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limited brands annual report 1999_full limited brands annual report 1999_full Document Transcript

  • the lımıted inc THE LIMITED INC ANNUAL REPORT 1999 1999 annual report to shareholders THELIMTEDINC.AN UALREPORT19 www.limited.com www.express.style.com www.lanebryant.com www.IntimateBrands.com www.VictoriasSecret.com www.WhiteBarnCandleCo.com
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  • the limited inc 1999 annual report 06 letter from the chairman 10 structure 16 express 22 lane bryant 28 lerner new york 33 the limited 38 henri bendel 40 what others are saying… 42 intimate brands victoria’s secret bath & body works white barn candle company 59 philanthropy 60 operating results and year-end position 63 financial table of contents 82 company information 9 9 A R LT D 0 5
  • letter from chairman the Dear Partner – As you know, for the past several years we’ve been involved in a sweeping strategic reconfiguration. Moving from specialty fundamentals” of the businesses. At the same time, we made businesses to brands. Creating a Center organization led by major strategic decisions like the closing of Cacique, the talented specialists who are able to add value across multiple creation of Intimate Brands, Inc. (IBI), the spin-offs of disciplines and businesses. Adding real design skill in every Abercrombie & Fitch, Limited Too, Galyan’s, and Alliance brand, not only to create original, differentiated design, but as Data Systems. Strategic and tactical decisions, designed to important, to establish consistent, vivid, sharply defined narrow our focus and create shareholder value. customer experience across brands. Our strategies are working. This annual report is evidence of We moved deliberately, impacting all areas of the business, the progress of our move to brands and brand management. often simultaneously. We built teams, within and across the For the first time, I’ve included a variety of comments from brands, to address business issues and opportunities. We The New York Times, Merrill Lynch, Bear Stearns, and other consciously distorted our allocations of time and money in the financial reporters and analysts whose job it is to review these service of our most promising people, ideas, and businesses. sorts of things. They see the change. And we built our capacity to embrace a world of increasing change, while deepening our disciplined capacity to “nail the We hope you can, too. 0 6 LT D A R 9 9 99 9AA RLT DD09 9 R LT 7
  • “To sustain our brands, Even a cursory glance through this report tells you we’re getting traction. The to “move the needle”? Are they distorting in our history. Period. It’s only appropriate. moving in the right direction, with every difference in the photography alone is dramatic. There is more separation in our their time against those critical few things Best brands demand best talent. brand now positioned for growth. we need to be able brand positions today than at any time in our history. Photographs don’t define a that produce the biggest wins? to count on a reliable brand position. They reflect it. The best ones, often, don’t even need a logo. By the way, if you’re reading this as a Plus, our 84% stake in Intimate Brands supply chain for our When the merchandise is well designed, and the marketing position well defined, One critical brand-supporting initiative is prospective new associate, let me be gives us the added participation of two of globally sourced the finished photo becomes an extension of the whole. Branding. inventory management. And here, we may equally clear: We will continue to seek out, the most powerful brands, of any kind, products. With good have made our most dramatic progress in promote, and hire, the best and brightest, anywhere. They are, of course, Bath & Body We’re getting there. the past year, with, I’m convinced, even while continuously raising the bar for all Works and Victoria’s Secret. And their business processes, more improvement to come. Under CFO associates. If that sounds appealing, join continued superb performance – profits, we can make sure that In fact, our current brand positions are the strongest and most precise in our Ann Hailey’s leadership, inventories are us. There is much to do. in 1999, once again grew at a greater pace product is on time history. Vivid. Well edited. Tightly defined. No cannibalization. leaner, better planned, in earlier, out ear- than revenues – gives us a healthy base the and delivered at the lier, with better turns, higher profits, and Speaking of talent, I’m very happy to have apparel brands can only add to. planned cost.” Yes, you can see it in the photographs. Most important, you can see it in the lower markdowns. Ann’s contributions Len Schlesinger managing Human results. In fact, 1999 was our best year, reach far beyond a “controller” mentality. Resources. I’ve known Len for six years, as Would you call all this a turnaround? “When I think about overall, since moving to the brand strategy. She’s a financial partner to the brands, a confidant, a friend, and a board mem- Certainly others have. I think of it as a 1999, it brings to mind Approaching $10 billion in sales and with penetrating insights into how they ber. He is, without question, one of the healthy beginning to a retail/brand success a quote by coach Joe nearing one billion in operating profits. can grow. foremost authorities on organizational story that will sustain itself for years to come. A 43% earnings increase. Good progress. issues in America. Paterno, ‘The will to Another major area of concentration is This year’s improved result wasn’t an acci- win is important, but I want to talk about that earnings increase our “Must Win” stores program. Led by In October, he elected to join the business dent. It was budgeted and planned. It is an the will to prepare is a minute. Andrea Weiss, it involves every brand in as Executive Vice President, Organization, indication that the deliberate steps we’ve vital.’ In the Stores the enterprise. The idea is to focus on the Leadership, and Human Resources. Clearly, taken are working. I’m confident these Operations group, I’ve said that, since 1995, we have been in- best stores in each brand and, simply, do his decision is a strong endorsement of the steps are the right ones, and our improved volved in a sweeping strategic reorganization. whatever it takes to dramatically increase direction we’ve taken, and the potential that results are just beginning. Additionally, we’ve begun to prepare performance. When it works, and it is lies ahead. now that we’re starting to get traction, I to win through our Jane O’Dell In 1999, I added a few tactical objectives. already beginning to in several brands, it feel comfortable shifting more to offense, Vice President, International Trade ‘Must Win’ stores ini- can set the standard for all stores, while Since he’s gotten here, he’s leapt our talent pressing the advantages we have, and con- and Customs Compliance tiative. The year 2000 LIMITED DISTRIBUTION SERVICES The first, because results do matter, was to unlocking huge additional profitability. So agenda ahead by years. Moving, seemingly, centrating on growing the brands. That’s is when the rubber make more money. much so, I’m demanding it become a pri- in ten directions at once. His impact has the exciting part, growing brands. Using the entire arsenal of tools at our dispos- oritized performance objective for every been immediate, dramatic, effective, and al, from stores, to e-commerce, to catalogue, to get to the future. It’s exciting. meets the road.” I wanted to keep the double-digit momen- CEO, CFO, head designer, store executive, much appreciated by all. And it’s fun. tum going in IBI, and have every fashion and marketing manager. Everyone. brand profitable in fall ’99. My personal goal Len is helping to make what has always As you well know, we’ve made a lot of promises over the past five years. Promises Last, and maybe most important, is talent. been a very good place to work, a great was a minimum of a 40% increase in earnings. about shifting to brands, building the talent, developing capability, narrowing place to be. And he’s just one of many, our focus, improving performance, and creating shareholder value. Promises And we exceeded it. Without talent, nothing gets done. And many executives and associates whose that all of us here, collectively, made. To which I will only humbly add, promises our stated mission, to build a family of the impact is being felt at every level. made, promises kept. I want to thank my associate partners for all of the extra My personal goal for 2000? Do it again. world’s best fashion brands, requires effort it took to fulfill those promises. superb talent at every level. This is a changed business. Sincerely, We set and aligned the priorities of the enterprise, concentrating on doing a few So, if you’re a shareholder, let me be clear: Dramatically changed. Changed for the things well. And only a few. What is each Over the past three years, The Limited, better. Changed in virtually every way. Leslie H. Wexner brand best at? How can they win? Does Inc. has promoted and hired more top tal- One where every brand position gets Theo Killion Vice President of Human Resources Chairman and everyone know? Who are our best people? ent, in more disciplines, making more stronger, more focused, and, hopefully, Stores Operations Chief Executive Officer THE LIMITED, INC. Are we giving them the tools and measures significant contributions, than at any time more profitable every quarter. We’re 0 8 LT D A R 9 9 9 9 A R LT D 0 9
