 1998, is set forth below:
1999 1998
------------ -----------
Investments at fair value as determined by:
Quoted market price:
Common stock $41,273,056 $15,468,485
Warrants (1,330) -
Mutual funds 35,677,665 40,616,810
----------- -----------
76,949,391 56,085,295
Estimated fair value
Common collective trusts 261,753 -
----------- -----------
Net Appreciation in Fair Value $77,211,144 $56,085,295
=========== ===========
-9-
(4) INVESTMENT CONTRACTS
--------------------
The Plan entered into investment contracts with insurance companies and
financial institutions. The contracts are included in the financial
statements at contract value, which approximates fair value, as reported to
the Plan by the contract issuers. Contract value represents contributions
made under the contract, plus earnings, less plan withdrawals and
administrative expenses.
These contracts provided a liquidity guarantee by financially responsible
third parties of principal and previously accrued interest for
liquidations, transfers, or hardship withdrawals initiated by plan
participants exercising their rights to withdraw or transfer funds under
the terms of the on-going Plan. The average yield on the contracts was
6.88% for the year ended December 31, 1999.
(5) TAX STATUS
----------
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.
(6) PLAN ADMINISTRATION
-------------------
The Plan is administered by a Committee, the members of which are appointed
by the Board of Directors of the Employers.
(7) 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.
(8) PARTIES-IN-INTEREST
-------------------
American Express Trust Company, trustee of the Plan, its subsidiaries and
affiliates maintain and manage certain of the investments of the Plan for
which the Plan is charged.
(9) 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:
1999 1998
------------- -------------
Net Assets Available for Benefits
Per the Financial Statements $484,546,348 $408,052,114
Amounts Allocated to Withdrawing
Participants (251,148) (2,389,455)
------------ ------------
Net Assets Available for Benefits
Per Form 5500 $484,295,200 $405,662,659
============ ============
-10-
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 $ 56,199,313
Amounts Allocated to Withdrawing Participants:
At December 31, 1998 251,148
At December 31, 1997 (2,389,455)
------------
Benefits Paid to Participants Per Form 5500 $ 54,061,006
============
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.
-11-
SCHEDULE I
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
---------------------------
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
-----------------------------------------------------------
DECEMBER 31, 1999
-----------------
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate (1)
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
----------------------- --------------------------- ---- ------------
* The Limited, Inc. Common Stock - 2,175,702 $94,235,093
shares
* Intimate Brands, Inc. Common Stock - 241,763 10,426,029
shares
Too, Inc. Common Stock - 313,348 5,405,253
shares
Abercrombie & Fitch Co. Common Stock - 100,034 2,669,657
shares
America Online, Inc. Common Stock - 610 shares 46,284
Ariba, Inc. Common Stock - 20 shares 3,548
CMGI, Inc. Common Stock - 20 shares 5,538
Cisco Systems, Inc. Common Stock - 409 shares 43,814
EMC Corporation Common Stock - 1,100 shares 120,175
Emulex Corporation Common Stock - 500 shares 56,250
Oracle Systems Common Stock - 181 shares 20,283
Corporation
Portal Software, Inc. Common Stock - 50 shares 5,144
Sun Microsystems, Inc. Common Stock - 259 shares 20,056
Qualcomm, Inc. Common Stock - 642 shares 113,072
Advanced Micro Devices Common Stock - 33 shares 955
Integrated Device Common Stock - 687 shares 19,923
Technology, Inc.
* Represents a party in interest
(1) Cost information omitted - investment is part of individual account plan
that a participant or beneficiary directed with respect to assets allocated
to his or her account.
