-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JfPRkUth5CCgWZDCmc6fsk21NBRg1Ln51x2uCZa2dTPuV6ZR0qs2WHSYkwx9ed6/ U6ocjQvC14Rgv+I+EJD6HA== 0000950109-97-003385.txt : 19970501 0000950109-97-003385.hdr.sgml : 19970501 ACCESSION NUMBER: 0000950109-97-003385 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABERCROMBIE & FITCH CO /DE/ CENTRAL INDEX KEY: 0001018840 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 311469076 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12107 FILM NUMBER: 97590910 BUSINESS ADDRESS: STREET 1: FOUR LIMITED PARKWAY CITY: REYNOLDSBURG STATE: OH ZIP: 43068 BUSINESS PHONE: 6144797101 MAIL ADDRESS: STREET 1: THREE LIMITED PARKWAY CITY: COLUMBUS STATE: OH ZIP: 43230 10-K 1 ABERCROMBIE & FITCH CO. FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended February 1, 1997 ---------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to ______________ Commission file number 1-13814 ------- ABERCROMBIE & FITCH CO. ----------------------- (Exact name of registrant as specified in its charter) Delaware 31-1469076 - --------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Four Limited Parkway East, P.O. Box 182168 Reynoldsburg, OH 43218 - --------------------------------- ---------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (614) 577-6500 ------------------ Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered ------------------- ----------------------------------------- Class A Common Stock, $.01 Par Value The New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for the past 90 days. Yes X No ------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X - Aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant as of March 28, 1997: $123,045,356. Number of shares outstanding of the registrant's Common Stock as of March 28, 1997: 8,002,950 shares of Class A common stock; 43,000,000 shares of Class B common stock. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's annual report to shareholders for the fiscal year ended February 1, 1997 are incorporated by reference into Part I, Part II and Part IV, and portions of the registrant's proxy statement for the Annual Meeting of Shareholders scheduled for May 20, 1997 are incorporated by reference into Part III. PART I ITEM 1. BUSINESS. General. Abercrombie & Fitch Co., a Delaware corporation (the "Company"), is principally engaged in the purchase, distribution and sale of men's and women's casual apparel. The Company's retail activities are conducted under the Abercrombie & Fitch trade name through retail stores bearing the Company name. Merchandise is targeted to appeal to customers in specialty markets who have distinctive consumer characteristics. Description of Operations. General. - ------- The Company was incorporated on June 26, 1996, and subsequently acquired the assets and liabilities of the Abercrombie & Fitch Businesses in exchange for 43 million shares of Class B common stock issued to The Limited, Inc. ("The Limited"). An initial public offering of 8.05 million shares of the Company's Class A common stock was consummated on October 1, 1996 and, as a result, approximately 84% of the outstanding common stock of the Company is owned by The Limited. The following table shows the changes in the number of retail stores operated by the Company for the past five fiscal years:
Fiscal Beginning Year of Year Opened Closed End of Year -------- --------- ------ ------- ----------- 1992 36 4 40 1993 40 9 49 1994 49 20 (2) 67 1995 67 33 100 1996 100 29 (2) 127
During fiscal year 1996, the Company purchased merchandise from approximately 70 suppliers and factories located throughout the world. The Company sourced approximately 38% of its apparel merchandise through Mast Industries, Inc., a wholly-owned contract manufacturing subsidiary of The Limited. In addition to purchases from Mast, the Company purchases merchandise directly in foreign markets, with additional merchandise purchased in the domestic market, some of which is manufactured overseas. No more than 10% of goods purchased originated from any single third party manufacturer. 2 Most of the merchandise and related materials for the Company's stores is shipped to a distribution center owned by The Limited in Reynoldsburg, Ohio, where the merchandise is received and inspected. The Limited uses common and contract carriers to distribute merchandise and related materials to the Company's stores. The Company pays outbound freight for stores to The Limited based on cartons shipped. The Company's policy is to maintain sufficient quantities of inventory on hand in its retail stores and distribution center so that it can offer customers a full selection of current merchandise. The Company emphasizes rapid turnover and takes markdowns where required to keep merchandise fresh and current with fashion trends. The Company views the retail apparel market as having two principal selling seasons, Spring and Fall. As is generally the case in the apparel industry, the Company experiences its peak sales activity during the Fall season. This seasonal sales pattern results in increased inventory during the Fall and Christmas holiday selling periods. During fiscal year 1996, the highest inventory level approximated $58.1 million at the November 1996 month-end and the lowest inventory level approximated $31.5 million at the February 1996 month-end. Merchandise sales are paid for in cash or by personal check, credit cards issued by third parties or The Limited's 40% owned credit card processing venture, Alliance Data Services ("ADS"). ADS was formed in part from World Financial Network National Bank ("WFNNB"), a wholly-owned subsidiary of The Limited prior to January 1996, when a 60% interest was sold to a New York investment firm, resulting in the formation of a venture that provides private-label and bank card transaction processing and database management services to retailers, including the Company's private-label credit card operations. The Company offers its customers a liberal return policy stated as "No Sale is Ever Final." The Company believes that certain of its competitors offer similar credit card and service policies. The following is a brief description of the Company, including its respective target markets. Abercrombie & Fitch is a specialty retailer of quality, casual, classic American sportswear, targeted to the young, hip customer. The Abercrombie & Fitch brand was established in 1892 and became well known as a supplier of rugged, high- quality outdoor gear who placed a premium on complete customer satisfaction with each item sold. The Company was acquired by The Limited in 1988 and in 1992 Abercrombie & Fitch was repositioned as a more fashion-oriented casual apparel business directed at men and women with a youthful lifestyle. In re- establishing the Abercrombie & Fitch brand, the Company combined its historical image for quality with a new emphasis on casual American style and youthfulness. Additional information about the Company's business, including its revenues and profits for the last three years, plus selling square footage is set forth under the caption "Management's Discussion and Analysis" of the Abercrombie & Fitch Co. 1996 Annual Report to Shareholders, portions of which are annexed hereto as Exhibit 13 (the "1996 Annual Report") and is incorporated herein by reference. Competition. The sale of apparel and personal care products through retail stores is a highly competitive business with numerous competitors, including individual and chain fashion specialty stores and department stores. Design, price, service, selection and quality are the principal competitive factors in retail store sales. 3 The Company is unable to estimate the number of competitors or its relative competitive position due to the large number of companies selling apparel and personal care products at retail, both through stores and catalogues. Associate Relations. On February 1, 1997, the Company employed approximately 4,900 associates, 4,200 of whom were part-time. In addition, temporary associates are hired during peak periods, such as the Holiday season. ITEM 2. PROPERTIES. The Company's headquarters and support functions consisting of office, distribution and shipping facilities are located in Reynoldsburg, Ohio. The distribution and shipping facilities are owned by The Limited and are leased by the Company under 15 year leases, with options to renew. Substantially all of the retail stores operated by the Company are located in leased facilities, primarily in shopping centers throughout the continental United States. The leases expire at various dates principally between 1997 and 2011 and generally have renewal options. Typically, when space is leased for a retail store in a shopping center, all improvements, including interior walls, floors, ceilings, fixtures and decorations, are supplied by the tenant. In certain cases, the landlord of the property may provide a construction allowance to defray a portion of the cost of improvements. The cost of improvements varies widely, depending on the size and location of the store. Rental terms for new locations usually include a fixed minimum rent plus a percentage of sales in excess of a specified amount. Certain operating costs such as common area maintenance, utilities, insurance, and taxes are typically paid by tenants. ITEM 3. LEGAL PROCEEDINGS. The Company is a defendant in lawsuits arising in the ordinary course of business. Although the amount of any liability that could arise with respect to any such lawsuit cannot be accurately predicted, in the opinion of management, the resolution of these matters is not expected to have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT. Set forth below is certain information regarding the executive officers of the Company as of February 1, 1997. Leslie H. Wexner, 59, has been Chairman of the Board of the Company since 1996. Mr. Wexner has been President and Chief Executive Officer of The Limited since he founded The Limited in 1963 and has been Chairman of the Board of Directors of The Limited for more than five years. Kenneth B. Gilman, 50, has been Vice Chairman of the Company since 1996. Mr. Gilman has been Vice Chairman and Chief Financial Officer of The Limited since June 1993 and was Executive Vice President and Chief Financial Officer of The Limited for five years prior thereto. 4 Michael S. Jeffries, 52, has been President and Chief Executive Officer since February 1992. Michelle S. Donnan-Martin, 33, has been Vice President-General Merchandising Manager-Women's since February 1996. For three and one-half years prior thereto, Ms. Donnan-Martin held the position of Vice President Women's Merchandising. Seth R. Johnson, 43, has been Vice President-Chief Financial Officer since June 1992. All of the above officers serve at the pleasure of the Board of Directors of the Company. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Information regarding markets in which the Company's common stock was traded during fiscal year 1996 and the approximate number of holders of common stock for the fiscal year 1996 is set forth under the caption "Market Price Information" on page 30 of the 1996 Annual Report and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data is set forth under the caption "Financial Summary" on page 15 of the 1996 Annual Report and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations is set forth under the caption "Management's Discussion and Analysis" on pages 16 through 20 of the 1996 Annual Report and is incorporated herein by reference. - ----------------------------- In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 is effective for the Company's 1997 annual financial statements. The Company believes that the impact on its financial statements will be immaterial. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements of the Company and subsidiaries, the Notes to Consolidated Financial Statements and the Report of Independent Accountants are set forth in the 1996 Annual Report and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 5 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding directors of the Company is set forth under the captions "ELECTION OF DIRECTORS - Nominees and Directors", "- Business Experience", "-Information Concerning the Board of Directors" and "- Security Ownership of Directors and Management" on pages 1 through 4 of the Company's proxy statement for the Annual Meeting of Shareholders to be held May 20, 1997 (the "Proxy Statement") and is incorporated herein by reference. Information regarding compliance with Section 16 (a) of the Securities Exchange Act of 1934, as amended, is set forth under the caption "EXECUTIVE COMPENSATION Reporting Compliance" on page 10 of the Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information regarding executive compensation is set forth under the caption "EXECUTIVE COMPENSATION" on pages 5 through 13 of the Proxy Statement and is incorporated herein by reference. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information regarding the security ownership of certain beneficial owners and management is set forth under the captions "ELECTION OF DIRECTORS - Security Ownership of Directors and Management" on pages 3 and 4 of the Proxy Statement and "PRINCIPAL HOLDERS OF VOTING SECURITIES" on pages 15 and 16 of the Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information regarding certain relationships and related transactions is set forth under the caption "ELECTION OF DIRECTORS - Business Experience" on page 2 of the Proxy Statement and "RELATIONSHIP AND TRANSACTIONS WITH THE LIMITED" on pages 16 through 19 of the Proxy Statement. Information regarding executive officers is set forth herein under the caption "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I and is incorporated herein by reference. 6 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) List of Financial Statements. ---------------------------- The following consolidated financial statements of Abercrombie & Fitch Co. and subsidiaries and the related notes are filed as a part of this report pursuant to ITEM 8: Consolidated Statements of Income for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995. Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996. Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995. Consolidated Statements of Cash Flows for the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995. Notes to Consolidated Financial Statements. Report of Independent Accountants. (a)(2) List of Financial Statement Schedules. ------------------------------------- All schedules are omitted because the required information is either presented in the financial statements or notes thereto, or is not applicable, required or material. (a)(3) List of Exhibits. ----------------- 3. Articles of Incorporation and Bylaws. 3.1. Amended and Restated Certificate of Incorporation of the Company incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 3.2. Bylaws of the Company incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 7 4. Instruments Defining the Rights of Security Holders. 4.1. Specimen Certificate of Class A Common Stock of the Company incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 33-92568) (the "Form S-1"). 4.2. Certificate of Incorporation of The Limited, Inc. incorporated by reference to Exhibit 4.2 to the Company's Form S-1. 4.3. Bylaws of The Limited, Inc. incorporated by reference to Exhibit 4.3 to the Company's Form S-1. 10. Material Contracts. 10.1. Services Agreement by and between Abercrombie & Fitch Co. and The Limited, Inc., dated September 27, 1996 incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.2. Shared Facilities Agreement, dated September 27, 1996, by and between Abercrombie & Fitch Co. and The Limited, Inc. incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.3. Shared Facilities Agreement, dated September 27, 1996, by and between Abercrombie & Fitch Co. and The Limited, Inc. incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.4. Corporate Agreement by and between Abercrombie & Fitch Co. and The Limited, Inc., dated October 1, 1996 incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.5. Tax Sharing Agreement by and between Abercrombie & Fitch Co. and The Limited, Inc., dated September 27, 1996 incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.6. Sublease Agreement by and between Victoria's Secret Stores, Inc. and Abercrombie & Fitch Co., Inc., dated June 1, 1995 incorporated by reference to Exhibit 10.3 to the Company's Form S-1. 10.7. Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan incorporated by reference to Exhibit B to the Proxy Statement dated April 14, 1997. 8 10.8. Abercrombie & Fitch Co. Incentive Compensation Performance Plan incorporated by reference to Exhibit A to the Company's Proxy Statement dated April 14, 1997. 10.9. Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors incorporated by reference to Exhibit C to the Company's Proxy Statement dated April 14, 1997. 10.10. Form of Indemnification Agreement between the Company and the directors and officers of the Company. 11. Statement re Computation of Per Share Earnings. 13. Excerpts from the 1996 Annual Report to Shareholders, including "Financial Summary", "Management's Discussion and Analysis" and "Financial Statements and Notes" on pages 15 - 30. 21. Subsidiaries of the Registrant. 23. Consent of Independent Accountants. 24. Powers of Attorney. 99. Annual Report of The Limited, Inc. Savings and Retirement Plan. (b) Reports on Form 8-K. ------------------- No reports on Form 8-K were filed during the fourth quarter of fiscal year 1996. (c) Exhibits. -------- The exhibits to this report are listed in section (a)(3) of Item 14 above. (d) Financial Statement Schedules. ----------------------------- Not applicable. 9 SIGNATURES Pursuant to the requirements of Section 13 or l5(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 29, 1997 ABERCROMBIE & FITCH CO. (registrant) By /s/ SETH R. JOHNSON -------------------- Seth R. Johnson, Vice President - Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 30, 1997: Signature Title --------- ----- /s/ LESLIE H. WEXNER* Chairman of the Board of Directors - --------------------------- Leslie H. Wexner /s/ KENNETH B. GILMAN* Vice Chairman - --------------------------- Kenneth B. Gilman /s/ MICHAEL S. JEFFRIES* Director - ------------------------------ Michael S. Jeffries /s/ ROGER D. BLACKWELL* Director - --------------------------- Roger D. Blackwell /s/ E. GORDON GEE* Director - --------------------------- E. Gordon Gee /s/ DONALD B. SHACKELFORD* Director - -------------------------------- Donald B. Shackelford *The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-indicated directors of the registrant pursuant to powers of attorney executed by such directors. By /s/ SETH R. JOHNSON -------------------- Seth R. Johnson Attorney-in-fact 10 [LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Abercrombie & Fitch Co. We have audited the accompanying consolidated balance sheets of Abercrombie and Fitch Co. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three fiscal years in the period ended February 1, 1997, which financial statements are included on pages 21 through 30 of the 1996 Annual Report to Shareholders of Abercrombie & Fitch Co. and incorporated by reference herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Abercrombie & Fitch Co. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Columbus, Ohio February 24, 1997 EXHIBIT INDEX ------------- Exhibit No. Document - ----------- ---------------------------------------------------------------- 10.10 Form of Indemnification Agreement between the Company and the directors and officers of the Company. 11 Statement re Computation of Per Share Earnings. 13 Excerpts from the 1996 Annual Report to Shareholders, including "Financial Summary", "Management's Discussion and Analysis" and "Financial Statements and Notes" on pages 15 - 30. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule. 99 Annual Report of The Limited, Inc. Savings and Retirement Plan. EX-10.10 2 INDEMNIFICATION AGREEMENT EXHIBIT 10.10 ------------- INDEMNIFICATION AGREEMENT THIS AGREEMENT is made and entered into as of the 25th day of September, 1996 by and between ABERCROMBIE & FITCH CO, a Delaware corporation (the "Company"), and the undersigned (the "Indemnitee"). RECITALS WHEREAS, it is essential to the Company that it attract and retain as directors and officers the most capable persons available; and WHEREAS, Indemnitee is a director or officer of the Company; and WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in the current environment; and WHEREAS, in recognition of Indemnitee's need for protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, and in order to induce Indemnitee to continue to provide services to the Company as a director or officer thereof, the Company wishes to provide in this Agreement for the indemnification of Indemnitee to the fullest extent permitted by law and as set forth in this Agreement; NOW THEREFORE, in consideration of the foregoing, the covenants contained herein and Indemnitee's continued service to the Company, the Company and Indemnitee, intending to be legally bound, hereby agree as follows: Section 1. Definitions. The following terms, as used herein, shall have the following respective meanings: "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings relative to the foregoing. "Change in control" shall be deemed to have occurred if, other than as approved by a majority of the Board of Directors of the Company in office immediately prior to such event (a) any person, other than (i) a trustee or other fiduciary holding Voting Securities under an employee benefit plan of the Company, (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company or (iii) The Limited, Inc. ("The Limited"), any subsidiary of The Limited or any successor to The Limited or any subsidiary thereof or (iv) Leslie H. Wexner, his heirs, executors or administrators, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of Voting Securities representing 20% or more of the total voting power represented by the Company's then outstanding Voting Securities, or (b) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (c) the stockholders of the Company approve (i) a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the Voting Securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) a merger or consolidation with The Limited, any subsidiary of The Limited or any successor to The Limited or any subsidiary thereof, or (ii) a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets. "Claim" means (a) any threatened, pending or completed action, suit, proceeding or arbitration or other alternative dispute resolution mechanism, or (b) any inquiry, hearing or investigation, whether conducted by the Company or any other Person, that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or arbitration or other alternative dispute resolution mechanism, in each case whether civil, criminal, administrative or other (whether or not the claims or allegations therein are groundless, false or fraudulent) and includes, without limitation, those brought by or in the name of the Company or any director or officer of the Company. "Company Agent" means serving as a director, officer, partner, employee, agent, trustee or fiduciary of the Company, any Subsidiary or any Other Enterprise. "Covered Event" means any event or occurrence on or after the date of this Agreement related to the fact that Indemnitee is or was a Company Agent or related to anything done or not done by Indemnitee in any such capacity, and includes, without limitation, any such event or occurrence (a) arising from performance of the responsibilities, obligations or duties imposed by ERISA or any similar applicable provisions of state or common law, or (b) arising from any merger, consolidation or other business combination involving the Company, any Subsidiary or any Other Enterprise, including without limitation any sale or other transfer of all or substantially all of the business or assets of the Company, any Subsidiary or any Other Enterprise. "D & O Insurance" means the directors' and officers' liability insurance of the Company in effect on the date of this Agreement, and any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that provided by the policy in effect on the date of this Agreement. "Determination" means a determination made by (a) a majority vote of a quorum of Disinterested Directors; (b) Independent Legal Counsel, in a written opinion addressed to the Company and Indemnitee; (c) the stockholders of the Company; or (d) a decision by a court of competent jurisdiction not subject to further appeal. "Disinterested Director" shall be a director of the Company who is not or was not a party to the Claim giving rise to the subject matter of a Determination. "Expenses" includes attorneys' fees and all other costs, travel expenses, fees of experts, transcript costs, filing fees, witness fees, telephone charges, postage, copying costs, delivery services fees and other expenses and obligations of any nature whatsoever paid or incurred in connection with investigating, prosecuting or defending, being a witness in or participating in (including on appeal), or preparing to prosecute or defend, be a witness in or participate in any Claim, for which Indemnitee is or becomes legally obligated to pay. "Independent Legal Counsel" shall mean a law firm or a member of a law firm that (a) neither is nor in the past five years has been retained to represent in any material matter the Company, any Subsidiary, Indemnitee or any other party to the Claim, (b) under applicable standards of professional conduct then prevailing would not have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights to indemnification under this Agreement and (c) is reasonably acceptable to the Company and Indemnitee. "Loss" means any amount which Indemnitee is legally obligated to pay as a result of any Claim, including, without limitation (a) all judgments, penalties and fines, and amounts paid or to be paid in settlement, (b) all interest, assessments and other charges paid or payable in connection therewith and (c) any federal, state, local or foreign taxes imposed (net of the value to Indemnitee of any tax benefits resulting from tax deductions or otherwise) as a result of the actual or deemed receipt of any payments under this Agreement, including the creation of the Trust. "Other Enterprise" means any corporation (other than the Company or any Subsidiary), partnership, joint venture, association, employee benefit plan, trust or other enterprise or organization for which Indemnitee acts as a Company Agent at the request of the Company or any Subsidiary. Indemnitee shall be deemed to be acting as a Company Agent of an Other Enterprise at the request of the Company with respect to any Other Enterprise in which the Company or any Subsidiary has an investment as to which Indemnitee shall act as a Company Agent from time to time. Indemnitee shall be deemed to be acting as a Company Agent of an Other Enterprise at the request of the Company, if Indemnitee acts as a Company Agent of an Other Enterprise at the written or oral request of the Board of Directors of the Company or of any Subsidiary by which the Indemnitee is employed from time to time, at the written or oral request of an Executive Officer of the Company or of any Subsidiary by which the Indemnitee is employed from time to time or if Indemnitee acts as a Company Agent of an Other Enterprise by reason of being requested, elected, hired or retained to succeed or assume the responsibilities of a Person who previously acted as a Company Agent of an Other Enterprise at the request of the Company. "Parent" shall have the meaning set forth in the regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended; provided the term "Parent" shall not include the board of directors of a corporation in its capacity as a board of directors, and provided further that if the other party to any transaction referred to in Section 12.1.2 has no Parent as so defined above, "Parent" shall mean such other party. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (or any subdivision, department, commission or agency thereof), and includes without limitation any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended. "Potential Change in Control" shall be deemed to have occurred if (a) the Company enters into an agreement or arrangement the consummation of which would result in the occurrence of a Change in Control, (b) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control or (c) the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. "Subsidiary" means any corporation of which more than 50 % of the outstanding stock having ordinary voting power to elect a majority of the board of directors of such corporation is now or hereafter owned, directly or indirectly, by the Company. "Trust" has the meaning set forth in Section 9.2. "Voting Securities" means any securities of the Company which vote generally in the election of directors. Section 2. Indemnification. 2.1. General Indemnity Obligation. ----------------------------- 2.1.1. Subject to the remaining provisions of this Agreement, the Company hereby indemnifies and holds Indemnitee harmless for any Losses or Expenses arising from any Claims relating to (or arising in whole or in part out of) any Covered Event, including, without limitation, any Claim the basis of which is any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or attempted by Indemnitee in the capacity as a Company Agent, whether or not Indemnitee is acting or serving in such capacity at the date of this Agreement, at the time liability is incurred or at the time the Claim is initiated. 2.1.2. The obligations of the Company under this Agreement shall apply to the fullest extent authorized or permitted by the provisions of applicable law, as presently in effect or as changed after the date of this Agreement, whether by statute or judicial decision (but, in the case of any subsequent change, only to the extent that such change permits the Company to provide broader indemnification than permitted prior to giving effect thereto). 2.1.3. Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company, unless the Company has joined in or consented to the initiation of such Claim; provided, the provisions of this Section 2.1.3 shall not apply following a Change in Control to Claims seeking enforcement of this Agreement, the Certificate of Incorporation or Bylaws of the Company or any other agreement now or hereafter in effect relating to indemnification for Covered Events. 2.1.4. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Losses or Expenses paid with respect to a Claim but not, however, for the total amount thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless against the portion thereof to which Indemnitee is entitled. 2.1.5. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating to (or arising in whole or in part out of) a Covered Event or in defense of any issue or matter therein, including dismissal without prejudice, the Company shall indemnify and hold Indemnitee harmless against all expenses incurred in connection therewith. 2.2. Indemnification for Serving as Witness and Certain Other Claims. ---------------------------------------------------------------- Notwithstanding any other provision of this Agreement, the Company hereby indemnifies and holds Indemnitee harmless for all Expenses in connection with (a) the preparation to serve or service as a witness in any Claim in which Indemnitee is not a party, if such actual or proposed service as a witness arose by reason of Indemnitee having served as a Company Agent on or the date of this Agreement and (b) any Claim initiated by Indemnitee on or after the date of this Agreement (i) for recovery under any directors' and officers' liability insurance maintained by the Company or (ii) following a Change in Control, for enforcement of the indemnification obligations of the Company under this Agreement, the Certificate of Incorporation or Bylaws of the Company or any other agreement now or hereafter in effect relating to indemnification for Covered Events, regardless of whether Indemnitee ultimately is determined to be entitled to such insurance recovery or indemnification, as the case may be. Section 3. Limitations on Indemnification. 3.1. Coverage Limitations. No indemnification is available pursuant to --------------------- the provisions of this Agreement: 3.1.1. If such indemnification is not lawful; 3.1.2. If Indemnitee's conduct giving rise to the Claim with respect to which indemnification is requested was knowingly fraudulent, a knowing violation of law, deliberately dishonest or in bad faith or constituted willful misconduct; 3.1.3. In respect of any Claim based upon or attributable to Indemnitee gaining in fact any personal profit or advantage to which Indemnitee was not legally entitled; 3.1.4. In respect of any Claim for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended; or 3.1.5. In respect of any Claim based upon any violation of Section 174 of the Delaware General Corporation Law, as amended. 3.2. No Duplication of Payments. The Company shall not be liable under -------------------------- this Agreement to make any payment otherwise due and payable to the extent Indemnitee has otherwise actually received payment (whether under the Certificate of Incorporation or the Bylaws of the Company, the D & O Insurance or otherwise) of any amounts otherwise due and payable under this Agreement. Section 4. Payments and Determinations. 