  • STRUCTURE, the leading men’s- only specialty retailer in the country, designs and sells classically inspired sportswear with a rugged fashion appeal for men in their 20’s and 30’s. 1 0 LT D A R 9 9 9 9 A R LT D 1 1
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  • “This past year has been spectacular. It is amazing to have so many people so quickly get behind new ideas and new ways of working, at every level. We have an attentive and vibrant retail audience, and our customers are all over our new ideas as fast as we can get them in the stores. This is what makes every day exciting. We have a lot of fun.” We’ve been involved in a number of BRAND BUILDING INITIATIVES STRUCTURE cut its operating loss by was down significantly throughout the 75% in 1999, the largest dollar improve- fall season, and the focus was on getting AND STRATEGIES that have impacted all areas of the business and ment among the apparel brands. This in and out of seasons earlier. improvement was primarily driven by The result was dramatically lower the progress of our brands. A summary of 1999 follows. higher gross margin, a result of disci- carryover inventory and higher gross plined inventory management. margins. Best at Pants “Must Win” Stores Program Structure continued to focus its efforts Structure has identified 110 “Must Win” on providing the most complete offering branded stores for peak performance. of casual fashion and basic pants for Stores have been reorganized to focus Andrew Maag men. In 1999, Structure launched the on the “Must Win” strategy, a priority Vice President, Design “X” pant, a proprietary line of draw- for 2000. STRUCTURE string pants. Over one million pairs of “X” pants were sold in 1999, and addi- Talent tional styles will be introduced in 2000. Structure hired David Lawn as EVP, General Merchandise Manager, and also reorganized merchandising and hired a new Merchandise Manager for the Disciplined Inventory Management “Best at Pants” category. Under the direction of Andrew Maag, VP, Design, Structure significantly altered its the design department reorganized, hiring senior designers in knits, inventory management strategy in sweaters, and accessories, and added additional talent in pants. 1999. Inventory per square foot at cost 1 4 LT D A R 9 9 9 9 A R LT D 1 5
  • From every angle, EXPRESS is a fashion leader. International, innovative, sexy, strong. A modern women’s brand that delivers runway style, virtu- ally as it heads down the runway. Great design. Well priced. That’s Express. 1 6 LT D A R 9 9 9 9 A R LT D 1 7
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  • “Our #1 objective was to ‘win at’ denim in the fall season. Through distortion of time and talent, we succeeded in helping that department achieve the strongest volume and margin results in the history of Express.” EXPRESS, our most profitable apparel nationwide. Express will continue to brand, improved operating income in invest in denim and underwear in 2000. 1999 and delivered a 5% comparable store sales increase on top of a 16% Brand Top Stores in Top Markets gain in 1998. As of year-end 1999, Express had recol- ored and remodeled over 300 critical Fashion stores to brand-right design. These 300 Express has developed a unique fashion stores included the top ten markets and pyramid to ensure an appropriate mix all the “Must Win” locations. Conversion Heidi Popadych Director, Store Planning and of fashion basics, current fashion, and drove incremental volume and above- Allocation fast fashion merchandise. The mix hurdle returns. EXPRESS builds a foundation for sustained sales growth and increased margin opportu- Fit and Quality Standards nity. The biggest merchandising suc- 1999 saw major improvements in fit and quality standards. Express reviewed cesses in 1999 were denim, woven its vendor base and made consolidations and improvements as needed. A pants, and activewear. In addition, an manufacturing manual instituting brand standards across the board was underwear campaign was launched established. 2 0 LT D A R 9 9 9 9 A R LT D 2 1
  • Hot fashion, star power, sizzling brands. LANE BRYANT’s sportswear line, Venezia Jeans Clothing Co., and sexy new intimates line, Cacique, set the standard in hip fashion for women size 14+. 2 2 LT D A R 9 9 9 9 A R LT D 2 3
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  • “We have worked very hard to relentlessly focus on our ‘best at’ businesses of sweaters and knit tops. Both businesses have com- pletely transitioned to teams of specialists, through MPR. Today, we have the best talents in these businesses. Merchants, designers, production, and plan- ning are working hand- in-hand to achieve common goals. We are delivering better fashion, in a timely manner, at great value to our customers, and we are very proud of it.” (MPR). A Vice President of Product LANE BRYANT is the dominant specialty Development, Karen Tweedie, was hired. retailer in the plus-size market. In 1999, Leveraging talent resources in design Lane Bryant achieved a comparable and production allows Lane Bryant to store sales increase of 5% and deliv- be first to market in delivering fashion ered more profit to the bottom line to its customer. through improved gross margin. Fleet Reconfiguration Intimate Apparel A combination of opening new stores, In February 2000, Lane Bryant held the remodels, and store closings resulted in first lingerie fashion show for plus-size productivity increases and a better- women, featuring a number of celebrity branded fleet in 1999. In 2000, Lane models. The show generated great Bryant will open approximately 25 new excitement and publicity for the inti- strip center locations, a real estate mate apparel line, which was launched Mary Kwan format that has proven to be very nationwide. Lane Bryant achieved Executive Vice President successful for the brand. double-digit comparable store sales in General Merchandise Manager for Sportswear, Ready-to-Wear and intimate apparel for the past two years, Accessories Communicating with the Customer and will continue to invest in the LANE BRYANT One million new names were added to Cacique intimate apparel line in 2000. the customer database as a result of celebrity model campaigns, New York fashion shows, print advertising, Talent direct mail prospecting, the Web site, and the recently introduced quar- In 1999, Lane Bryant continued the roll- terly magalogue. out of Merchandise Process Redesign 2 6 LT D A R 9 9 9 9 A R LT D 2 7
  • Under the New York & Company brand, LERNER NEW YORK has redefined competitively priced fashion. Modern, city hip, energetic, NY&CO is fashion with an attitude. 2 8 LT D A R 9 9 9 9 A R LT D 2 9
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  • “This past year was one “This year, after seven of the most rewarding years with Lerner New for me since joining the York, I was excited to company in 1991. We be promoted to manage were challenged by our the Staten Island store, leaders to be the best the #1 volume store in again, to align our- our chain. I was also selves as a team and proud of the fact that to focus on our #1 my entire management priority—the customer. team at Steinway Street Through the empower- was promoted behind ment and education of me, knowing that I had our people, we were hired and trained each able to significantly associate in that store.” impact our business and share many wins together. In addition to being a shareholder of The Limited, Inc., I am thankful for the per- LERNER NEW YORK turned in a 12% under the NY&CO brand. Lerner New York sonal satisfaction I increase in comparable store sales in will continue to clearly communicate the have enjoyed and the Virtual Stretch Program THE LIMITED cut its operating loss in 1999, the highest of the apparel brands. brand’s fashion key items in windows, The Virtual Stretch System is a collection half in 1999, a result of a 5% increase in Gross margin and operating profit also outfits, and advertising. The “WOW!” professional growth I of related separates for the Modern comparable store sales, significantly improved dramatically. promotional strategy, which is the peri- have experienced as a American Woman, including jackets, improved gross margin, and expense odic promotion of fashion-right key Debbie Cavello sales leader.” skirts, pants, and tops with a decidedly savings resulting from the closure of Build the NY&CO Brand items, reinforced the brand promise of “Must Win” Store Manager chic feel. Virtual