-12-
SCHEDULE I
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
---------------------------
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
-----------------------------------------------------------
DECEMBER 31, 1999
-----------------
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate (1)
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
----------------------- ------------------------- ---- --------
Titan Corporation Common Stock - 443 shares $ 20,959
AT&T Corporation Common Stock - 116 shares 5,894
General Electric Common Stock - 80 shares 12,380
Company
Real Networks, Inc. Common Stock - 140 shares 16,844
Global Crossing, Ltd. Common Stock - 75 shares 3,750
Amazon.Com, Inc. Common Stock - 8 shares 609
Applied Micro Circuits Common Stock - 400 shares 50,900
Corporation
Be, Inc. Common Stock - 158 shares 3,604
CTS Corporation Common Stock - 275 shares 20,728
Exodus Communication Common Stock - 46 shares 4,085
Internet Capital Group Common Stock - 30 shares 5,100
JDS Uniphase Common Stock - 810 shares 130,663
Corporation
Manhattan Scientific, Common Stock - 317 shares 1,585
Inc.
PMC - Sierra, Inc. Common Stock - 400 shares 64,125
Siebel Systems, Inc. Common Stock - 221 shares 18,564
Triquint Semiconductor, Common Stock - 400 shares 44,500
Inc.
Yahoo, Inc. Common Stock - 49 shares 21,202
Ziasun Technologies, Common Stock - 253 shares 3,684
Inc.
-13-
SCHEDULE I
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
---------------------------
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
-----------------------------------------------------------
DECEMBER 31, 1999
-----------------
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate (1)
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
----------------------- --------------------------- ---- ------------
Leisureplanet Holdings, Warrants - 250 shares $ 2,594
Ltd.
Chase Manhattan Bank Common Collective Trust - 8,228
Enhanced cash 8,228 shares
Investment Fund
* American Express Trust Common Collective Trust - 30,445
Horizon Short-Term 1,800.005 shares
(25:75) Fund
* American Express Trust Common Collective Trust - 45,573
Horizon Medium-Term 2,150.179 shares
(50:50) Fund
* American Express Trust Common Collective Trust - 168,809
Horizon Long-Term 6,403.017 shares
(80:20) Fund
* American Express Trust Common Collective Trust - 1,573,154
Money Market Fund II 1,573,154.330 shares
* American Express Trust Common Collective Trust - 10,042,253
Money Market Fund I 10,042,252.650 shares
* American Express Trust Common Collective Trust - 14,506,060
Income Fund I 283,321.485 shares
* AXP Selective Fund Mutual Fund - 15,569.247 131,872
(Class Y) shares
AIM Balanced Fund Mutual Fund - 838,146.098 27,398,996
(Class A) shares
American Century Mutual Fund - 28,461.796 969,124
Income shares
& Growth Fund
Vanguard World Fund, Mutual Fund - 2,268,342.077 98,740,931
U.S. Growth Portfolio shares
Vanguard Institutional Mutual Fund - 822,008.732 110,157,390
Index Fund shares
Janus Overseas Fund Mutual Fund - 58,442.541 2,174,063
shares
-14-
SCHEDULE I
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
EIN #31-1048997 PLAN #002
---------------------------
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
-----------------------------------------------------------
DECEMBER 31, 1999
-----------------
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate (1)
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
----------------------- --------------------------- ---- -----------
Reserve Fund, Inc. Mutual Fund - 422,139.590 $ 422,140
(Class A) shares
Invesco Technology Fund Mutual Fund - 66.270 shares 5,354
(Class II)
Bank of America Investment Contract - 7.24% 4,918,545
due 12/31/2050
Bank of America Investment Contract - 6.35% 9,000,000
due 12/31/2050
CDC Investment Contract - 7.08% 10,116,857
due 12/31/2050
Chase Manhattan Bank Investment Contract - 6.87% 12,669,665
due 12/31/2050
JP Morgan Investment Contract - 7.10% 4,941,250
due 12/31/2050
UBS Investment Contract - 7.17% 9,612,129
due 12/31/2050
GE Finance Assurance Investment Contract - 7.10% 5,000,000
due 08/15/2004
Hartford Life Investment Contract - 6.35% 7,000,000
due 02/01/2000
Protective Life Investment Contract - 7.30% 5,000,000
due 02/17/2004
Travelers Insurance Investment Contract - 7.20% 5,000,000
due 10/15/2003
-15-
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