4.1. Advancement and Reimbursement of Expenses. If requested by ----------------------------------------- Indemnitee, the Company shall advance to Indemnitee, no later than two business days following any such request, any and all Expenses for which indemnification is available under Section 2. Upon any Determination that Indemnitee is not permitted to be indemnified for any expenses so advanced, Indemnitee hereby agrees to reimburse the Company (or, as appropriate, any Trust established pursuant to Section 9.2) for all such amounts previously paid. Such obligation of reimbursement shall be unsecured and no interest shall be charged thereon. 4.2. Payment and Determination Procedures. ------------------------------------- 4.2.1. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, together with such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. 4.2.2. Upon written request by Indemnitee for indemnification pursuant to Section 4.2.1, a Determination with respect to Indemnitee's entitlement thereto shall be made in the specific case (a) if a Change in Control shall have occurred, as provided in Section 9.1; and (b) if a Change in Control shall not have occurred, by (i) the Board of Directors by a majority vote of a quorum of Disinterested Directors, (ii) Independent Legal Counsel, if either (A) a quorum of Disinterested Directors is not obtainable or (B) a majority vote of a quorum of Disinterested Directors otherwise so directs or (iii) the stockholders of the Company (if submitted by the Board of Directors). If a Determination is made that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within 10 days after such Determination. 4.2.3. If no Determination is made within 60 days after receipt by the Company of a request for indemnification by Indemnitee pursuant to Section 4.2.1, a Determination shall be deemed to have been made that Indemnitee is entitled to the requested indemnification (and the Company shall pay the related Losses and Expenses no later than 10 days after the expiration of such 60-day period), except where such indemnification is not lawful; provided, however, that (a) such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the Person or Persons making the Determination in good faith require such additional time for obtaining or evaluating the documentation and information relating thereto; and (b) the foregoing provisions of this Section 4.2.3 shall not apply (i) if the Determination is to be made by the stockholders of the Company and if (A) within 15 days after receipt by the Company of the request by Indemnitee pursuant to Section 4.2.1 the Board of Directors has resolved to submit such Determination to the stockholders at an annual meeting of the stockholders to be held within 75 days after such receipt, and such Determination is made at such annual meeting, or (B) a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such Determination, such meeting is held for such purpose within 60 days after having been so called and such Determination is made at such special meeting, or (ii) if the Determination is to be made by Independent Legal Counsel. Section 5. D & O Insurance. 5.1. Current Policies. The Company hereby represents and warrants to ----------------- Indemnitee that the D & O Insurance is in full force and effect. 5.2. Continued Coverage. The Company shall maintain the D & O Insurance ------------------- for so long as this Agreement remains in effect. The Company shall cause the D & O Insurance to cover Indemnitee, in accordance with its terms and at all times such insurance is in effect, to the maximum extent of the coverage provided thereby for any director or officer of the Company. 5.3. Indemnification. In the event of any reduction in, or cancellation --------------- of, the D & O Insurance (whether voluntary or involuntary on behalf of the Company), the Company shall, and hereby agrees to, indemnify and hold Indemnitee harmless against any Losses or Expenses which Indemnitee is or becomes obligated to pay as a result of the Company's failure to maintain the D & O Insurance in effect in accordance with the provisions of Section 5.2, to the fullest extent permitted by applicable law, notwithstanding any provision of the Certificate of Incorporation or the Bylaws of the Company, or any other agreement now or hereafter in effect relating to indemnification for Covered Events. The indemnification available under this Section 5.3 is in addition to all other obligations of indemnification of the Company under this Agreement and shall be the only remedy of Indemnitee for a breach by the Company of its obligations set forth in Section 5.2. Section 6. Subrogation. In the event of any payment under this Agreement to or on behalf of Indemnitee, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee against any Person other than the Company or Indemnitee in respect of the Claim giving rise to such payment. Indemnitee shall execute all papers reasonably required and shall do everything reasonably necessary to secure such rights, including the execution of such documents reasonably necessary to enable the Company effectively to bring suit to enforce such rights. Section 7. Notifications and Defense of Claims. 7.1. Notice by Indemnitee. Indemnitee shall give notice in writing to the --------------------- Company as soon as practicable after Indemnitee becomes aware of any Claim with respect to which indemnification will or could be sought under this Agreement; provided the failure of Indemnitee to give such notice, or any delay in giving such notice, shall not relieve the Company of its obligations under this Agreement except to the extent the Company is actually prejudiced by any such failure or delay. 7.2. Insurance. The Company shall give prompt notice of the commencement --------- of any Claim relating to Covered Events to the insurers on the D & O Insurance, if any, in accordance with the procedures set forth in the respective policies in favor of Indemnitee. The Company shall thereafter take all necessary action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Claims in accordance with the terms of such policies. 7.3. Defense. ------- 7.3.1. In the event any Claim relating to Covered Events is by or in the right of the Company, Indemnitee may, at the option of Indemnitee, either control the defense therefor or accept the defense provided under the D & O Insurance; provided, however, that Indemnitee may not control the defense if such decision would jeopardize the coverage provided by the D & O Insurance, if any, to the Company or the other directors and officers covered thereby. 7.3.2. In the event any Claim relating to Covered Events is other than by or in the right of the Company, Indemnitee may, at the option of Indemnitee, either control the defense thereof, require the Company to defend or accept the defense provided under the D & O Insurance; provided, however, that Indemnitee may not control the defense or require the Company to defend if such decision would jeopardize the coverage provided by the D & O Insurance to the Company or the other directors and officers covered thereby. In the event that Indemnitee requires the Company to so defend, or in the event that Indemnitee proceeds under the D & O Insurance but Indemnitee determines that such insurers under the D & O Insurance are unable or unwilling to adequately defend Indemnitee against any such Claim, the Company shall promptly undertake to defend any such Claim, at the Company's sole cost and expense, utilizing counsel of Indemnitee's choice who has been approved by the Company. If appropriate, the Company shall have the right to participate in the defense of any such Claim. 7.3.3. In the event the Company shall fail, as required by any election by Indemnitee pursuant to Section 7.3.2, timely to defend Indemnitee against any such Claim, Indemnitee shall have the right to do so, including without limitation, the right (notwithstanding Section 7.3.4) to make any settlement thereof, and to recover from the Company, to the extent otherwise permitted by this Agreement, all Expenses and Losses paid as a result thereof. 7.3.4. The Company shall have no obligation under this Agreement with respect to any amounts paid or to be paid in settlement of any Claim without the express prior written consent of the Company to any related settlement. In no event shall the Company authorize any settlement imposing any liability or other obligations on Indemnitee without the express prior written consent of Indemnitee. Neither the Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement. Section 8. Determinations and Related Matters. 8.1. Presumptions. ------------- 8.1.1. If a Change in Control shall have occurred, Indemnitee shall be entitled to a rebuttable presumption that Indemnitee is entitled to indemnification under this Agreement and the Company shall have the burden of proof in rebutting such presumption. 8.1.2. The termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not adversely affect either the right of Indemnitee to indemnification under this Agreement or the presumptions to which Indemnitee is otherwise entitled pursuant to the provisions of this Agreement nor create a presumption that Indemnitee did not meet any particular standard of conduct or have a particular belief or that a court has determined that indemnification is not permitted by applicable law. 8.2. Appeals; Enforcement. --------------------- 8.2.1. In the event that (a) a Determination is made that Indemnitee shall not be entitled to indemnification under this Agreement, (b) any Determination to be made by Independent Legal Counsel is not made within 90 days of receipt by the Company of a request for indemnification pursuant to Section 4.2.1 or (c) the Company fails to otherwise perform any of its obligations under this Agreement (including, without limitation, its obligation to make payments to Indemnitee following any Determination made or deemed to have been made that such payments are appropriate), Indemnitee shall have the right to commence a Claim in any court of competent jurisdiction, as appropriate, to seek a Determination by the court, to challenge or appeal any Determination which has been made, or to otherwise enforce this Agreement. If a Change of Control shall have occurred, Indemnitee shall have the option to have any such Claim conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Any such judicial proceeding challenging or appealing any Determination shall be deemed to be conducted de novo and without prejudice by -- ---- reason of any prior Determination to the effect that Indemnitee is not entitled to indemnification under this Agreement. Any such Claim shall be at the sole expense of Indemnitee except as provided in Section 9.3. 8.2.2. If a Determination shall have been made or deemed to have been made pursuant to this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such Determination in any judicial proceeding or arbitration commenced pursuant to this Section 8.2, except if such indemnification is unlawful. 8.2.3. The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 8.2 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. The Company hereby consents to service of process and to appear in any such judicial or arbitration proceedings and shall not oppose Indemnitee's right to commence any such proceedings. 8.3. Procedures. Indemnitee shall cooperate with the Company and with any ----------- Person making any Determination with respect to any Claim for which a claim for indemnification under this Agreement has been made, as the Company may reasonably require. Indemnitee shall provide to the Company or the Person making any Determination, upon reasonable advance request, any documentation or information reasonably available to Indemnitee and necessary to (a) the Company with respect to any such Claim or (b) the Person making any Determination with respect thereto. Section 9. Change in Control Procedures. 9.1. Determinations. If there is a Change in Control, any Determination --------------- to be made under Section 4 shall be made by Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). The Company shall pay the reasonable fees of the Independent Legal Counsel and indemnify fully such Independent Legal Counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or the engagement of Independent Legal Counsel pursuant hereto. 9.2. Establishment of Trust. Following the occurrence of any Potential ---------------------- Change in Control, the Company, upon receipt of a written request from Indemnitee, shall create a Trust (the "Trust") for the benefit of Indemnitee, the trustee of which shall be a bank or similar financial institution with trust powers chosen by Indemnitee. From time to time, upon the written request of Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy any and all Losses and Expenses reasonably anticipated at the time of each such request to be incurred by Indemnitee for which indemnification may be available under this Agreement. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by mutual agreement of Indemnitee and the Company or, if the Company and Indemnitee are unable to reach such an agreement or, in any event, a Change in Control has occurred, by Independent Legal Counsel (selected pursuant to Section 9.1). The terms of the Trust shall provide that, except upon the prior written consent of Indemnitee and the Company, (a) the Trust shall not be revoked or the principal thereof invaded, other than to make payments to unsatisfied judgment creditors of the Company, (b) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth in this Section, (c) the Trustee shall promptly pay or advance to Indemnitee any amounts to which Indemnitee shall be entitled pursuant to this Agreement, and (d) all unexpended funds in the Trust shall revert to the Company upon a Determination by Independent Legal Counsel (selected pursuant to Section 9.1) or a court of competent jurisdiction that Indemnitee has been fully indemnified under the terms of this Agreement. All income earned on the assets held in the trust shall be reported as income by the Company for federal, state, local and foreign tax purposes. 9.3. Expenses. Following any Change in Control, the Company shall be --------- liable for, and shall pay the Expenses paid or incurred by Indemnitee in connection with the making of any Determination (irrespective of the determination as to Indemnitee's entitlement to indemnification) or the prosecution of any Claim pursuant to Section 8.2, and the Company hereby agrees to indemnify and hold Indemnitee harmless therefrom. If requested by counsel for Indemnitee, the Company shall promptly give such counsel an appropriate written agreement with respect to the payment of its fees and expenses and such other matters as may be reasonably requested by such counsel. Section 10. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company against Indemnitee or Indemnitee's spouse, heirs, executors, administrators or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations, whether established by statute or judicial decision, is otherwise applicable to any such cause of action such shorter period shall govern. Section 11. Contribution. If the indemnification provisions of this Agreement should be unenforceable under applicable law in whole or in part or insufficient to hold Indemnitee harmless in respect of any Losses and Expenses incurred by Indemnitee, then for purposes of this Section 11, the Company shall be treated as if it were, or was threatened to be made, a party defendant to the subject Claim and the Company shall contribute to the amounts paid or payable by Indemnitee as a result of such Losses and Expenses incurred by Indemnitee in such proportion as is appropriate to reflect the relative benefits accruing to the Company on the one hand and Indemnitee on the other and the relative fault of the Company on the one hand and Indemnitee on the other in connection with such Claim, as well as any other relevant equitable considerations. For purposes of this Section 11 the relative benefit of the Company shall be deemed to be the benefits accruing to it and to all of its directors, officers, employees and agents (other than Indemnitee) on the one hand, as a group and treated as one entity, and the relative benefit of Indemnitee shall be deemed to be an amount not greater than the Indemnitee's yearly base salary or Indemnitee's compensation from the Company during the first year in which the Covered Event forming the basis for the subject Claim was alleged to have occurred. The relative fault shall be determined by reference to, among other things, the fault of the Company and all of its directors, officers, employees and agents (other than Indemnitee) on the one hand, as a group and treated as one entity, and Indemnitee's and such group's relative intent, knowledge, access to information and opportunity to have altered or prevented the Covered Event forming the basis for the subject Claim. Section 12. Miscellaneous Provisions. 