Stretch represented over 100 unproductive stores. The NY&CO store design, which debuted fashion-quality-value and drove total Staten Island over 20% of sales volume in 1999 and is at the Lloyd Center in Portland, Oregon store traffic. LERNER NEW YORK projected to increase significantly in Continued Focus on “Must Win” Stores and the Mall of Georgia, near Atlanta, 2000. Remarkable for a category that did Program created a new environment that conveys Successfully Execute the “Must Win” Stores Program not exist in 1998. Our “Must Win” program includes 140 the energy and excitement of the brand. Lerner New York’s focus will be on increasing productivity through invento- locations and will represent 50–55% of New, bolder brand imaging, including ry priority and enhanced marketing to ensure this group of stores leads the Continued Focus on Fit and Quality Upgrades sales. The Limited held weekly sales powerful photography and dynamic win- brand. Lerner New York will also focus on customer service; having stores The Limited’s goal is to double the pants meetings with all regional and district dow and point-of-sale displays, focused that provide brand-appropriate customer service that highlights ease of business in 2000. Quality upgrades are managers and “Must Win” sales man- on fashion. Direct mail programs included self-service and friendly, speedy transactions for busy customers. specifically directed toward consistent fit agers which focused on reviewing aggressive, focused prospecting to and quality in pants. To accomplish this results, developing strategies, and increase the customer base. Develop Flexible Manufacturing Capability goal, a manual of manufacturing stan- driving sales. The main objective is to A long-term global sourcing strategy supports the brand requirements of dards has been implemented to which all create a sales culture that validates the Fashion fashion, quality, value, and flexibility and provides a framework for supply sourcing partners must adhere. brand and generates customer loyalty. Lerner New York’s merchandising team chain management. The development of “chase” scenarios for key items and Lisa Dunaway For 1999, the “Must Win” program of President Richard Crystal, VP of categories ensures a quick reaction to shifting trends and business needs. “Must Win” Store Manager resulted in a double-digit comparable Design Charlotte Neuville, and GMM Increased partnership with key suppliers will ensure a better understand- Las Vegas store sales spread between the “Must Jackie Corso produced an exciting, ing of business needs on both sides. THE LIMITED Win” stores and the balance of the chain. focused merchandise assortment 3 2 LT D A R 9 9 9 9 A R LT D 3 3
  • THE LIMITED brand designs sophisticated sports- wear for the Modern American Woman, who wants accessible feminine fashion at a great value. 3 4 LT D A R 9 9 9 9 A R LT D 3 5
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  • HENRI BENDEL’s Fifth Avenue store, a premier destination Windows One of Manhattan’s most beautiful and and New York City landmark, produced a comparable Henri Bendel’s windows featured unique, enticing displays, store sales increase of 7% in 1999. including interactive and live-action windows, and guest window designers. fashionable shopping environments, Merchandising Henri Bendel continued to redirect and strengthen its Events HENRI BENDEL’s Fifth Avenue store is a merchandising strategy to reflect its target customer. Henri Bendel also increased the visibility of the store through high-profile on-site events, including: InStyle Henri Bendel also focused on young and emerging designer Beauty Issue parties; Little Black Dress party with Vogue; talent to separate itself from the competition. mecca for modern, sophisticated, higher- Cruel Intentions movie premiere; Catherine boutique launch party with Manhattan File; Trudie Styler book sign- Advertising ing party with Harper’s Bazaar ; Girls’ Nite event series; Henri Bendel increased the visibility of the store through income, thirty-something women from all regional buys in targeted high-profile advertising vehicles, and the Möet & Chandon Designer Debut party in conjunc- including InStyle, Harper's Bazaar, and Vogue, and also tion with Seventh On Sixth. In addition to enticing targeted over the world. increased its presence in New York magazine. potential customers to the store, these events generated press coverage and created positive energy and “buzz.” 3 8 LT D A R 9 9 9 9 A R LT D 3 9
  • “Lane Bryant has had “LTD has narrowed its What others are saying... business scope substan- one of the most striking tially in the past five years “4Q/99 Results Blow “The Limited’s credibility with investors turnarounds in retailing from 12 retail businesses Away Expectations.” has increased dramatically over the to five. Simultaneously past two years, as the company has .…Congratulations on a Thomas Filandro, J.P. Morgan, 2/23/00 the company has made made good on its promise to increase shareholder value by having spun off the transition to central- stunning show!”Tobé Abercrombie & Fitch and Limited Too; Report, 2/17/00 ized functions of fully sold off noncore assets; and utilized integrated design, pro- cash to repurchase shares.” duction, and merchant “This new design team has given the Lerner [New York] store chain a strong point Richard Baum, Credit Suisse First Boston, 9/22/99 teams. These initiatives of view, as well as a consistency of product offerings.”Barbara Wyckoff, Buckingham Research, 11/8/99 have created a ‘best “In what is turning out to be the practices’ platform for “It’s 6 p.m. on a weeknight and the Express store on Madison Avenue is turnaround story of the year, each business and have crowded with twenty-something shoppers fawning over the embroidered Limited, Inc., whose subsid- enabled division leaders jeans and ankle-length skirts. ‘I was walking by and the stuff in the window to focus more clearly on iaries include Express, Lane caught my eye,’ said Missy Patel. ‘I’m shocked at how cool everything is. brand positioning.” Bryant and Lerner [New York] I haven’t shopped here in years.’ Yes, this is the same Express that only Thomas Filandro, J.P. Morgan, 11/24/99 three years ago fashion watchers and Wall Street analysts were calling and which owns [over] 80% of an almost-dead retail chain.” Associated Press/Chicago Tribune, 8/15/99 Intimate Brands, parent of Victoria’s Secret, posted an impressive companywide gain of 12%.”The New York Times, 9/3/99 “Clearly, throughout the past two years, Limited has built a powerhouse team of proven retail executives from Banana Republic, Estée Lauder, J. Crew, “The Limited remains committed to increasing shareholder value, including an Liz Claiborne, Macy’s, Talbot’s, Pillsbury, etc. And now it appears that the ongoing commitment to improving the apparel business.”Mark Friedman, Merrill Lynch, 2/22/00 fruits of the labor of putting together these top executives has paid off.” Steve Kernkruat, Bear Stearns, 2/23/00 “…a dramatic rethinking of strategy at the company….The first “Inventory Religion Pays Off.” is a new focus on shareholder value…”Dana Eisman Cohen, Donaldson, Lufkin & Jenrette, 8/19/99 Harry Ikenson, Chase H&Q, 2/22/00 4 0 LT D A R 9 9 9 9 A R LT D 4 1
  • The Limited, Inc. owns approximately 84% of INTIMATE BRANDS, Inc. (NYSE:IBI). IBI is the leading specialty retailer of lingerie and personal care products, sold through the Victoria’s Secret, Bath & Body Works, and White Barn Candle Company brands. Because of the relationship between The Limited, Inc. and Intimate Brands, Inc., one that gives Limited, Inc. shareholders a stake in this dynamic business, I thought you might want to read my letter from the IBI annual report. Dear Partner – With all the talk about technology, the Web, clicks vs. bricks, Finally, a major reason for a lot of people to log on to the Web. etc., it’s interesting to note what Adweek named the Internet A big audience. Real content. It was, perhaps, the most tangible marketing event of 1999: February’s Victoria’s Secret Fashion demonstration, yet, of what the Internet could be. And the Show. And why not? reason it was such a success? The power of the brand. The glob- al impact of Victoria’s Secret made the event come alive in a way 1.5 million people watched the show live on the Web. 500 mil- nothing else could. And Victoria’s Secret is just part of the com- lion hits during the week. The number one most visited site for pelling brand story that is your company, Intimate Brands. the month. The biggest live Web event. Ever. The Webcast was a prelude to another very good year. In a Technology meets fashion. And the results are astonishing. string of continuing good years. With 21% earnings per 4 2 LT D A R 9 9 9 9 A R LT D 4 3
  • VICTORIA’S SECRET is the world’s most recognized brand of elegant intimate apparel and personal care products for women. Victoria’s Secret is available through stores, catalogue, and online at www.VictoriasSecret.com. 4 4 LT D A R 9 9 9 9 A R LT D 4 5
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  • share growth, on $4.5 billion in volume. progress. Powerful performance. So, the obvious question, Then, so is White Barn Candle Company. Good. That was the goal. “Embracing the new role when confronted with numbers like these, is “just how White Barn began as a sub-brand in Bath & of merchant has meant At IBI, we place a premium on growth. And we’ve delivered much soap and shampoo can you sell?” My answer is Body Works. Candles and home fragrance We’ve worked diligently to integrate every moving from a product sustainable, predictable growth, by every metric. billions. Billions and billions. Because, it isn’t just about under the White Barn label. A way to test the aspect of the brand, ensuring the sum of development role, to soap and shampoo. It’s about body care. And cosmetics. And market potential for a separate business. the whole is greater than the parts. a new analytical role, Victoria’s Secret and Bath & Body Works show the kind of aromatherapy. It’s about home fragrance, candles, and that allowed me to strong, sustained performance that virtually defines the anti-bacterial products. Bath & Body Works for women. And And it worked. Today, across every channel, stores, cata- rigorously test and model for growth brands. With profit, once again, increasing children. And men. It touches, or can touch, virtually every logue, and e-commerce, there are tight as a percentage of sales. segment of personal care products that a family can buy. It’s So we began to test the concept of White brand standards with no shortcuts, no validate my market- not about soap. It’s about lifestyle. And about a powerful Barn Candle Company stores. And that’s compromise. Products are launched at place instincts. My Still, the potential of Intimate Brands is, I believe, far emotional connection to the brand. worked too. the same time, in the same way, with the new role includes three greater than even what we’ve achieved to date. same quality, at the same price. Same, disciplines: competitive Bath & Body Works has earned credibility as a brand, crucial By year-end, we’ll have 125 White Barn same, same. Today, we think of ourselves intelligence, client Because, this is a business about “next.” The next soap. The to the success of personal care products. More important, Candle Company stores and, within the as a 360-degree brand. One position. One intimacy, and fashion next bra. The next fragrance. The next big thing. it’s earned the loyalty of its customers, who chose BBW next three years, 275. We believe there voice. Anytime. Anyplace. Worldwide. radar. Using these tools, Christmas gift baskets eight million times last holiday sea- can be a White Barn virtually everywhere Period. The end. I was able to identify a So, what’s next? son, while stuffing tens of millions more BBW products into there is a BBW. With similar productivity, significant opportunity gift boxes or Christmas stockings. margin characteristics, and potential Forty-seven weeks of national television in Let’s start with Bath & Body Works. Let me remind you, this sales growth. Clearly, a wonderful busi- 2000. Over 100 pages of national magazine in cotton foundations. business began about ten years ago. We initially believed When you think enough of a brand to choose it for family ness. Clearly, just the beginning. advertising. 36 billion catalogue pages. Teaming with design, stores could average about $500,000 each, or $500 million and friends, that’s customer loyalty. A powerful, pervasive The Victoria’s Secret brand is in front of directing our team, in annual sales on a thousand-store base. brand. And, by the way, customer loyalty can be measured in Now, to Victoria’s Secret. millions of customers every day, making a and partnering with financial terms. Both in margin. And in footfall. To be clear, multitude of positive impressions. Victoria’s Secret We were a little off. I believe that wherever there is footfall, from malls to strip Five years ago, Victoria’s Secret Stores Catalogue, we delivered centers, to smaller cities to airports, even to hospitals, Bath and Catalogue ran two very independent We believe that Victoria’s Secret, already the outstanding results.” In the past fall season alone, Bath & Body Works’ sales & Body Works can perform profitably. I now believe the businesses. Little coordination of styles dominant lingerie brand in America, has approached $1 billion. Just six months. And, in the aggre- domestic potential for BBW exceeds 2,000 stores. And or marketing. Little effort to interact or the potential, with its abundant credibility gate, we have sold over $5 billion in personal care products. that’s not all. connect on their shared brand. and momentum, to be the global lingerie Amazing growth. Amazing success. A wonderful brand. brand. There appears to be no upper limit. We know there are also multiple distribution channels for Each a good business, but, beyond Why? I believe the key is that, from its inception, the BBW BBW. We’ve tested a catalogue, or magalogue, that we believe sharing a name, no brand connection, or Victoria’s Secret Stores led the way with team has approached the business as a completely inte- is a brand-right business extension. And it works. Doing brand standards. another excellent year. The VSS team has grated brand. Everyone, and everything, connects to their business, while driving customers to stores, and advertising fully integrated top-tier design, produc- integrated brand approach. The brand evokes a strong emo- the brand. An excellent vehicle. All that’s changed. Victoria’s Secret has tion, merchant, and marketing talent, and tional response. It is delivered with quality and consistency. made enormous strides. In sales. Profit their results have been impressive. It gets trial and repeat purchase. The entire team “lives the So, we’ll continue to refine and expand our magalogue this margin. Customer awareness. And brand Sustained product launches like Body by brand,” brainstorming new products, talking to customers, year, and then establish a brand-right e-commerce Web site integration. Victoria, the Miracle Bra, Angels, Body Kristine Bokariza-Martin testing, refining. in the next 12 to 18 months. And we’ll certainly leverage the Flex, Desire, Cotton Lingerie, and Body Director, Merchandise Manager Cotton Foundations e-commerce knowledge and experience gained at IBI to Researchers who chart this sort of thing say Bare continue to ring up sales and drive VICTORIA’S SECRET STORES IBI became a public company in 1995. BBW’s sales, for the accelerate the BBW site and grow the brand. they’ve never seen the kind of growth in customers to the brand. At the same time, previous year, were $260 million in just over 300 stores. In positive brand penetration and customer the business continues to take the neces- 1999, sales exceeded $1.5 billion, in 1,214 stores. Great All good news. perception we’ve experienced. sary steps to position itself for the long > 58 4 8 LT D A R 9 9 9 9 A R LT D 4 9
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  • BATH & BODY WORKS offers healthy, natural, good-for-you personal care products from America’s Heartland. 5 4 LT D A R 9 9 9 9 A R LT D 5 5
  • Launched in November 1999, WHITE BARN CANDLE COMPANY has the potential to become as vivid and powerful a brand as Bath & Body Works. 06 LT D A R 9 9 5 0 LT D A R 9 9 9 9 A R LT D 0 0 9 9 A R LT D 5 7
  • < 49 When she was a young girl, Marian Wright “We were able to open term. Relentlessly attacking every area to Heavenly is one of them. Edelman, founder of the Children’s Defense get it to “next.” Preparing the organization 7 stores in 10 days, Fund, was told by her father that helping others for growth. And populating it with talent. We believe the potential for the Victoria’s which is incredible. is simply the “rent we pay for living.” We agree. Secret Beauty business is well in excess of The 3-week new hire Giving back has always been an important part of In addition, the Catalogue’s strategy to $1 billion. With excellent margins. And the way we do business. Knowing that our management training produce fewer, better books has proved it’s just the beginning of the potential, the associates, our businesses, and The Limited, program empowered correct. Larger books, stronger images, “what’s next,” in the beauty category’s Inc./Intimate Brands, Inc. Foundation are our managers to do more powerful, differentiated photogra- future. The very reason we established the sources of good in our communities fills us with their job well, right respect for each other and pride in our phy, all help to position the brand. Plus, Intimate Beauty Corporation last year. accomplishments. out of the gate. It we’ve upgraded the merchandising talent to ensure the fashion is consistent with There is, in truth, awesome potential, or gives our associates Our businesses and our Foundation form bonds the aspiration. The right thing to do. “next,” in every part of the Intimate who go through the with local organizations to address the most Brands