12.1. Successors and Assigns, Etc. ---------------------------- 12.1.1. This Agreement shall be binding upon and inure to the benefit of (a) the Company, its successors and assigns (including any direct or indirect successor by merger, consolidation or operation of law or by transfer of all or substantially all of its assets) and (b) Indemnitee and the heirs, personal and legal representatives, executors, administrators or assigns of Indemnitee. 12.1.2. The Company shall not consummate any consolidation, merger or other business combination, nor will it transfer 50% or more of its assets (in one or a series of related transactions), unless the ultimate Parent of the successor to the business or assets of the Company shall have first executed an agreement, in form and substance satisfactory to Indemnitee, to expressly assume all obligations of the Company under this Agreement and agree to perform this Agreement in accordance with its terms, in the same manner and to the same extent that the Company would be required to perform this Agreement if no such transaction had taken place; provided that, if the Parent is not the Company, the legality of payment of indemnity by the Parent shall be determined by reference to the fact that such indemnity is to be paid by the Parent rather than the Company. 12.2. Severability. The provisions of this Agreement are severable. If ------------- any provision of this Agreement shall be held by any court of competent jurisdiction to be invalid, void or unenforceable, such provision shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, such provision and the remaining provisions shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law. 12.3. Rights Not Exclusive; Continuation of Right of Indemnification. --------------------------------------------------------------- Nothing in this Agreement shall be deemed to diminish or otherwise restrict Indemnitee's right to indemnification pursuant to any provision of the Certificate of Incorporation or Bylaws of the Company, any agreement, vote of stockholders or Disinterested Directors, applicable law or otherwise. This Agreement shall be effective as of the date first above written and continue in effect until no Claims relating to any Covered Event may be asserted against Indemnitee and until any Claims commenced prior thereto are finally terminated and resolved, regardless of whether Indemnitee continues to serve as an officer of the Company, any Subsidiary or any Other Enterprise. 12.4. No Employment Agreement. Nothing contained in this Agreement ------------------------ shall be construed as giving Indemnitee any right to be retained in the employ of the Company, any Subsidiary or any Other Enterprise. 12.5. Subsequent Amendment. No amendment, termination or repeal of any -------------------- provision of the Certificate of Incorporation or Bylaws of the Company, or any respective successors thereto, or of any relevant provision of any applicable law, shall affect or diminish in any way the rights of Indemnitee to indemnification, or the obligations of the Company, arising under this Agreement, whether the alleged actions or conduct of Indemnitee giving rise to the necessity of such indemnification arose before or after any such amendment, termination or repeal. 12.6. Notices. Notices required under this Agreement shall be given in ------- writing and shall be deemed given when delivered in person or sent by certified or registered mail, return receipt requested, postage prepaid. Notices shall be directed to the Company Three Limited Parkway, Columbus, OH 43230, Attention: Chairman of the Board, and to Indemnitee at the residential address as shown on the Company's records (or such other address as either party may designate in writing to the other). 12.7. Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Delaware applicable to contracts made and performed in such state without giving effect to the principles of conflict of laws. 12.8. Headings. The headings of the Sections of this Agreement are -------- inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 12.9. Counterparts. This Agreement may be executed in any number of ------------- counterparts all of which taken together shall constitute one instrument. 12.10. Modification and Waiver. No supplement, modification or amendment ----------------------- of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver or any of the provisions of this Agreement shall constitute, or be deemed to constitute, a waiver of any other provision hereof (whether or not similar) nor shall any such waiver constitute a continuing waiver. The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. ABERCROMBIE & FITCH CO. INDEMNITEE By__________________________________________ ________________________________ Name: Samuel P. Fried Name: Title: Vice President and General Counsel EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 ---------- ABERCROMBIE & FITCH CO. COMPUTATION OF PER SHARE EARNINGS (Thousands except per share amounts)
Quarter Ended ------------------------------- February 1, February 3, 1997 1996 ------------- ------------- Net income $20,517 $12,634 ============= ============= Common shares outstanding: Weighted average 51,050 43,000 Dilutive effect of stock options 34 - Weighted average treasury shares - - ------------- ------------- Weighted average used to calculate net income per share 51,084 43,000 ============= ============= Net income per share $ 0.40 $ 0.29 ============= ============= Year Ended ------------------------------- February 1, February 3, 1997 1996 ------------- ------------- Net income $24,674 $14,298 ============= ============= Common shares outstanding: Weighted average 45,749 43,000 Dilutive effect of stock options 11 - Weighted average treasury shares - - ------------- ------------- Weighted average used to calculate net income per share 45,760 43,000 ============= ============= Net income per share $ 0.54 $ 0.33 ============= =============
EX-13 4 EXCERPTS FROM THE 1996 ANNUAL REPORT EXHIBIT 13 ---------- Abercrombie & Fitch Co. FINANCIAL SUMMARY
(Thousands except per share and per square foot amounts, ratios and store and associate data) Fiscal Year 1996 1995* 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------- Summary of Operations Net Sales $ 335,372 $235,659 $165,463 $110,952 $ 85,301 $ 62,583 - --------------------------------------------------------------------------------------------------------------- Gross Income $ 123,766 $ 79,794 $ 56,820 $ 30,562 $ 13,413 $ 9,665 - --------------------------------------------------------------------------------------------------------------- Operating Income (Loss) $ 45,993 $ 23,798 $ 13,751 $ (4,064) $(10,190) $(11,603) - --------------------------------------------------------------------------------------------------------------- Operating Income (Loss) as a Percentage of Sales 13.7% 10.1% 8.3% (3.7%) (11.9%) (18.5%) - --------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 24,674 $ 14,298 $ 8,251 $ (2,464) $ (6,090) $ (7,003) - --------------------------------------------------------------------------------------------------------------- Net Income (Loss) as a Percentage of Sales 7.4% 6.1% 5.0% (2.2%) (7.1%) (11.2%) - --------------------------------------------------------------------------------------------------------------- Per Share Results Net Income (Loss) $ 0.54 $ 0.33 $ 0.19 $ (0.06) $ (0.14) $ (0.16) - --------------------------------------------------------------------------------------------------------------- Weighted Average Shares Outstanding 45,760 43,000 43,000 43,000 43,000 43,000 - --------------------------------------------------------------------------------------------------------------- Other Financial Information Total Assets $ 105,761 $ 87,693 $ 58,018 $ 48,882 $ 61,626 $ 47,967 - --------------------------------------------------------------------------------------------------------------- Return on Average Assets 26% 20% 15% (4%) (11%) - - --------------------------------------------------------------------------------------------------------------- Capital Expenditures $ 24,323 $ 24,526 $ 12,603 $ 4,694 $ 10,351 $ 7,931 - --------------------------------------------------------------------------------------------------------------- Long-Term Debt $ 50,000 - - - - - - --------------------------------------------------------------------------------------------------------------- Shareholders' Equity (Deficit) $ 11,238 $(22,622) $(37,070) $(45,341) $(42,877) $(36,787) - --------------------------------------------------------------------------------------------------------------- Comparable Store Sales Increase 13% 5% 15% 6% 8% 10% - --------------------------------------------------------------------------------------------------------------- Sales per Selling Square Foot $ 373 $ 354 $ 350 $ 301 $ 276 $ 261 - --------------------------------------------------------------------------------------------------------------- Stores and Associates at End of Year Total Number of Stores Open 127 100 67 49 40 36 - --------------------------------------------------------------------------------------------------------------- Selling Square Feet 1,006,000 792,000 541,000 405,000 332,000 287,000 - --------------------------------------------------------------------------------------------------------------- Number of Associates 4,900 3,000 2,300 1,300 900 700 - ---------------------------------------------------------------------------------------------------------------
*Fifty-three week fiscal year. Abercrombie & Fitch Co. MANAGEMENT'S DISCUSSION AND ANALYSIS [BAR CHART APPEARS HERE]
92 93 94 95 96 Comparable Store Sales Increase 8% 6% 15% 5% 13% 92 93 94 95 96 Sales Per Average Store ($ in Thousands) $2,245 $2,493 $2,853 $2,823 $2,955
RESULTS OF OPERATIONS Net sales for the thirteen-week fourth quarter were $139.2 million, an increase of 31% from $106.4 million for the fourteen-week fourth quarter a year ago. Operating income was $35.3 million, up 68% compared to $21.0 million last year. Earnings per share were $0.40, up 74%, from $0.23 on an adjusted basis last year. Net sales for the fiscal year ended February 1, 1997, increased 42% to $335.4 million from $235.7 million last year. Operating income for the year increased 93% to $46.0 million from $23.8 million in 1995. Earnings per share on an adjusted basis were $0.48 compared to $0.21 a year ago, an increase of 129%. The adjusted results presented below reflect: 1) 51.05 million post initial public offering ("IPO") shares outstanding; 2) interest expense on the Company's seasonal borrowing; and 3) interest expense on the Company's ongoing capital structure, which excludes interest expense on the Company's $150 million credit agreement. All of the borrowings under the credit agreement were repaid in the fourth quarter of 1996. The adjusted income data is presented below (thousands except per share amounts):
Fourth Quarter -------------------------------------------------- Adjusted Adjusted Actual Actual February 1, February 3, February 1, February 3, 1997 1996 1997 1996 - -------------------------------------------------------------------------------- Operating income $35,342 $21,034 $35,342 $21,034 Interest expense 1,125 1,488 1,125 - - -------------------------------------------------------------------------------- Income before income taxes 34,217 19,546 34,217 21,034 Provision for income taxes 13,700 7,820 13,700 8,400 - -------------------------------------------------------------------------------- Net income $20,517 $11,726 $20,517 $12,634 ================================================================================ Net income per share $ 0.40 $ 0.23 $ 0.40 $ 0.29 ================================================================================ Weighted average shares outstanding 51,050 51,050 51,084 43,000 ================================================================================ Year-to-Date ------------------------------------------------ Adjusted Adjusted Actual Actual February 1, February 3, February 1, February 3, 1997 1996 1997 1996 - -------------------------------------------------------------------------------- Operating income $45,993 $23,798 $45,993 $23,798 Interest expense 5,016 5,729 4,919 - - -------------------------------------------------------------------------------- Income before income taxes 40,977 18,069 41,074 23,798 Provision for income taxes 16,400 7,230 16,400 9,500 - -------------------------------------------------------------------------------- Net income $24,577 $10,839 $24,674 $14,298 ================================================================================ Net income per share $ 0.48 $ 0.21 $ 0.54 $ 0.33 ================================================================================ Weighted average shares outstanding 51,050 51,050 45,760 43,000 ================================================================================
16 Abercrombie & Fitch Co. NET SALES Thirteen-week fourth quarter 1996 net sales as compared to net sales for the fourteen-week fourth quarter 1995 increased 31% to $139.2 million, due to an 8% increase in comparable store sales and sales attributable to new and remodeled stores. Comparable store sales increases were strong in both the men's and women's businesses. Sweaters were the best performing category in each business. In the fourteen-week fourth quarter 1995, net sales increased 43% to $106.4 million over the thirteen-week fourth quarter 1994. The increase was primarily attributable to sales from new and remodeled stores (34% of the total increase), a 5% increase in comparable store sales and the extra week in 1995. Net sales for 1996 increased 42% to $335.4 million over the fifty-three week 1995 fiscal year. The sales increase was attributable to the net addition of 27 stores and a 13% comparable store sales increase. Consistent with the Company's strategy, the women's business continued to increase as a proportion of the total business, with sweaters and pants the strongest performing categories. The men's business also achieved significant growth with its strongest categories being sweaters, pants and denim. Net sales per selling square foot for the total Company increased 5%. For the fifty-three week year 1995, net sales were $235.7 million, an increase of 42% from $165.5 million in 1994. Sales growth came primarily from the addition of 33 new stores, with a comparable store sales increase of 5%. Management believes that comparable store sales were negatively affected by overall softness in the retail industry. The fifty-third week accounted for 2% of the total sales increase. During 1995, the Company allocated more selling square footage per store to women's apparel, resulting in a significant increase in sales of women's apparel. Significant growth was achieved in women's shirts, knits and shorts. The total volume of the men's business increased, but to a lesser extent than the women's business, due to this reallocation of square footage. A very strong increase in men's outerwear was partially offset by a continuing de-emphasis of dress shirts and ties. The Company previously decided such merchandise was not consistent with the Company's focus on casual apparel. Net sales per selling square foot for the total Company increased 1%. FINANCIAL SUMMARY The following summarized financial data compares 1996 to the comparable periods for 1995 and 1994:
% Change -------------- 1996- 1995- -------------- 1996 1995 1994 1995 1994 ----------------------------------------- Net sales (millions) $335.4 $235.7 $165.5 42% 42% - --------------------------------------------------------------------------- Increase in comparable store sales 13% 5% 15% - ------------------------------------------------------------- Sales increase attributable to new and remodeled stores 29% 37% 34% - ------------------------------------------------------------- Sales per selling square foot $ 373 $ 354 $ 350 5% 1% - --------------------------------------------------------------------------- Sales per average store (thousands) $2,955 $2,823 $2,853 5% (1%) - --------------------------------------------------------------------------- Average store size at year end (selling square feet) 7,921 7,920 8,075 0% (2%) - --------------------------------------------------------------------------- Selling square feet at year end (thousands) 1,006 792 541 27% 46% - --------------------------------------------------------------------------- Number of Stores Beginning of year 100 67 49 Opened 29 33 20 Closed (2) - (2) - ------------------------------------------------------------- End of year 127 100 67 ===========================================================================