businesses. That’s what makes program a great deal Our e-commerce site, already one of the them so exciting. of confidence in them- philanthropy most popular and, more important, profit- selves, and in the able, in all e-tailing, has processed orders I’d like to close this letter by going full brand. It’s something from over 160 countries. And, we feel we circle, back to the Victoria’s Secret Fashion I’m incredibly proud of are just beginning to market the site, and Show. Several months ago, we got a call on both a personal and the brand, internationally. from Miramax Films, inviting us to take professional level.” the show to Cannes, to benefit amfAR’s Which leads me to Victoria’s Secret Beauty. Cinema Against AIDS. We were happy to accept. We expect that, with our partici- In the past year, the VSB team examined pation, the event will raise a dramatic We want to make every home a loving and healthy variety of companies. This free public service important issues impacting our communities the entire business, paring back some amount of money for research. A power- home for all children. Following the success of the helps women restore their appearance and confi- every day. Our associates across the country – categories, while eliminating others ful brand, doing powerful good. The right Columbus Coalition Against Family Violence in dence, arming them for the fight against cancer. from New York to New Mexico – also act as 1998, we were instrumental in forming the sources of good, with their own generous contri- entirely. At the same time, they began to thing to do. Central New Mexico Task Force Against Family To be a family of the world’s best fashion brands, we butions of time and money. develop and introduce more brand-right Violence in 1999. This coalition of employers and know The Limited, Inc. and Intimate Brands, Inc. products. The first significant introduc- We are at the beginning of a major global community and political leaders has hosted must attract, retain, and effectively lead a diverse To be effective requires focus. While we support tion was the Dream Angels Heavenly presence, for brands with major global employer training sessions and well-attended workforce. One example of our commitment to dozens of programs around the country, our phi- prestige fragrance collection. potential. Populated by talented associ- forums to address the impact of violence on chil- diversity is our long-standing and growing part- lanthropy efforts concentrate on four issues, ates who pursue growth, and the future, dren, the workplace, and society and offer the nership with the United Negro College Fund – in including some that are of particular interest to Introduced in the fall of 1999, Heavenly with passion. I want to thank them for Pati Kunerth-Crowley community a multifaceted approach for the pre- underwriting UNCF events and contributing in women, our primary customers and associates: District Sales Manager quickly sold out, and should annualize at their hard work. Their passion translates vention and resolution of domestic violence. support of service and scholarships. This national fostering better education, working to support BATH & BODY WORKS over $100 million. It could well end up to results. organization has provided support to more than children and families, investing in health care, Our support of the “Look Good…Feel Better” 300,000 students educated by the 39 small, his- and promoting diversity. being the biggest fragrance launch in histo- program in New York City, created in partnership torically black member colleges and universities. ry. Good initial work, a strong result. And, a with the American Cancer Society, gives women So much hinges on education: progress, change, powerful example of what can happen when Sincerely, undergoing chemotherapy and radiation the tools We hope our involvement with these, and many understanding, and potential. It is an investment talented people touch an astonishingly they need to cope with changes in their appear- other tremendously worthwhile issues, encour- with unlimited payback. This year, 600 of our powerful brand. ance – sometimes as difficult to handle as the ages you to pledge your time and dollars as well. associates have committed their time as reading Leslie H. Wexner disease itself. Our financial support helps women You just might consider it your share of the “rent.” tutors and mentors to more than 300 kinder- By the way, we’ve enclosed some coupons in Chairman and receive training sessions with volunteer cosme- garten students in the Columbus Public Schools this report for you to sample our products. Chief Executive Officer tologists and personal care products from a through our ColumbusReads program. 5 8 LT D A R 9 9 9 9 A R LT D 5 9
  • OPERATING RESULTS EXPRESS 1999 1998 1997 EXPRESS Sales (millions) $1,399 $1,356 $1,189 1999 1998 1997 Comparable Store Sales 5% 16% (15%) Comparable store sales increase (decrease) Sales per Average Selling Square Foot $313 $293 $251 Apparel businesses 6% 5% (7%) From every angle, Express is a fashion leader. International, innovative, sexy, Intimate Brands Number of Stores 12% 5% 11% 688 702 753 strong. A modern women’s brand that delivers runway style, virtually as it Total Limited, Inc. 9% 6% 0% heads down the runway. Great design. Well priced. That’s Express. Net sales (millions) Apparel businesses $4,785 $4,668 $4,484 Intimate Brands 4,511 3,886 3,618 Other 427 793 1,087 LERNER NEW YORK 1999 1998 1997 Total Limited, Inc. $9,723 $9,347 $9,189 LERNER NEW YORK Sales (millions) Adjusted operating income (millions) A $1,013 $940 $946 Apparel businesses $132 $(45) $34 Comparable Store Sales 12% 5% (5%) Intimate Brands 794 671 563 Sales per Average Selling Square Foot $211 $176 $162 Under the New York & Company brand, Lerner New York has redefined Other (36) 17 2 Number of Stores 594 643 746 competitively priced fashion. Modern, city hip, energetic, NY&C0 is fashion Total Limited, Inc. $890 $643 $599 with an attitude. Number of stores Apparel businesses 2,912 3,158 3,445 Intimate Brands 2,110 1,890 1,710 Other 1 334 485 Total Limited, Inc. 5,023 5,382 5,640 LANE BRYANT 1999 1998 1997 Retail selling square feet (thousands) LANE BRYANT Sales (millions) $934 $933 $907 Apparel businesses 17,091 18,517 20,105 Comparable Store Sales 5% 5% 1% Intimate Brands 6,466 5,794 5,328 Other 35 2,005 2,967 Sales per Average Selling Square Foot $272 $257 $235 Hot fashion, star power, sizzling brands. Lane Bryant’s sportswear line, Total Limited, Inc. 23,592 26,316 28,400 Number of Stores 688 730 773 Venezia Jeans Clothing Co., and sexy new intimates line, Cacique, set the Adjusted net income per share A $1.93 $1.35 $1.25 standard in hip fashion for women size 14+. Retail sales per average selling square foot Apparel businesses $263 $238 $219 Intimate Brands $602 $558 $532 THE LIMITED 1999 1998 1997 YEAR-END POSITION THE LIMITED Sales (millions) $715 $757 $776 (Millions except financial ratios) Comparable Store Sales 5% 1% (7%) 1999 1998 % Change Sales per Average Selling Square Foot $233 $211 $200 Total assets $4,088 $4,550 (10%) The Limited brand designs sophisticated sportswear for the Modern American Working capital $1,008 $1,127 (11%) Number of Stores 443 551 629 Woman, who wants accessible feminine fashion at a great value. Current ratio 1.8 2.0 Long-term debt $400 $550 (27%) Debt-to-equity ratio 19% 25% Shareholders’ equity $2,147 $2,167 (1%) Adjusted return on average shareholders’ equity A 21% 15% Adjusted return on average assets A 10% 7% STRUCTURE 1999 1998 1997 STRUCTURE Sales (millions) $617 $610 $660 Comparable Store Sales 4% (8%) (3%) QUARTERLY RESULTS Sales per Average Selling Square Foot $301 $286 $310 (Millions) Structure, the leading men’s-only specialty retailer in the country, Number of Stores 499 532 544 Apparel Businesses Intimate Brands Total Limited, Inc. designs and sells classically inspired sportswear with a rugged 1999 1998 % Change 1999 1998 % Change 1999 1998 % Change fashion appeal for men in their 20’s and 30’s. Sales First Quarter $1,063 $973 9% $878 $771 14% $2,105 $2,008 5% Second Quarter 1,078 1,058 2% 1,017 875 16% 2,268 2,083 9% Third Quarter 1,170 1,135 3% 814 709 15% 2,064 2,000 3% INTIMATE BRANDS 1999 1998 1997 Fourth Quarter 1,474 1,502 (2%) 1,802 1,531 18% 3,286 3,256 1% INTIMATE BRANDS Total Year $4,785 $4,668 3% $4,511 $3,886 16% $9,723 $9,347 4% Sales (millions) $4,511 $3,886 $3,618 Adjusted operating income A Comparable Store Sales 12% 5% 11% First Quarter $1 $(20) n/m $95 $81 17% $89 $64 39% Sales per Average Selling Square Foot $602 $558 $532 The Limited, Inc. owns approximately 84% of Intimate Brands, Inc. Second Quarter (11) (51) n/m 156 129 21% 139 81 72% Number of Stores 2,110 1,890 1,710 Third Quarter (NYSE: IBI). IBI is the leading specialty retailer of lingerie and personal care 23 (1) n/m 72 70 3% 90 75 20% Fourth Quarter 119 27 n/m 471 391 20% 572 423 35% products, sold through the powerful Victoria’s Secret, Bath & Body Works, Total Year $132 $(45) n/m $794 $671 18% $890 $643 38% and White Barn Candle Company brands. A Adjusted amounts exclude special items and reflect the Limited Too spin-off and the Abercrombie & Fitch split-off as if they had occurred on February 2, 1997. See the “Other Data” section on pages 68 and 69 for a discussion of the impact of these items on annual earnings. n/m not meaningful perating results and year-end position 6 0 LT D A R 9 9 9 9 A R LT D 6 1
  • the limited inc 1999 financials 64 financial summary 65 management’s discussion and analysis 72 consolidated statements of income and consolidated statements of shareholders’ equity 73 consolidated balance sheets 74 consolidated statements of cash flows 75 notes to consolidated financial statements 81 market price and dividend information 81 report of independent accountants 82 company information 6 2 LT D A R 9 9 9 9 A R LT D 6 3
  • FINANCIAL SUMMARY MANAGEMENT’S DISCUSSION AND ANALYSIS The following summarized financial data compares 1999 to the comparable periods for 1998 (Thousands except per share amounts, ratios and store and associate data) and 1997 (millions): Results of Operations % Change Net sales for the fourth quarter were $3.287 billion in 1999 and $3.256 billion Summary of Operations 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 A A ABE A B E Net Sales 1999 1998 1997 1999-98 1998-97 in 1998. Comparable store sales increased 5% for the quarter. Gross income Net sales $9,723,334 $9,346,911 $9,188,804 $8,644,791 $7,881,437 $7,320,792 $7,245,088 $6,944,296 $6,149,218 $5,253,509 $4,647,916 Express $1,399 $1,356 $1,189 3% 14% increased 12% to $1.306 billion in the fourth quarter of 1999 from $1.171 bil- Gross income $3,357,477 $2,971,260 $2,795,482 $2,480,457 $2,076,702 $2,108,280 $1,958,835 $1,990,740 $1,793,543 $1,630,439 $1,446,635 Lerner New York 1,013 940 946 8% (1%) lion in 1998 and operating income increased to $608.9 million from $444.2 Operating income C C C C C C $920,640 $2,424,373 $469,499 $635,767 $611,849 $796,189 $701,556 $788,698 $712,700 $697,537 $625,254 Lane Bryant 934 933 907 0% 3% million in 1998. Net income was $316.5 million in the fourth quarter of 1999 Operating income Limited Stores 715 757 776 (6%) (2%) as a percentage of sales C C C C C C versus $228.2 million in 1998, and earnings per share were $1.41 versus $0.97 9.5% 25.9% 5.1% 7.4% 7.8% 10.9% 9.7% 11.4% 11.6% 13.3% 13.5% Structure 617 610 660 1% (8%) Net income D D D D D D D in 1998. In the fourth quarter, operating income included the reserve reversal $460,759 $2,046,494 $211,653 $434,088 $961,210 $446,543 $390,999 $455,497 $403,302 $398,438 $346,926 Other (principally Mast) 107 72 6 n/m n/m Net income as a of $36.6 million in downsizing costs that were initially recognized as special Total apparel businesses $4,785 $4,668 $4,484 3% 4% percentage of sales D D D D D D D 4.7% 21.9% 2.3% 5.0% 12.2% 6.1% 5.4% 6.6% 6.6% 7.6% 7.5% and nonrecurring charges to operating income in 1997 (see Note 2 to the Victoria’s Secret Stores 2,138 1,829 1,702 17% 7% Per Share Results Consolidated Financial Statements). Bath & Body Works 1,550 1,272 1,057 22% 20% Basic net income D D D D D D D $2.10 $8.50 $.78 $1.55 $2.69 $1.25 $1.09 $1.26 $1.12 $1.11 $.97 Net sales for the year increased 4% to $9.723 billion in 1999 from $9.347 bil- Victoria’s Secret Catalogue 799 759 734 5% 3% Diluted net income D D D D D D D $2.00 $8.29 $.77 $1.54 $2.68 $1.25 $1.08 $1.25 $1.11 $1.10 $.96 lion in 1998. Gross income increased 13% to $3.357 billion in 1999 from Other (principally Gryphon) A125 24 26 n/m n/m Dividends $.60 $.52 $.48 $.40 $.40 $.36 $.36 $.28 $.28 $.24 $.16 $2.971 billion in 1998 and operating income was $920.6 million in 1999 versus Total Intimate Brands $4,511 $3,886 $3,618 16% 7% Book value $9.99 $9.56 $7.28 $6.90 $8.86 $7.56 $6.82 $6.25 $5.19 $4.33 $3.45 $2.424 billion in 1998. Net income for 1999 was $460.8 million, or $2.00 per Henri Bendel B 40 39 83 (3%) (52%) Weighted average diluted share, compared to $2.046 billion, or $8.29 per share, last year. Galyan’s (through August 31, 1999) 165 220 160 n/m 38% shares outstanding 227,782 246,319 274,483 282,053 358,371 358,601 363,234 363,738 363,594 362,044 361,288 There were a number of items in 1999 and 1998 that impacted the compa- TOO (through August 23, 1999) 223 377 322 n/m 17% Other Financial Information rability of the Company’s results. See the “Other Data” section on pages 68 and A&F (through May 19, 1998) – 156 522 n/m n/m Total assets $4,087,689 $4,549,708 $4,300,761 $4,120,002 $5,266,563 $4,570,077 $4,135,105 $3,846,450 $3,418,856 $2,871,878 $2,418,486 69 for a discussion of the impact of these items on annual earnings. Total net sales $9,723 $9,347 $9,189 4% 2% Return on average assets D D D D D D D 11% 46% 5% 9% 20% 10% 10% 13% 13% 15% 15% Business highlights for 1999 include the following: • Working capital $1,008,071 $1,126,875 $1,001,348 $711,661 $1,962,260 $1,693,911 $1,513,181 $1,063,352 $1,084,205 $884,004 $685,524 Intimate Brands, Inc. (“IBI”) reported sales of $4.511 billion in 1999, a 16% Operating Income Current ratio 1.8 2.0 2.0 1.9 3.3 3.0 3.1 2.5 3.1 2.8 2.4 increase from $3.886 billion in 1998. IBI’s operating income increased 18% to Apparel businesses $132 $(45) $34 393% (232%) Capital expenditures $375,405 $347,356 $362,840 $361,202 $374,374 $319,676 $295,804 $429,545 $523,082 $428,844 $318,427 $793.5 million in 1999 from $670.8 million in 1998 and earnings per share Intimate Brands 794 671 563 18% 19% Long-term debt $400,000 $550,000 $650,000 $650,000 $650,000 $650,000 $650,000 $541,639 $713,758 $540,446 $445,674 increased 21% to $1.81 in 1999 from $1.49 in 1998. Other (29) 58 98 n/m n/m • Debt-to-equity ratio 19% 25% 33% 35% 21% 24% 27% 24% 38% 35% 36% Sales at Bath & Body Works, Intimate Brands’ fastest growing business, grew Subtotal 897 684 695 31% (2%) Shareholders’ equity $2,147,077 $2,166,959 $1,985,765 $1,869,127 $3,147,706 $2,704,756 $2,441,293 $2,267,617 $1,876,792 $1,560,052 $1,240,454 22% in 1999 to $1.550 billion. Operating income grew 24%. Sales at the Special and nonrecurring items D E F 24 1,740 (226) Return on average Victoria’s Secret brand, encompassing Victoria’s Secret Stores, Victoria’s Secret Total operating income $921 $2,424 $469 shareholders’ equity D D D D D D D 21% 99% 11% 17% 33% 17% 17% 22% 23% 28% 32% Beauty and Victoria’s Secret Catalogue, grew 13% to $2.937 billion in 1999. • Comparable store The apparel businesses demonstrated strong progress in 1999 with an A Includes Cacique sales prior to its closing effective January 31, 1998. sales increase (decrease) 9% 6% 0% 3% (2%) (3%) (1%) 2% 3% 3% 9% B improvement in operating income of $92.5 million in the fourth quarter and Five of six Henri Bendel stores were closed during the period February 1998 through July 1998. Stores and Associates at End of Year D 1999 special and nonrecurring items: 1) a $13.1 million charge for transaction costs related to the TOO spin-off; $176.9 million for the year. Operating income improved at each apparel Total number of stores open 5,023 5,382 5,640 5,633 5,298 4,867 4,623 4,425 4,194 3,760 3,344 and 2) the reserve reversal of $36.6 million related to downsizing costs for Henri Bendel. These special items relate business. • Retail selling square feet 23,592,000 26,316,000 28,400,000 28,405,000 27,403,000 25,627,000 24,426,000 22,863,000 20,355,000 17,008,000 14,374,000 to the “Other” category. For apparel, gross margin as a percentage of sales improved by more than 4% Number of associates 114,600 126,800 131,000 123,100 106,900 105,600 97,500 100,700 83,800 72,500 63,000 E 1998 special and nonrecurring items: 1) a $1.651 billion tax-free gain on the split-off of A&F; 2) a $93.7 million gain of sales in 1999. This improvement was driven by improved merchandise mar- from the sale of the Company’s remaining interest in Brylane; and 3) a $5.1 million charge for severance and other gins and buying and occupancy expense leverage. A Includes the results of the following companies disposed of up to their separation date: 1) Limited Too effective August 23, 1999; 2) Galyan’s effective August 31, 1999; 3) Abercrombie & Fitch (“A&F”) effective May 19, 1998; • associate termination costs related to the closing of Henri Bendel stores. These special items relate to the “Other” In August 1999, the Company completed the spin-off of Limited Too 4) Alliance Data Systems effective January 31, 1996; and 5) Brylane, Inc. effective August 31, 1993. category. (“TOO”) to Limited shareholders, and a third party purchased a 60% majority B Includes the results of Galyan’s and Gryphon subsequent to their acquisitions on July 2, 1995 and June 1, 1991. F 1997 special and nonrecurring items: 1) an $89.0 million charge for the apparel businesses related to asset interest in Galyan’s Trading Co. (“Galyan’s”). C Operating income includes the effect of special and nonrecurring items of $23,501 in 1999, $1,740,030 in 1998 and ($213,215) in 1997 (see Note 2 to the Consolidated Financial Statements), ($12,000) in 1996, $1,314 in 1995 and impairment and the closing and downsizing of certain stores; 2) a $67.6 million charge for Intimate Brands related $2,617 in 1993. Inventory liquidation charges of ($13,000) related to Henri Bendel store closings are also included in 1997. to the closing of the Cacique business (effective January 31, 1998); and 3) a $107.4 million charge related to the D In addition to the items discussed in C above, net income includes the effect of the following gains: 1) $11,002 related to Galyan’s in 1999; 2) $8,606 related to Brylane, Inc. in 1997; 3) $118,178 related to A&F in 1996; closing of five of six Henri Bendel stores, $62.8 million of income related to the gain from the sale of 4) $649,467 related to Intimate Brands, Inc. in 1995; and 5) $9,117 related to United Retail Group in 1992. approximately one-half of the Company’s interest in Brylane (net of $12.5 million in valuation adjustments on E Fifty-three-week fiscal year. investments) and a $12.0 million write-down of a real estate investment to net realizable value, all of which relate to the “Other” category. Additionally, includes a $13.0 million inventory liquidation charge associated with the Henri Bendel closings. n/m not meaningful 6 4 LT D A R 9 9 9 9 A R LT D 6 5