17 Abercrombie & Fitch Co.
Sales per Selling Square Foot [BAR GRAPH APPEARS HERE] 92 93 94 95 96 - ---------------------------------------------------------------- $276 $301 $350 $354 $373
GROSS INCOME Gross income increased, as a percentage of net sales, to 43.0% for the fourth quarter of 1996 from 37.4% for the same period in 1995. The increase was due to a significant increase in merchandise margins (representing gross income before the deduction of buying and occupancy costs) and a reduction in buying and occupancy costs, as a percentage of net sales. The increase in merchandise margins was the result of higher initial markups (IMU). The decrease in buying and occupancy costs is primarily attributable to higher sales productivity associated with the 8% increase in comparable store sales. Gross income decreased as a percentage of net sales to 37.4% for the fourth quarter 1995 from 41.8% for the same period in 1994. Merchandise margins, expressed as a percentage of net sales, decreased, due principally to higher markdowns in 1995 as the retail environment during the 1995 Holiday season was very promotional. Buying and occupancy costs rose as a percentage of net sales. For the year, the gross income rate increased to 36.9% in 1996 from 33.9% in 1995. Merchandise margins, expressed as a percentage of net sales, improved due to a higher IMU in both the men's and women's businesses. Buying and occupancy costs, expressed as a percentage of net sales, declined due to a 13% increase in comparable store sales, including a 5% increase in net sales per selling square foot. In 1995, gross income, expressed as a percentage of net sales, was 33.9%, which represented a 0.4% decrease from the 34.3% level in 1994. The decrease was primarily attributable to an increase in buying and occupancy costs. Merchandise margins were up slightly for the period. 18 Abercrombie & Fitch Co. GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES General, administrative and store operating expenses, expressed as a percentage of net sales, were 17.6% in the fourth quarter of 1996 and 17.7% in the comparable period in 1995. The improvement resulted primarily from the favorable leveraging of expenses over higher sales volume. For the year, general, administrative and store operating expenses, expressed as a percentage of net sales, were 23.2%, 23.8% and 26.0% for 1996, 1995 and 1994, respectively. The improvement during the three-year period resulted from management's continued emphasis on expense control and the favorable leveraging of store and home office expenses. OPERATING INCOME Operating income, as a percentage of net sales, was 13.7%, 10.1% and 8.3% for 1996, 1995 and 1994. The improvement was the result of higher merchandise margins coupled with lower general, administrative and store operating expenses, as a percentage of net sales. Sales volume and gross income have increased at a faster rate than general, administrative and store operating expenses as the Company continues to emphasize cost controls. INTEREST EXPENSE In 1996, the Company incurred $1.1 million and $4.9 million in net interest expense for the fourth quarter and year, whereas no expense was recognized for the comparable periods in 1995 and 1994. Interest expense for 1996 is comprised of $2.3 million on the $50 million long-term debt. The balance was primarily from interest on short-term borrowings. FINANCIAL CONDITION The Company's continuing growth in operating income provides evidence of financial strength and flexibility. A more detailed discussion of liquidity, capital resources and capital requirements follows. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities and cash funding from The Limited, Inc.'s centralized cash management system provided the resources to support operations, including seasonal requirements and capital expenditures. A summary of the Company's working capital position and capitalization follows (thousands):
1996 1995 1994 - ----------------------------------------------------------------------------- Cash provided by operating activities $46,836 $ 12,714 $ 20,155 - ----------------------------------------------------------------------------- Working capital $ 1,288 $(70,940) $ 4,882 - ----------------------------------------------------------------------------- Capitalization: Long-term debt $50,000 $ - $ - Shareholders' equity (deficit) 11,238 $(22,622) $(37,070) - ----------------------------------------------------------------------------- Total capitalization $61,238 $(22,622) $(37,070) =============================================================================
The Company considers the following to be measures of liquidity and capital resources:
1996 1995 1994 - ------------------------------------------------------------------------------ Debt-to-capitalization ratio (long-term debt divided by total capitalization) 82% n/m n/m - ------------------------------------------------------------------------------ Cash flow to capital investment (net cash provided by operating activities divided by capital expenditures) 193% 52% 160% ============================================================================== n/m=not meaningful
Net cash provided by operating activities totaled $46.8 million, $12.7 million and $20.2 million for 1996, 1995 and 1994. The Company has consistently improved its financial performance as evidenced by the past three years' net income growth. Cash requirements for inventory increased over the three-year period, supporting the sales growth. In 1996, accounts payable and accrued expenses increased principally as a result of increases of $1.8 million of accrued rent, $2.0 million of merchandise payables and $2.2 million of accrued interest. Prior to 1996, the Company had no direct debt and paid no interest. Also in 1996, cash provided by income taxes was $4.2 million due to the timing of tax payments in relation to fourth quarter earnings. 19 Abercrombie & Fitch Co. Investing activities were all for capital expenditures, which were primarily for new stores. Financing activities in 1996 include $150 million in proceeds from borrowings under a bank credit agreement, which along with the $8.6 million working capital note, were later repaid, with funds made available from the IPO and cash flow from operations. Proceeds of the $150 million bank credit agreement were used to repay $91 million of intercompany debt and $32 million of trademark obligations and fund a $27 million dividend to The Limited, Inc. Other financing activities were due to intercompany and cash management account activity (see Note 8). CAPITAL EXPENDITURES Capital expenditures, primarily for new and remodeled stores, amounted to $24.3 million, $24.5 million and $12.6 million for 1996, 1995 and 1994. The Company anticipates spending $26 to $31 million in 1997 for capital expenditures, of which $24 to $28 million will be for new stores, the remodel and/or expansion of existing stores and related improvements. The Company intends to add approximately 220,000 selling square feet in 1997, which will represent a 22% increase over year-end 1996. It is anticipated the increase will result from the addition of 28 new stores and the remodeling and/or expansion of three stores. The Company expects that substantially all future capital expenditures will be funded by net cash provided by operating activities. IMPACT OF INFLATION The Company's results of operations and financial condition are presented based upon historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, the Company believes that the effects of inflation, if any, on its results of operations and financial condition have been minor. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Report, the Company's Form 10-K or made by management of the Company involves risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results and could cause actual results for 1997 and beyond to differ materially from those expressed or implied in any such forward-looking statements: changes in consumer spending patterns, consumer preferences and overall economic conditions, the impact of competition and pricing, changes in weather patterns, political stability, currency and exchange risks and changes in existing or potential duties, tariffs or quotas, availability of suitable store locations at appropriate terms, ability to develop new merchandise and ability to hire and train associates. 20 Abercrombie & Fitch Co. CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Net Sales $335,372 $235,659 $165,463 Cost of Goods Sold, Occupancy and Buying Costs 211,606 155,865 108,643 - ----------------------------------------------------------------------------------------------------------------- Gross Income 123,766 79,794 56,820 General, Administrative and Store Operating Expenses 77,773 55,996 43,069 - ----------------------------------------------------------------------------------------------------------------- Operating Income 45,993 23,798 13,751 Interest Expense, Net 4,919 - - - ----------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 41,074 23,798 13,751 Provision for Income Taxes 16,400 9,500 5,500 - ----------------------------------------------------------------------------------------------------------------- Net Income $ 24,674 $ 14,298 $ 8,251 ================================================================================================================= Net Income Per Share $ .54 $ .33 $ .19 =================================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Net Sales ($ in Millions) [BAR GRAPH APPEARS HERE] Abercrombie & Fitch Co. CONSOLIDATED BALANCE SHEETS
(Thousands) February 1, 1997 February 3, 1996 - ------------------------------------------------------------------------------ Assets Current Assets Cash $ 1,945 $ 874 Accounts Receivable 2,102 3,617 Inventories 34,943 30,388 Store Supplies 5,300 3,529 Other 588 448 - ------------------------------------------------------------------------------ Total Current Assets 44,878 38,856 - ------------------------------------------------------------------------------ Property and Equipment, Net 58,992 47,203 - ------------------------------------------------------------------------------ Deferred Income Taxes 1,885 1,624 - ------------------------------------------------------------------------------ Other Assets 6 10 - ------------------------------------------------------------------------------ Total Assets $ 105,761 $ 87,693 ============================================================================== Liabilities and Shareholders' Equity (Deficit) Current Liabilities Accounts Payable $ 6,414 $ 4,359 Accrued Expenses 22,388 14,500 Intercompany Payable 5,417 86,045 Income Taxes Payable 9,371 4,892 - ------------------------------------------------------------------------------ Total Current Liabilities 43,590 109,796 - ------------------------------------------------------------------------------ Long-Term Debt 50,000 - - ------------------------------------------------------------------------------ Other Long-Term Liabilities 933 519 - ------------------------------------------------------------------------------ Shareholders' Equity (Deficit) Common Stock 511 - Paid-In Capital 117,980 305 Retained Earnings (Deficit) (107,253) (22,927) - ------------------------------------------------------------------------------ Total Shareholders' Equity (Deficit) 11,238 (22,622) - ------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity (Deficit) $ 105,761 $ 87,693 ==============================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. 22 Abercrombie & Fitch Co. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock -------------------- Retained Total Shares Par Paid-In Earnings Shareholders' (Thousands) Outstanding Value Capital (Deficit) Equity (Deficit) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 29, 1994 43,000 - $ 135 $ (45,476) $(45,341) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income - - - 8,251 8,251 Other - - 20 - 20 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 28, 1995 43,000 - $ 155 $ (37,225) $(37,070) - ---------------------------------------------------------------------------------------------------------------------------------- Net Income - - - 14,298 14,298 Other - - 150 - 150 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, February 3, 1996 43,000 - $ 305 $ (22,927) $(22,622) - ---------------------------------------------------------------------------------------------------------------------------------- Transfer of Equity to Debt ($50,000 Long-Term Debt and $32,000 Short-Term Borrowings) - - - (82,000) (82,000) Cash Dividend to Parent Prior to Initial Public Offering - - - (27,000) (27,000) Sale of Common Stock in Initial Public Offering 8,050 $511 117,667 - 118,178 Net Income - - - 24,674 24,674 Other - - 8 - 8 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, February 1, 1997 51,050 $511 $117,980 $(107,253) $ 11,238 ==================================================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------- Cash Flows from Operating Activities Net Income $ 24,674 $ 14,298 $ 8,251 Impact of Other Operating Activities on Cash Flows Depreciation and Amortization 11,759 9,104 7,799 Change in Assets and Liabilities Accounts Receivable 1,515 15 (2,058) Inventories (4,555) (13,837) (6,499) Accounts Payable and Accrued Expenses 9,943 4,069 4,117 Income Taxes 4,218 (2,525) 6,391 Other Assets and Liabilities (718) 1,590 2,154 - ---------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 46,836 12,714 20,155 Cash Used for Investing Activities - ---------------------------------------------------------------------------------- Capital Expenditures (24,323) (24,526) (12,603) - ---------------------------------------------------------------------------------- Financing Activities Increase (Decrease) in Intercompany Payable 18,988 11,944 (7,387) Dividend Paid to Parent (27,000) - - Net Proceeds from Issuance of Common Stock 118,178 - - Proceeds from Credit Agreement 150,000 - - Repayment of Credit Agreement (150,000) - - Repayment of Trademark Obligations (32,000) - - Repayment of Intercompany Debt (91,000) - - Repayment of Working Capital Note (8,616) - - Other Changes in Shareholders' Equity (Deficit) 8 150 20 - ---------------------------------------------------------------------------------- Net Cash Provided by (Used for) Financing Activities (21,442) 12,094 (7,367) - ---------------------------------------------------------------------------------- Net Increase in Cash 1,071 282 185 Cash, Beginning of Year 874 592 407 - ---------------------------------------------------------------------------------- Cash, End of Year $ 1,945 $ 874 $ 592 ==================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Abercrombie & Fitch Co. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Abercrombie & Fitch Co. (the "Company") was incorporated on June 26, 1996, and on July 15, 1996 acquired the stock of Abercrombie & Fitch Holdings, the parent company of the Abercrombie & Fitch Business, and A&F Trademark, Inc., in exchange for 43 million shares of Class B Common Stock issued to The Limited, Inc. ("The Limited"). The Company is a specialty retailer of high quality, casual apparel for men and women with an active, youthful lifestyle. The business was established in 1892 and subsequently acquired by The Limited in 1988. An initial public offering (the "Offering") of 8.05 million shares of the Company's Class A Common Stock, including the sale of 1.05 million shares pursuant to the exercise by the underwriters of their options to purchase additional shares, was consummated on October 1, 1996. As a result of the Offering, 84.2% of the outstanding common stock of the Company is owned by The Limited. The net proceeds received by the Company from the Offering, approximating $118.2 million, and cash from operations were used to repay the borrowings under a $150 million credit agreement. The accompanying consolidated financial statements include the historical financial statements of, and transactions applicable to the Company and its subsidiaries and reflect the assets, liabilities, results of operations and cash flows on a historical cost basis. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all significant subsidiaries which are more than 50% owned and controlled. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the financial statements and notes by the calendar year in which the fiscal year commences. The results for fiscal years 1996 and 1994 represent the fifty-two week periods ended February 1, 1997 and January 28, 1995. The results for fiscal year 1995 represent the fifty-three week period ended February 3, 1996. STORE SUPPLIES The initial inventory of supplies for new stores including, but not limited to, hangers, signage, security tags and point-of-sale supplies are capitalized at the store opening date. Subsequent shipments are expensed except for new merchandise presentation programs which are capitalized. INVENTORY Inventories are principally valued at the lower of average cost or market, on a first-in first-out basis, utilizing the retail method. PROPERTY & 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 10-15 years for building improvements and 3-10 years for other property and equipment. Beneficial leaseholds represent the present value of the excess of fair market rent over contractual rent of existing stores at the 1988 purchase of the Company by The Limited and are being amortized over the lives of the related leases. 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, recent operating results and projected cash flows. SHAREHOLDERS' EQUITY At February 1, 1997, there were 150 million of $.01 par value class A shares and 150 million of $.01 par value of class B shares authorized, of which 8.05 million shares and 43 million shares, respectively, were issued and outstanding. In addition there were 15 million of $.01 par value preferred shares authorized, none of which have been issued. Holders of Class A Common Stock generally have identical rights to holders of Class B Common Stock, except that holders of Class A Common Stock are entitled to one vote per share while holders of Class B Common Stock are entitled to three votes per share on all matters submitted to a vote of shareholders. Each share of Class B Common Stock is convertible while held by The Abercrombie & Fitch Co. Limited or any of its subsidiaries into one share of Class A Common Stock. REVENUE RECOGNITION Sales are recorded upon purchase by customers. INCOME TAXES Income taxes are calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect in the years in which those temporary differences are expected to reverse. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company is included in The Limited's consolidated federal and certain state income tax groups for income tax reporting purposes and is responsible for its proportionate share of income taxes calculated upon its federal taxable income at a current estimate of the annual effective tax rate. ADVERTISING Advertising costs consist of in-store photographs and advertising in selected national publications and are expensed when the photographs or publications first appear. Advertising costs amounted to $4.1 million in 1996, $3.1 million in 1995 and $1.2 million in 1994. STORE PRE-OPENING EXPENSES Pre-opening expenses related to new store openings are charged to operations as incurred. FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded values of current assets and current liabilities, including accounts receivable and accounts payable, approximate fair value due to the short maturity and because the average interest rate approximates current market origination rates. 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 maturity. The estimated fair value of the Company's long-term debt at February 1, 1997 was $50.6 million. NET INCOME PER SHARE Net income per share is computed based upon the weighted average number of outstanding common shares, including the effect of stock options. The common stock issued to The Limited (43 million Class B shares) in connection with the incorporation of the Company is assumed to have been outstanding for all periods presented. There were 45.8 million weighted average shares outstanding for 1996. 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 as of 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. 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consisted of (thousands):
1996 1995 - -------------------------------------------------------------------- Furniture, fixtures and equipment $ 88,248 $71,590 - -------------------------------------------------------------------- Beneficial leaseholds 7,925 7,925 - -------------------------------------------------------------------- Building improvements and leaseholds 5,565 1,267 - -------------------------------------------------------------------- Construction in progress 181 85 - -------------------------------------------------------------------- Total $101,919 $80,867 - -------------------------------------------------------------------- Less: accumulated depreciation and amortization 42,927 33,664 - -------------------------------------------------------------------- Property and equipment, net $ 58,992 $47,203 ====================================================================
4. LEASED FACILITIES AND COMMITMENTS Annual store rent is comprised of a fixed minimum amount, plus contingent rent based upon a percentage of sales exceeding a stipulated amount. Store lease terms generally require additional payments covering taxes, common area costs and certain other expenses. Abercrombie & Fitch Co. A summary of rent expense for 1996, 1995 and 1994 follows (thousands):
1996 1995 1994 - --------------------------------------------------------------- Store rent: Fixed minimum $24,599 $17,465 $11,308 Contingent 1,620 1,322 1,475 - --------------------------------------------------------------- Total store rent $26,219 $18,787 $12,783 Buildings, equipment and other 1,229 1,058 613 - --------------------------------------------------------------- Total rent expense $27,448 $19,845 $13,396 ===============================================================
Rent expense includes charges from The Limited and other divisions of The Limited for space under formal agreements, which approximate market rates. At February 1, 1997, the Company was committed to noncancelable leases with remaining terms of one to fifteen years. These commitments include store leases with initial terms ranging from ten to fifteen years and offices and a distribution center leased from an affiliate of The Limited with an initial term of 15 years. A majority of the Company's store leases are guaranteed by The Limited. A summary of minimum rent commitments under noncancelable leases follows (thousands):
1997 $ 29,655 1998 29,684 1999 30,029 2000 30,149 2001 30,331 Thereafter 156,428
5. ACCRUED EXPENSES Accrued expenses consisted of the following (thousands):
1996 1995 - --------------------------------------------------------------------------- Accrued rent $ 4,639 $ 2,872 Accrued compensation 4,260 3,025 Accrued interest 2,162 - Accrued taxes, other than income 1,689 1,882 Other 9,638 6,721 - --------------------------------------------------------------------------- Total $ 22,388 $14,500 ===========================================================================
6. INCOME TAXES The provision for income taxes consisted of (thousands):
1996 1995 1994 - ------------------------------------------------------------------------------ Currently payable: Federal $13,800 $6,900 $4,300 State 1,300 1,700 1,100 - ------------------------------------------------------------------------------ $15,100 $8,600 $5,400 - ------------------------------------------------------------------------------ Deferred: Federal (400) 700 100 State 1,700 200 - - ------------------------------------------------------------------------------ $ 1,300 $ 900 $ 100 - ------------------------------------------------------------------------------ Total provision $16,400 $9,500 $5,500 ==============================================================================
A reconciliation between the statutory Federal income tax rate and the effective income tax rate follows:
1996 1995 1994 - ------------------------------------------------------------------------------ Federal income tax rate 35.0% 35.0% 35.0% State income tax, net of Federal income tax effect 4.7 5.2 5.2 Other items, net 0.2 (0.3) (0.2) - ------------------------------------------------------------------------------ 39.9% 39.9% 40.0% ==============================================================================
Income taxes payable included current deferred tax assets of $1.2 million at February 1, 1997 and February 3, 1996. Current income tax obligations are treated as having been settled through the intercompany accounts as if the Company were filing its income tax returns on a separate company basis. Such amounts were $10.6 million and $7.5 million in 1996 and 1995. The effect of temporary differences which give rise to deferred income tax assets was as follows (thousands):
1996 1995 - --------------------------------------------- Fixed assets $1,480 $1,159 Accrued expenses 1,343 1,504 Other, net 270 169 - --------------------------------------------- Total deferred income taxes $3,093 $2,832 =============================================
Abercrombie & Fitch Co. No valuation allowance has been provided for deferred tax assets because management believes that it is more likely than not that the full amount of the net deferred tax assets will be realized in the future. The Internal Revenue Service has assessed The Limited for additional taxes and interest for years 1989-1992. The portion of the assessment relating to the Company was based on treatment of construction allowances. The Limited has made deposits to mitigate further interest being assessed, and management believes these deposits are sufficient to mitigate any further exposure. The Limited has allocated a portion of the deposit to the Company which is included in deferred tax assets. 7. LONG-TERM DEBT Long-term debt consists of a 7.80% unsecured note in the amount of $50 million that matures May 15, 2002, and represents the Company's proportionate share of certain long-term debt of The Limited. The interest rate and maturity of the note parallels that of corresponding debt of The Limited. The note is to be automatically prepaid concurrently with any prepayment of the corresponding debt of The Limited. The note is not subject to early redemption by The Limited. 8. RELATED PARTY TRANSACTIONS Transactions between the Company, The Limited, and its subsidiaries and affiliates commonly occur in the normal course of business and principally consist of the following: Merchandise purchases Real estate leasing Capital expenditures Inbound and outbound transportation Corporate services Information with regard to these transactions is as follows: Significant purchases are made from Mast, a wholly-owned subsidiary of The Limited. Purchases are also made from Gryphon, an indirect subsidiary of The Limited. Mast is a contract manufacturer and apparel importer while Gryphon is a developer of fragrance and personal care products and also a contract manufacturer. Prices are negotiated on a competitive basis by merchants of the Company with Mast, Gryphon and the manufacturers. The Company's real estate operations, including all aspects of lease negotiations and ongoing dealings with landlords and developers, are handled centrally by the Real Estate Division of The Limited ("Real Estate Division"). Real Estate Division expenses are allocated to the Company based on a combination of new and remodeled store construction projects and open selling square feet. The Company's store design and construction operations are coordinated centrally by the Store Planning Division of The Limited ("Store Planning Division"). The Store Planning Division facilitates the design and construction of the stores and upon completion transfers the stores to the Company at actual cost. Store Planning Division expenses are charged to the Company based on a combination of new and remodeled store construction projects and open selling square feet. The Company's inbound and outbound transportation expenses are managed centrally by Limited Distribution Services ("LDS"), a wholly-owned subsidiary of The Limited. Inbound freight is charged to the Company based on actual receipts, while outbound freight is charged on a percentage of cartons shipped basis. The Limited provides certain services to the Company including, among other things, aircraft, tax, treasury, legal, corporate secretary, accounting, auditing, corporate development, risk management, associate benefit plan administration, human resource and compensation, government affairs and public relation services. Identifiable costs are charged directly to the Company. All other services-related costs not specifically attributable to the Company business have been allocated to the Company based upon a percentage of sales. The Company participates in The Limited's centralized cash management system. Under this system, cash received from the Company's operations is transferred to The Limited's centralized cash accounts and cash disbursements are funded from the centralized cash accounts on a daily basis. For all periods presented, intercompany transactions have been reported as financing activities in the accompanying consolidated statements of cash flows. Effective July 11, 1996, the intercompany accounts became an interest bearing liability or an interest earning asset. Interest on the intercompany account is calculated based on the Federal Reserve AA Composite 30-day rate. The Company is charged rent expense, common area maintenance charges and utilities for stores shared with other consolidated subsidiaries of The Limited. The charges are based on 28 Abercrombie & Fitch Co. square footage and represent the proportionate share of the underlying leases with third parties. The Company is also charged rent expense and utilities for the distribution and home office space occupied (which approximates fair market value). The Company and The Limited have entered into intercompany agreements which establish the provision of services in accordance with the terms described above. The prices charged to the Company for services provided under these agreements may be higher or lower than prices that may be charged by third parties. It is not practicable, therefore, to estimate what these costs would be if The Limited were not providing these services and the Company was required to purchase these services from outsiders or develop internal expertise. Management believes the charges and allocations described above are fair and reasonable. The following table summarizes the related party transactions between the Company and The Limited and its subsidiaries, for the years indicated (thousands):
1996 1995 1994 - ------------------------------------------------------------------------------- Mast and Gryphon purchases $61,776 $35,167 $25,325 Capital expenditures 20,839 20,280 10,519 Inbound and outbound transportation 3,326 2,869 2,153 Corporate charges 3,989 4,019 2,865 Store leases and other occupancy 1,509 1,397 380 Distribution center, MIS and home office expenses 2,696 2,564 1,676 Centrally managed benefits 1,722 2,417 1,289 Interest charges 2,190 - - - ------------------------------------------------------------------------------- $98,047 $68,713 $44,207 ===============================================================================
The Company has no arrangements with The Limited which result in the Company's guarantee, pledge of assets or stock to provide security for The Limited's debt obligations. 9. STOCK OPTIONS AND RESTRICTED STOCK The Company has established a stock plan for officers and key associates. The stock plan provides for awards with respect to a maximum of 3,500,000 shares of Class A Common Stock during the term of the stock plan. No associate may be granted in any calendar year awards covering more than 400,000 shares of Class A Common Stock. In 1996, certain executive officers and key associates received options, with a maximum term of ten years, to purchase an aggregate of up to 240,000 shares of the Company's Class A Common Stock under the stock plan. Options generally vest in annual increments of 25% commencing on various dates beginning with the first anniversary of the grant date. The exercise price of these options is equal to the IPO price of $16 per share. The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," effective with the 1996 financial statements, but elected to continue to measure compensation expense in accordance with APB Opinion No. 25. Accordingly, no compensation expense for stock options has been recognized. If compensation expense had been determined based on the estimated fair value of options granted in 1996, consistent with the methodology in SFAS 123, the pro- forma effects on the Company's net income and net income per share for the four months the options were outstanding would have been immaterial. Certain officers and key associates were granted restricted stock under The Limited's stock plans, of which approximately 61,000 shares remain outstanding. An additional 36,000 restricted shares of the Company's Class A Common Stock were granted based on the Company's performance in the Fall season of 1996. These restricted shares generally vest on a graduated scale over four years. Additionally, in consideration for the cancellation of certain previously granted restricted shares of The Limited's common stock, certain executive officers and key associates were granted an aggregate of 49,500 restricted shares of the Company's Class A Common Stock under the stock plan. These restricted shares vest on the fifth anniversary of their original issuance. Compensation expense related to restricted awards has been reflected in the financial statements and amounted to $547 thousand in 1996, $437 thousand in 1995 and $224 thousand in 1994. Abercrombie & Fitch Co. 10. RETIREMENT BENEFITS The Company participates in a defined contribution retirement plan sponsored by The Limited. Participation in this plan is available to all associates who have completed 1,000 or more hours of service with the Company during certain 12-month periods and attained the age of 21. The Company's contributions to this plan are based on a percentage of associates' annual compensation. The cost of this plan was $706 thousand in 1996, $549 thousand in 1995 and $343 thousand in 1994. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial results for 1996 and 1995 follow (thousands except per share amounts):