  • Net Sales store sales. Bath & Body Works led IBI with sales increasing 20% to $1.272 bil- Full Year The following summarized financial data compares 1999 to the comparable periods for 1998 and 1997: Fourth Quarter lion. The sales increase was primarily attributable to the net addition of 140 In 1999, the general, administrative and store operating expense rate increased Net sales of $3.287 billion for the fourth quarter of 1999 increased 1% over new stores (319,000 retail selling square feet) and a 7% increase in comparable to 25.3% from 24.5% in 1998. The rate increase was primarily attributable to Comparable Store Sales 1999 1998 1997 1998. A comparable store sales increase of 5% was partially offset by the loss store sales. Victoria’s Secret Stores’ sales increased 7% to $1.829 billion. The a rate increase at IBI due to investment in national advertising for Victoria’s Express 5% 16% ( 15%) of sales from TOO and Galyan’s and the net closure of stores in the apparel sales increase was primarily attributable to a 4% increase in comparable store Secret and additional store staffing for product extensions and new initiatives Lerner New York 12% 5% (5%) businesses. sales and the net addition of 40 new stores (147,000 retail selling square feet). in Victoria’s Secret Stores, and a lack of expense leverage and investments in Lane Bryant 5% 5% 1% At IBI, net sales for the fourth quarter of 1999 increased 18% to $1.802 bil- Victoria’s Secret Catalogue’s sales increased 3% to $759 million in 1998, brand building activities at the apparel businesses. Limited Stores 5% 1% (7%) lion from $1.531 billion in 1998. The increase was due to an 11% increase in primarily due to a response rate increase for the year. In 1998, the general, administrative and store operating expense rate Structure 4% (8%) (3%) comparable store sales, the net addition of 220 new stores and a 12% increase In 1998, the apparel businesses reported a retail sales increase of 3% to increased to 24.5% from 23.0% in 1997. The rate increase was primarily attrib- Total apparel businesses 6% 5% (7%) in catalogue sales. At the apparel retail businesses, net sales for the fourth quar- $4.596 billion from $4.478 billion in 1997. Sales increased $167 million at utable to: 1) a rate increase at IBI due to investment in national advertising Victoria’s Secret Stores 12% 4% 11% ter of 1999 decreased 3% to $1.434 billion from $1.486 billion in 1998. The Express, primarily driven by a comparable store sales increase of 16%. for Victoria’s Secret and additional store staffing for product extensions and Bath & Body Works 11% 7% 11% overall 1% increase in comparable store sales at the apparel businesses was Comparable store sales at Lerner New York and Lane Bryant increased 5%. The new initiatives in Victoria’s Secret Stores; 2) the inability to leverage these Total Intimate Brands A 12% 5% 11% offset by a net closure of 246 stores. effect of these increases on total sales was partially offset by an 8% comparable expenses at the apparel businesses due to disappointing sales performance; Henri Bendel 7% (12%) (13%) Net sales of $3.256 billion for the fourth quarter of 1998 were essentially flat store sales decrease at Structure, and the net reduction of 287 apparel stores 3) compensation charges for restricted stock plans; and 4) Year 2000 informa- Galyan’s (through August 31, 1999) 9% 5% 0% compared to 1997 sales of $3.268 billion. A comparable store sales increase of (1.6 million retail selling square feet), principally due to closures of underper- tion technology costs. TOO (through August 23, 1999) 9% 15% 20% 6% was offset by the loss of sales from Abercrombie & Fitch (“A&F”). forming locations. A&F (through May 19, 1998) – 48% 21% Special and Nonrecurring Items At IBI, net sales for the fourth quarter of 1998 increased 10% to Total comparable store sales 9% 6% 0% Gross Income $1.531 billion from $1.397 billion in 1997. Excluding the impact of closing During 1999, the Company recognized a $13.1 million charge for transaction Cacique, net sales grew 12%. The net sales increase, excluding Cacique, was costs related to the TOO spin-off and a $36.6 million reserve reversal related to Fourth Quarter A Includes Cacique sales prior to closing effective January 31, 1998. primarily due to an 8% increase in comparable store sales, the net addition of The fourth quarter of 1999 gross income rate (expressed as a percentage of costs for downsizing Henri Bendel store space in New York (see Note 2 to the 180 new stores and a 6% increase in catalogue sales. At the apparel retail busi- sales) increased to 39.7% from 36.0% for the same period in 1998. The rate Consolidated Financial Statements). % Change nesses, net sales for the fourth quarter of 1998 increased 1% to $1.486 billion increase was principally due to an increase in the merchandise margin rate and On May 19, 1998, the Company completed a tax-free exchange offer to estab- Store Data 1999 1998 1997 1999-98 1998-97 from $1.470 billion in 1997. The overall 5% increase in comparable store sales a slight decrease in the buying and occupancy expense rate. The increase in the lish A&F as an independent company. A total of 47.1 million shares of the Retail sales increase (decrease) at the apparel businesses was partially offset by a net closure of 287 stores. merchandise margin rate was primarily attributable to improved inventory Company’s common stock were exchanged at a ratio of 0.86 of a share of A&F attributable to net new management and merchandising strategies. The buying and occupancy expense common stock for each Limited share tendered. In connection with the Full Year and remodeled stores Net sales for the year were $9.723 billion in 1999 compared to $9.347 billion in rate decrease was a result of sales leverage at IBI and the positive impact of clos- exchange, the Company recorded a $1.651 billion tax-free gain. This gain (1998 change excludes impact of closing Cacique) 1998. Sales increased due to a 9% comparable store sales increase, partially off- ing unprofitable, low productivity stores at the apparel businesses. was measured based on the $43 5/8 per share market value of the A&F common Apparel businesses (4%) (3%) (1%) set by the loss of sales from disposed businesses and the net closure of stores in The fourth quarter of 1998 gross income rate increased to 36.0% from 35.2% stock at the expiration date of the exchange offer. The remaining 3.1 million Intimate Brands 7% 7% 14% the apparel segment. Disposed businesses negatively impacted sales growth for the same period in 1997. The rate increase was principally due to a decrease A&F shares were distributed through a pro rata spin-off to Limited Retail sales per average due to the loss of: 1) A&F sales subsequent to the May 19, 1998 split-off; 2) TOO in the buying and occupancy expense rate as a result of sales leverage at IBI and shareholders. selling square foot sales after its August 23, 1999 spin-off; and 3) Galyan’s sales following the third the benefit from store closings at the apparel businesses. Also during 1998, the Company recognized a gain of $93.7 million from the Apparel businesses $263 $238 $219 11% 9% party purchase of a 60% majority interest effective August 31, 1999. sale of its remaining interest in Brylane. This gain was partially offset by a $5.1 Full Year Intimate Brands $602 $558 $532 8% 5% In 1999, IBI sales increased 16% to $4.511 billion, due to a 12% increase in In 1999, the gross income rate increased to 34.5% from 31.8% in 1998. The million charge, in accordance with Emerging Issues Task Force (“EITF”) Issue Retail sales per average comparable store sales, the net addition of 220 new stores and a 5% increase in rate increase was due to an increase in the merchandise margin rate and No. 94-3, “Liability Recognition for Certain Employee Termination Benefits,” store (thousands) catalogue sales. Bath & Body Works