1996 Quarter First Second Third Fourth - -------------------------------------------------------------------------------- Net sales $51,020 $57,431 $87,688 $139,233 - -------------------------------------------------------------------------------- Gross income 14,894 18,052 30,957 59,863 - -------------------------------------------------------------------------------- Net income (loss) (199) 374 3,982 20,517 - -------------------------------------------------------------------------------- Net income (loss) per share $ .00 $ .01 $ .09 $ .40 - -------------------------------------------------------------------------------- 1995 Quarter - -------------------------------------------------------------------------------- Net sales $33,377 $38,668 $57,222 $106,392 - -------------------------------------------------------------------------------- Gross income 8,428 12,023 19,503 39,840 - -------------------------------------------------------------------------------- Net income (loss) (1,169) 250 2,583 12,634 - -------------------------------------------------------------------------------- Net income (loss) per share $ (.03) $ .01 $ .06 $ .29 - --------------------------------------------------------------------------------
MARKET PRICE INFORMATION The following is a summary of market price since the Company was originally listed on the New York Stock Exchange ("ANF") on September 26, 1996:
Market Price ------------------------------------------------ High Low ------------------------------------------------ Fiscal Year End 1996 - -------------------------------------------------------------------------------- 4th Quarter $23 3/4 $12 5/8 3rd Quarter $26 1/4 $21 3/4
On February 1, 1997, there were approximately 1,000 shareholders of record. Abercrombie & Fitch Co. REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ABERCROMBIE & FITCH CO. We have audited the accompanying consolidated balance sheets of Abercrombie and Fitch Co. and subsidiaries as of February 1, 1997 and February 3, 1996 and the related consolidated statements of income, shareholders' equity (deficit) and cash flows for each of the three fiscal years in the period ended February 1, 1997 (appearing on pages 21 through 30). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Abercrombie & Fitch Co. and subsidiaries as of February 1, 1997 and February 3, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Columbus, Ohio February 24, 1997 COMPANY INFORMATION COMPANY INFORMATION Abercrombie & Fitch Four Limited Parkway East Reynoldsburg, Ohio 43068 (614) 577-6500 www.abercrombie.com ANNUAL MEETING The First Annual Meeting of Shareholders is scheduled for 9:30 A.M., Tuesday, May 20, 1997 at Abercrombie & Fitch, Four Limited Parkway East, Reynoldsburg, Ohio 43068. STOCK EXCHANGE LISTING New York Stock Exchange (Trading Symbol "ANF"), commonly listed in newspapers as AberFit. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P., Columbus, Ohio 10-K REPORT A copy of form 10-K is available without charge upon written request to Tom Katzenmeyer, Director of Investor Relations, Abercrombie & Fitch, Four Limited Parkway East, Reynoldsburg, Ohio 43068. STOCK TRANSFER AGENT, REGISTRAR AND DIVIDEND AGENT First Chicago Trust Company of New York P.O. Box 2500, Jersey City, New Jersey 07303-2500 INFORMATION REQUESTS Please call (614) 577-6500 or write Tom Katzenmeyer at the Company Offices address listed above. ABERCROMBIE & FITCH Initial Public Offering: September 26, 1996 Number of Associates: 4,900 Approximate Shareholder Base: 1,000 EX-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ---------- SUBSIDIARIES OF THE REGISTRANT Jurisdiction Subsidiaries (a) of Incorporation ------------ ---------------- Abercrombie & Fitch Service Corporation (b) Delaware Abercrombie & Fitch Stores, Inc. (b) Delaware (a) The names of certain subsidiaries are omitted since such unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of February 1, 1997. (b) Wholly-owned subsidiary of Abercrombie & Fitch Holding Corporation, a Delaware corporation and a wholly-owned subsidiary of the registrant. EX-23 6 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 ---------- [LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE] CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Abercrombie & Fitch Co. on Form S-8, Registration Nos. 333-15941, 333-15943 and 333-15945 of our report dated February 24, 1997, on our audits of the consolidated financial statements of Abercrombie & Fitch Co. and Subsidiaries as of February 1, 1997, and February 3, 1996, and for the fiscal years ended February 1, 1997, February 3, 1996, and January 28, 1995, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Columbus, Ohio April 25, 1997 EX-24 7 POWERS OF ATTORNEY EXHIBIT 24 ---------- POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S. Jeffries, and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ LESLIE H. WEXNER -------------------- Leslie H. Wexner POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S. Jeffries, and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ KENNETH B. GILMAN --------------------- Kenneth B. Gilman POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S. Jeffries and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ MICHAEL S. JEFFRIES ----------------------- Michael S. Jeffries POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S. Jeffries, and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ ROGER D. BLACKWELL ---------------------- Roger D. Blackwell POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman and Michael S. Jeffries and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ E. GORDON GEE ----------------- E. Gordon Gee POWER OF ATTORNEY OFFICERS AND DIRECTORS OF ABERCROMBIE & FITCH CO. The undersigned officer and/or director of Abercrombie & Fitch Co., a Delaware corporation, which anticipates filing an Annual Report on Form 10-K for its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, Washington, D.C., hereby constitutes and appoints Leslie H. Wexner, Kenneth B. Gilman, and Michael S. Jeffries and each of them, with full powers of substitution and resubstitution, as attorney to sign for the undersigned in any and all capacities such Annual Report on Form 10-K and any and all amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such Annual Report on Form 10-K with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present. The undersigned hereby ratifies and confirms all that said attorney-in-fact and agent or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. EXECUTED as of the 24th day of January, 1997. /s/ DONALD B. SHACKELFORD ------------------------- Donald B. Shackelford EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ABERCROMBIE & FITCH CO. AND SUBSIDIARIES FOR THE YEAR ENDED FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-01-1997 FEB-04-1996 FEB-01-1997 1,945 0 2,102 0 34,943 44,878 101,919 42,927 105,761 43,590 50,000 0 0 511 10,727 105,761 335,372 335,372 211,606 211,606 77,773 0 4,919 41,074 16,400 24,674 0 0 0 24,674 .54 .54
EX-99 9 SAVINGS AND RETIREMENT PLAN EXHIBIT 99 ---------- [LETTERHEAD OF ARY, EARMAN AND ROEPCKE APPEARS HERE] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Plan Administrator of The Limited, Inc. Savings and Retirement Plan: We have audited the accompanying statements of net assets available for benefits of The Limited, Inc. Savings and Retirement Plan (the "Plan") as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ary, Earman and Roepcke Columbus, Ohio, March 20, 1997. THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN --------------------------------------------- STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS ---------------------------------------------- DECEMBER 31, 1996 -----------------
Limited Fixed Index-500 TOTAL Stock Fund Income Fund Fund ASSETS -------------- ------------- ----------- -------------- - ------ Investments, at Fair Value: Determined by Quoted Market Price: Common Stock: The Limited, Inc. (Cost $34,108,707) $ 60,824,705 $60,824,705 $ - $ - Intimate Brands, Inc. (Cost $1,037,101) 976,468 - - - Shares of Registered Investment Company: Vanguard Investment Contract Trust (Cost $82,389,513) 82,389,513 - 82,389,513 - Vanguard Index Trust - 500 Portfolio (Cost $38,949,927) 53,136,984 - - 53,136,984 Vanguard U.S. Growth Portfolio (Cost $36,722,202) 46,268,660 - - - Vanguard Wellington Fund (Cost $9,986,245) 10,453,023 - - - Temporary Investments (Cost Approximates Fair Value) 30,946 873 18,039 5,684 ------------ ----------- ----------- ----------- Total Investments 254,080,299 60,825,578 82,407,552 53,142,668 Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265 Receivable from Employers for Withheld Participants' Contributions 1,183,352 118,433 391,432 298,971 Due from Brokers 311,530 311,530 - - Interfund Transfers - 4,686 (12,473) 12,645 Accrued Interest and Dividends 4,553 1,089 1,772 847 ------------ ----------- ----------- ----------- Total Assets 276,283,800 63,409,086 89,978,656 58,591,396 ------------ ----------- ----------- ----------- LIABILITIES - ----------- Due to Brokers 122,686 - - - Administrative Fees Payable 278,885 114,176 29,286 15,828 ------------ ----------- ----------- ----------- Total Liabilities 401,571 114,176 29,286 15,828 ------------ ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568 ============ =========== =========== ===========
Intimate U.S. Growth Wellington Brands Fund Fund Stock Fund ASSETS ------------ ----------- --------------- - ------ Investments, at Fair Value: Determined by Quoted Market Price: Common Stock: The Limited, Inc. (Cost $34,108,707) $ - $ - $ - Intimate Brands, Inc. (Cost $1,037,101) - - 976,468 Shares of Registered Investment Company: Vanguard Investment Contract Trust (Cost $82,389,513) - - - Vanguard Index Trust - 500 Portfolio (Cost $38,949,927) - - - Vanguard U.S. Growth Portfolio (Cost $36,722,202) 46,268,660 - - Vanguard Wellington Fund (Cost $9,986,245) - 10,453,023 - Temporary Investments (Cost Approximates Fair Value) 3,824 329 2,197 ----------- ----------- ----------- Total Investments 46,272,484 10,453,352 978,665 Contribution Receivable from Employers 4,396,598 1,667,242 165,818 Receivable from Employers for Withheld Participants' Contributions 255,519 108,647 10,350 Due from Brokers - - - Interfund Transfers (4,213) (2,507) 1,862 Accrued Interest and Dividends 682 131 32 ----------- ----------- ----------- Total Assets 50,921,070 12,226,865 1,156,727 ----------- ----------- ----------- LIABILITIES - ----------- Due to Brokers - - 122,686 Administrative Fees Payable 109,033 10,562 - ----------- ----------- ----------- Total Liabilities 109,033 10,562 122,686 ----------- ----------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $50,812,037 $12,216,303 $ 1,034,041 =========== =========== ===========
The accompanying notes are an integral part of this financial statement. F-1 THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN --------------------------------------------- STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS ---------------------------------------------- DECEMBER 31, 1995 -----------------
Limited Fixed Index-500 U.S. Growth Wellington TOTAL Stock Fund Income Fund Fund Fund Fund ASSETS ------------ ------------- ------------- ------------- ----------- ------------ - ------ Investments, at Fair Value: Determined by Quoted Market Price: Common Stock: The Limited, Inc. (Cost $36,237,327) $ 69,418,465 $ 69,418,465 $ - $ - $ - $ - Shares of Registered Investment Company: Vanguard Investment Contract Trust (Cost $70,972,869) 70,972,869 - 70,972,869 - - - Vanguard Index - 500 Portfolio (Cost $28,215,245) 36,781,237 - - 36,781,237 - - Vanguard U.S. Growth Portfolio (Cost $22,450,170) 28,568,077 - - - 28,568,077 - Vanguard Wellington Fund (Cost $2,688,763) 2,810,545 - - - - 2,810,545 Determined By Contract Value: Guaranteed Investment Contracts: Metropolitan Life Insurance 7,064,772 - 7,064,772 - - - Temporary Investments (Cost Approximates Fair Value) 29,917 209 29,708 - - - ------------ ------------ ------------ ------------ ------------ ------------ Total Investments 215,645,882 69,418,674 78,067,349 36,781,237 28,568,077 2,810,545 Contribution Receivable from Employers 21,814,605 3,121,459 10,109,934 4,317,439 3,491,987 773,786 Receivable from Employers for Withheld Participants' Contributions 1,417,497 227,262 522,163 331,820 263,791 72,461 Due from Brokers 46,096 46,096 - - - - Interfund Transfers - (122,205) (6,207) (50,186) 33,824 144,774 Accrued Interest and Dividends 3,174 541 1,760 421 418 34 Other Assets 976 - - 424 483 69 ------------ ------------ ------------ ------------ ------------ ------------ Total Assets 238,928,230 72,691,827 88,694,999 41,381,155 32,358,580 3,801,669 ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES - ----------- Other Liabilities 26,894 - 26,894 - - - Administrative Fees Payable 392,065 129,381 141,144 66,651 50,968 3,921 ------------ ------------ ------------ ------------ ------------ ------------ Total Liabilities 418,959 129,381 168,038 66,651 50,968 3,921 ------------ ------------ ------------ ------------ ------------ ------------ NET ASSETS AVAILABLE FOR BENEFITS $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of this financial statement. F-2 THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN --------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS --------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1996 ------------------------------------
Limited Fixed Index-500 Total Stock Fund Income Fund Fund ------------ ------------ ----------- ------------ Investment Income: Increase (Decrease) in Net Unrealized Appreciation $ 5,826,139 $(3,507,840) $ - $ 5,621,065 Realized Gain on Sale of Securities 14,208,839 9,385,783 - 2,732,990 Interest 4,977,925 17,980 4,888,501 6,109 Dividends 1,400,891 1,395,032 - - Mutual Funds' Earnings 5,229,593 - - 1,139,142 ------------ ----------- ----------- ----------- Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306 ------------ ----------- ----------- ----------- Contributions: Employers 30,145,525 3,087,453 10,664,673 7,443,415 Participants 16,172,183 1,802,993 5,382,468 4,063,595 ------------ ----------- ----------- ----------- Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010 ------------ ----------- ----------- ----------- Interfund Transfers - (13,040,074) (3,485,681) 5,016,481 ------------ ----------- ----------- ----------- Transfer of Participants' Account Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351) ------------ ----------- ----------- ----------- Administrative Expense (935,202) (258,452) (320,918) (125,949) ------------ ----------- ----------- ----------- Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433) ------------ ----------- ----------- ----------- Increase (Decrease) in Net Assets Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064 Beginning Net Assets Available for Benefits 238,509,271 72,562,446 88,526,961 41,314,504 ------------ ----------- ----------- ----------- Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568 ============ =========== =========== ===========
Intimate U.S. Growth Wellington Brands Fund Fund Stock Fund ----------- ------------ ------------ Investment Income: Increase (Decrease) in Net Unrealized Appreciation $ 3,428,551 $ 344,996 $ (60,633) Realized Gain on Sale of Securities 2,001,323 90,165 (1,422) Interest 4,933 60,295 107 Dividends - - 5,859 Mutual Funds' Earnings 3,420,290 670,161 - ----------- ----------- ----------- Total Investment Income (Loss) 8,855,097 1,165,617 (56,089) ----------- ----------- ----------- Contributions: Employers 6,287,166 2,489,055 173,763 Participants 3,449,162 1,412,169 61,796 ----------- ----------- ----------- Total Contributions 9,736,328 3,901,224 235,559 ----------- ----------- ----------- Interfund Transfers 6,476,961 4,164,295 868,018 ----------- ----------- ----------- Transfer of Participants' Account Balances to Former Affiliate's Plan (2,040,825) (204,747) - ----------- ----------- ----------- Administrative Expense (207,292) (22,591) - ----------- ----------- ----------- Benefits to Participants (4,315,844) (585,243) (13,447) ----------- ----------- ----------- Increase (Decrease) in Net Assets Available for Benefits 18,504,425 8,418,555 1,034,041 Beginning Net Assets Available for Benefits 32,307,612 3,797,748 - ----------- ----------- ----------- Ending Net Assets Available for Benefits $50,812,037 $12,216,303 $ 1,034,041 =========== =========== ===========
The accompanying notes are an integral part of this financial statement. F-3 THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN --------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS --------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1995 ------------------------------------
Limited Fixed Index-500 U.S. Growth Wellington Total Stock Fund Income Fund Fund Fund Fund ------------ ------------ ------------ ------------ ------------ ------------ Investment Income: Increase (Decrease) in Net Unrealized Appreciation $ 7,426,953 $ (5,714,880) $ - $ 7,535,683 $ 5,484,368 $ 121,782 Realized Gain on Sale of Securities 3,567,665 1,581,946 - 1,096,390 877,023 12,306 Interest 4,771,693 10,190 4,752,866 4,761 3,726 150 Dividends 1,632,728 1,632,728 - - - - Mutual Funds' Earnings 2,054,249 - - 832,487 1,151,646 70,116 ------------ ------------ ------------ ------------ ------------ ------------ Total Investment Income (Loss) 19,453,288 (2,490,016) 4,752,866 9,469,321 7,516,763 204,354 ------------ ------------ ------------ ------------ ------------ ------------ Contributions: Employers 29,943,002 4,142,615 13,472,869 6,246,002 4,928,087 1,153,429 Participants 13,909,162 2,380,938 4,899,509 3,466,763 2,694,626 467,326 ------------ ------------ ------------ ------------ ------------ ------------ Total Contributions 43,852,164 6,523,553 18,372,378 9,712,765 7,622,713 1,620,755 ------------ ------------ ------------ ------------ ------------ ------------ Interfund Transfers - (775,658) (1,604,380) (28,051) 378,900 2,029,189 ------------ ------------ ------------ ------------ ------------ ------------ Administrative Expense (1,017,651) (384,338) (357,753) (153,254) (117,880) (4,426) ------------ ------------ ------------ ------------ ------------ ------------ Benefits to Participants (24,679,806) (7,721,019) (9,758,147) (3,959,696) (3,188,820) (52,124) ------------ ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Net Assets Available for Benefits 37,607,995 (4,847,478) 11,404,964 15,041,085 12,211,676 3,797,748 Beginning Net Assets Available for Benefits 200,901,276 77,409,924 77,121,997 26,273,419 20,095,936 - ------------ ------------ ------------ ------------ ------------ ------------ Ending Net Assets Available for Benefits $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of this financial statement. F-4 THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN --------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS --------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1994 ------------------------------------
Limited Fixed Index-500 U.S. Growth Total Stock Fund Income Fund Fund Fund ------------ ------------ ------------ ------------ ------------ Investment Income: Increase (Decrease) in Net Unrealized Appreciation $ 1,716,786 $ 1,918,510 $ - $ (568,121) $ 366,397 Realized Gain on Sale of Securities 3,033,768 2,781,458 - 206,695 45,615 Interest 4,123,855 9,181 4,110,632 2,223 1,819 Dividends 1,575,897 1,575,897 - - - Mutual Funds' Earnings 864,642 - - 661,477 203,165 ------------ ------------ ------------ ------------ ------------ Total Investment Income 11,314,948 6,285,046 4,110,632 302,274 616,996 ------------ ------------ ------------ ------------ ------------ Contributions: Employers 23,236,673 4,220,346 11,221,074 4,509,396 3,285,857 Participants 10,745,605 2,466,228 3,919,556 2,532,832 1,826,989 ------------ ------------ ------------ ------------ ------------ Total Contributions 33,982,278 6,686,574 15,140,630 7,042,228 5,112,846 ------------ ------------ ------------ ------------ ------------ Transfer of Participants' Account Balances to Former Affiliate's Plan (37,482) (14) (37,468) - - ------------ ------------ ------------ ------------ ------------ Interfund Transfers - (1,149,559) 231,825 879,225 38,509 ------------ ------------ ------------ ------------ ------------ Administrative Expense (755,565) (335,032) (270,359) (84,273) (65,901) ------------ ------------ ------------ ------------ ------------ Benefits to Participants (29,091,678) (13,430,138) (11,480,188) (2,305,551) (1,875,801) ------------ ------------ ------------ ------------ ------------ Increase (Decrease) in Net Assets Available for Benefits 15,412,501 (1,943,123) 7,695,072 5,833,903 3,826,649 Beginning Net Assets Available for Benefits 185,488,775 79,353,047 69,426,925 20,439,516 16,269,287 ------------ ------------ ------------ ------------ ------------ Ending Net Assets Available for Benefits $200,901,276 $ 77,409,924 $ 77,121,997 $ 26,273,419 $ 20,095,936 ============ ============ ============ ============ ============
The accompanying notes are an integral part of this financial statement. F-5 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 employor any calendar year beginning in or after their first consecutive twelve months of employment. Certain employees of the Employers, who are covered by a collective bargaining agreement, are not eligible to participate in the Plan. At December 31, 1996, there were 25,392 participants in the Plan. On August 31, 1993, The Limited, Inc. sold 60% of its interest in Brylane, Inc. and transferred the assets and liabilities allocated to the employees of Brylane, Inc. and its affiliates to the Brylane L.P. Savings and Retirement Plan. On January 31, 1996, The Limited, Inc. sold 60% of its interest in World Financial Network National Bank and transferred the assets and liabilities allocated to the employees of World Financial Network National Bank and its affiliates to the World Financial Network National Bank Savings and Retirement Plan. The following description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended. Amendments ---------- During 1994, the Plan was amended and restated effective as of January 1, 1992 to, among other things, (1) make certain changes in the design of the Plan to comply with the Internal Revenue code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended and (2) incorporate amendments previously made. Contributions ------------- Employer Contributions: The Employers may provide a non-service related retirement contribution of 4% of annual compensation up to the Social Security wage base and 7% of annual compensation after that and a service related retirement contribution of 1% of annual compensation for participants who have completed five or more years of vesting service as of the last day of the Plan year. Participants who complete 500 hours of service during the Plan year and are participants on the last day of the Plan year are eligible. The annual compensation of each participant taken into account under the Plan is limited to the maximum amount permitted under Section 401(a)(17) of the Internal Revenue Code. The annual compensation limit for the Plan year ended December 31, 1996, was $150,000. The limit increases to $160,000 for 1997. The Employers may provide a matching contribution of 100% of the participant's voluntary contributions up to 3% of the participant's total annual compensation. F-6 Participant Voluntary Contributions: A participant may elect to make a voluntary tax-deferred contribution of 1% to 6% of his or her annual compensation up to the maximum permitted under Section 402(g) of the Internal Revenue Code adjusted annually ($9,500 at December 31, 1996). This voluntary tax-deferred contribution may be limited by Section 401(k) of the Internal Revenue Code. A participant earning annually more than $66,000 for the years ended December 31, 1996, 1995 and 1994, respectively, may be limited to voluntary contributions to the Plan of less than 6% due to requirements of Section 401(k) of the Internal Revenue Code based on the current levels of participant voluntary contributions. Vesting ------- A participant is fully and immediately vested for voluntary and rollover contributions. A summary of vesting percentages in the Employers' contributions follows:
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 $3,500 have the option of leaving their accounts invested in the Plan until age 65. All benefits will be paid as a lump-sum distribution. Those participants holding between five and one hundred shares of Employer Securities will have the option to receive such amount in whole shares of Employer Securities and cash for any fractional shares. Those participants holding more than one hundred shares of Employer Securities will receive whole shares of Employer securities and cash for any fractional shares. Participants have the option of having their benefit paid directly to an eligible retirement plan specified by the participant. A participant who is fully vested in his or her account and who has participated in the Plan for at least five years may obtain an in- service withdrawal from their account based on the percentage amounts designated by the Plan. A participant may also request a hardship distribution due to an immediate and heavy financial need based on the terms of the Plan. Amounts Allocated Participants Withdrawn from the Plan ------------------------------------------------------ The vested portion of net assets available for benefits allocated to participants withdrawn from the plan as of December 31, 1996 and 1995, is set forth below:
1996 1995 ---------- --------- Limited Stock Fund $ 914,636 $ 54,393 Fixed Income Fund 1,171,143 301,337 Index-500 Fund 371,539 128,645 U.S. Growth Fund 338,708 138,247 Wellington Fund 77,814 11,908 Intimate Brands Stock Fund 165 - ---------- -------- $2,874,005 $634,530 ========== ========
F-7 Forfeitures ----------- Forfeitures are used to reduce the Employers' required contributions. Utilized forfeitures for 1996, 1995 and 1994, are set forth below:
1996 1995 1994 ---------- ---------- ---------- Limited Stock Fund $ 309,429 $ 268,411 $ 536,323 Fixed Income Fund 3,178,025 1,691,327 2,804,818 Index-500 Fund 743,916 352,056 268,212 U.S. Growth Fund 692,299 295,948 241,890 Wellington Fund 36,468 - - Intimate Brands Stock Fund - - - ---------- ---------- ---------- $4,960,137 $2,607,742 $3,851,243 ========== ========== ==========
Expenses -------- Brokerage fees, transfer taxes, and other expenses incurred in connection with the investment of the Plan's assets will be added to the cost of such investments or deducted from the proceeds thereof, as the case may be. Administrative expenses of the Plan will be paid from the Plan from earnings not allocated to partici pants' accounts. The remainder will be paid by the Employers, unless the Employers elect to pay more or all of such costs. Tax Determination ----------------- The Plan obtained its latest determination letter on January 30, 1995, in which the Internal Revenue Service stated that the Plan, as amended and restated January 1, 1992 was in compliance with the applicable requirements of the Internal Revenue Code. Accordingly, the following Federal income tax rules will apply to the Plan: Voluntary tax-deferred contributions made under the Plan by a participant and contributions made by the Employers to participant accounts are generally not taxable until such amounts are distributed. The participants are not subject to Federal income tax on interest, dividends, or gains in their particular accounts until distributed. The foregoing is only a brief summary of certain tax implications and applies only to Federal tax regulations currently in effect. (2) SUMMARY OF ACCOUNTING POLICIES ------------------------------ The Plan's financial statements are prepared on the accrual basis of accounting. Assets of the Plan are valued at fair value. If available, quoted market prices are used to value investments. The amounts for investments that have no quoted market price are shown at their estimated fair value, which is determined based on yields equivalent for such securities or for securities of comparable maturity, quality, and type as obtained from market makers. Guaranteed investment contracts issued by insurance companies are valued at contract value. Contract value represents contributions made under the contract, and interest at the contract rate, less Plan withdrawals and administration expenses charged by the insurance companies. Realized gains or losses on the distribution or sale of securities represent the difference between the average cost of such securities held and the fair value on the date of distribution or sale. Estimates --------- The preparation of financial statements in conformity with generally accepted accounting principles requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. F-8 INVESTMENTS ----------- Net unrealized appreciation, equal to the difference between cost and fair value of all investments held at the applicable valuation dates, is recognized in determining the value of each fund. The unrealized appreciation (depreciation) as of December 31, 1996, 1995 and 1994 is set forth below:
1996 1995 1994 ------------ ----------- ----------- Limited Stock Fund $26,715,998 $33,181,138 $42,740,905 Fixed Income Fund - - - Index-500 Fund 14,187,057 8,565,992 1,030,309 U.S. Growth Fund 9,546,458 6,117,907 633,539 Wellington Fund 466,778 121,782 - Intimate Brands Stock Fund (60,633) - - ----------- ----------- ----------- $50,855,658 $47,986,819 $44,404,753 =========== =========== ===========
The following is a summary of the net gain (loss) on securities sold during the periods ended December 31, 1996, 1995 and 1994:
Realized Proceeds Cost Gain (Loss) ----------- ----------- ------------ Period Ended December 31, 1996 Limited Stock Fund $18,722,433 $ 9,336,650 $ 9,385,783 Fixed Income Fund 31,802,226 31,802,226 - Index-500 Fund 11,800,336 9,067,346 2,732,990 U.S. Growth Fund 8,582,452 6,581,129 2,001,323 Wellington Fund 1,842,744 1,752,579 90,165 Intimate Brands Stock Fund 11,229 12,651 (1,422) ----------- ----------- ----------- $72,761,420 $58,552,581 $14,208,839 =========== =========== =========== Period Ended December 31, 1995 Limited Stock Fund $ 2,804,851 $ 1,222,905 $ 1,581,946 Fixed Income Fund 21,155,451 21,155,451 - Index-500 Fund 6,616,037 5,519,647 1,096,390 U.S. Growth Fund 4,986,144 4,109,121 877,023 Wellington Fund 266,558 254,252 12,306 ----------- ----------- ----------- $35,829,041 $32,261,376 $ 3,567,665 =========== =========== =========== Period Ended December 31, 1994 Limited Stock Fund $ 4,926,530 $ 2,145,072 $ 2,781,458 Fixed Income Fund 14,779,530 14,779,530 - Index-500 Fund 3,511,736 3,305,041 206,695 U.S. Growth Fund 3,139,753 3,094,138 45,615 ----------- ----------- ----------- $26,357,549 $23,323,781 $ 3,033,768 =========== =========== ===========
Contributions under the Plan are invested in one of six investment funds: (1) The Limited Stock Fund, consisting of common stock of The Limited, Inc., a Delaware corporation (the "Issuer") and parent company of the Employers, (2) the Fixed Income Fund, which is invested in the Vanguard Investment Contract Trust, and prior to January 1996, was also invested in other guaranteed investment con tracts issued by insurance companies, (3) the Index-500 Fund, which is invested in the Vanguard Index - 500 Portfolio, (4) the U.S. Growth Fund, which is invested in the Vanguard U.S. Growth Portfolio, (5) the Wellington Fund, which is invested in the Vanguard Wellington Fund. Prior to July 1, 1995 the Wellington Fund was not an investment option, and (6) the Intimate Brands Stock Fund, consisting of common stock of Intimate Brands, Inc., a Delaware corporation and an eighty-three percent owned subsidiary of The Limited, Inc. Prior to October 1, 1996 the Intimate Brands Stock Fund was not an investment option. Participants' voluntary and Employers' contributions may be invested in any one or more of the funds, at the election of the participant. There are 5,584 participants in the Limited Stock Fund, 17,644 in the Fixed Income Fund, 8,941 in the Index-500 Fund, 8,160 in the U.S. Growth Fund, 5,350 in the Wellington Fund, and 641 in the Intimate Brands Stock Fund at December 31, 1996. F-9 (4) PLAN ADMINISTRATION ------------------- The Plan is administered by a Committee, the members of which are appointed by the Board of Directors of the Employers. (5) PLAN TERMINATION ---------------- Although the Employers have not expressed any intent to do so, the Employers have the right under the Plan to discontinue their contributions at any time. The Limited, Inc. has the right at any time, by action of its Board of Directors, to terminate the Plan subject to provisions of ERISA. Upon Plan termination or partial termination, participants will become fully vested in their accounts. F-10 -----END PRIVACY-ENHANCED MESSAGE-----