led IBI with sales increasing 22% to a decrease in the buying and occupancy expense rate. The increase in the mer- for severance and other associate termination costs related to the closing of five Apparel businesses $1,541 $1,392 $1,276 11% 9% $1.550 billion. The sales increase was primarily attributable to the net addition chandise margin rate was primarily attributable to improved inventory man- of six Henri Bendel stores. The severance charge was paid in 1998. Intimate Brands $1,844 $1,723 $1,661 7% 4% of 153 new stores (398,000 retail selling square feet), as well as an 11% increase agement and merchandising strategies at the apparel businesses. The buying As a result of a plan adopted in connection with a 1997 review of the Average store size at end in comparable store sales. Victoria’s Secret Stores’ sales increased 17% to and occupancy expense rate decrease was a result of sales leverage at IBI and the Company’s retail businesses and investments as well as implementation of ini- of year (retail selling square feet) $2.138 billion. The sales increase was primarily attributable to a 12% increase benefit from store closings at the apparel businesses. tiatives intended to promote and strengthen the Company’s various retail Apparel businesses 5,869 5,863 5,836 0% 0% in comparable store sales and the net addition of 67 new stores (274,000 retail In 1998, the gross income rate increased to 31.8% from 30.4% in 1997. The brands (including closing businesses, identification and disposal of non-core Intimate Brands 3,064 3,066 3,116 0% (2%) selling square feet). Victoria’s Secret Catalogue’s sales increased 5% to $799 rate increase was due to an increase in the merchandise margin rate and assets and identification of store locations not consistent with a particular Retail selling square feet at million in 1999. The sales increase was attributable to an increased response a decrease in the buying and occupancy expense rate. The gains in the mer- brand), the Company recognized special and nonrecurring charges of end of year (thousands) rate, higher sales per catalogue page and increased Internet sales through chandise margin rate were due to an increase at IBI (the apparel businesses $276 million during the fourth quarter of 1997 comprised of: Apparel businesses • 17,091 18,517 20,105 (8%) (8%) www.VictoriasSecret.com. experienced a decline). The buying and occupancy expense rate declined at IBI A $68 million charge for the closing of the 118-store Cacique lingerie busi- Intimate Brands 6,466 5,794 5,328 12% 9% In 1999, the apparel businesses reported a retail sales increase of 2% to as a result of sales leverage. The buying and occupancy expense rate also ness effective January 31, 1998. The amount was comprised of write-offs and $4.678 billion from $4.596 billion in 1998. The sales increase was primarily declined at the apparel businesses due to sales leverage at Express and the liquidations of store assets and accruals related to cancellations of merchandise Number of Stores due to a 6% comparable store sales increase. All apparel businesses reported a benefit from store closings at the apparel businesses. on order and other exit costs such as severance, service contract termination Beginning of year 5,382 5,640 5,633 comparable store sales increase, led by Lerner New York, which reported an fees and lease termination costs. Opened • 295 251 315 General, Administrative and Store Operating Expenses increase of 12%. The effect of these increases on total sales was partially offset An $82 million charge related to streamlining the Henri Bendel business Closed (301) (350) (190) by the net closure of 246 apparel stores (1.4 million retail selling square feet), from six stores to one store (the five stores were closed by August 1, 1998), Fourth Quarter Businesses disposed of or closed principally due to closures of underperforming locations. The fourth quarter of 1999 general, administrative and store operating expense write-offs of store assets, and accruals for contract cancellations and lease ter- Galyan’s (18) – – Net sales for the year were $9.347 billion in 1998 and $9.189 billion in 1997. rate (expressed as a percentage of sales) of 22.3% was flat compared to last year. mination costs. TOO (335) – – • A 6% comparable store sales increase was partially offset by the loss of A&F The improved expense leverage at IBI was offset by a lack of expense leverage An $86 million impaired asset charge related to the apparel businesses and A&F – (159) – sales following the May 19, 1998 split-off and by a net reduction in stores. and investments in brand building activities at the apparel businesses. Henri Bendel, covering certain store locations where the carrying values were Cacique – – (118) Excluding A&F activity prior to the split-off, the Company added 246 new The fourth quarter of 1998 general, administrative and store operating permanently impaired. End of year 5,023 5,382 5,640 • stores, remodeled 125 stores and closed 348 underperforming stores, 125 of expense rate increased to 22.3% from 21.6% for the same period in 1997. The A $28 million accrual for closing and downsizing oversized stores, primarily which were closed at or near year-end. This net reduction of 102 stores repre- rate increase was attributable to: 1) a rate increase at IBI driven by investment within the Limited Stores, Lerner New York, Lane Bryant and Express sents approximately 850,000 retail selling square feet. in national advertising for Victoria’s Secret; 2) a lack of expense leverage at businesses. • In 1998, IBI sales increased 7% to $3.886 billion, due to the net addition of Limited Stores and Structure; and 3) costs of direct mail and other targeted A $12 million write-down to net realizable value of a real estate investment 180 stores (466,000 retail selling square feet) and a 5% increase in comparable marketing efforts at the apparel businesses. previously acquired in connection with closing and downsizing certain stores. 6 6 LT D A R 9 9 9 9 A R LT D 6 7
  • The $276 million special and nonrecurring charge was made up of the fol- Management believes the presentation below provides a reasonable basis on results determined in accordance with generally accepted accounting princi- Full Year lowing components: 1) asset write-downs of $67 million, all of which were In 1999, the operating income rate was 9.5% versus 25.9% in 1998. Excluding which to present the adjusted income information. Although the adjusted ples, it is provided to assist in investors’ understanding of the Company’s taken in 1997; 2) impaired asset charges of $86 million, all of which were taken special and nonrecurring items in both years, the operating income rate was income information should not be construed as an alternative to the reported results of operations. in 1997; 3) other liabilities such as severance and cancellations of merchandise 9.2% in 1999 versus 7.3% in 1998. The rate improvement was primarily driven on order of $16 million, all of which were paid in 1998; and 4) store closing and by the gross income rate increase of 2.7% which more than offset an increase in Adjusted Income Information lease termination liabilities of $107 million, of which $21 million and $32 mil- the general, administrative and store operating expense rate. The majority of (Thousands except per share amounts) lion were paid in 1999 and1998. the operating income rate increase resulted from gross margin improvement at 1999 1998 1997 The above plan included $36.6 million in charges related to downsizing the the apparel businesses. As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted As Reported Adjustments As Adjusted existing Henri Bendel store space in New York. The execution of the plan to In 1998, the operating income rate was 25.9% versus 5.1% in 1997. Net sales $9,723,334 $(223,377) $9,499,957 $9,346,911 $(533,278) $8,813,633 $9,188,804 $(843,767) $8,345,037 downsize the New York store was primarily based on negotiations with the orig- Excluding special and nonrecurring items in both years and the Henri Bendel Gross income 3,357,477 (74,985) 3,282,492 2,971,260 (182,156) 2,789,104 2,795,482 (283,327) 2,512,155 inal landlord. However, a change in landlords ultimately resulted in the termi- inventory liquidation charge in 1997, the operating income rate was 7.3% General, administrative and nation of negotiations during the fourth quarter of 1999, which prevented the in 1998 versus 7.6% in 1997. In 1998, significant gains in the operating income store operating expenses (2,460,338) 68,014 (2,392,324) (2,286,917) 141,271 (2,145,646) (2,112,768) 199,905 (1,912,863) successful completion of the original plan. As a result, the Company reversed rate at IBI were offset by a lower operating income rate at the apparel Special and nonrecurring items, net 23,501 (23,501) – 1,740,030 (1,740,030) – (213,215) 213,215 – the $36.6 million liability through the special and nonrecurring items businesses. Operating income improvement at Express was more than offset by Operating income 920,640 (30,472) 890,168 2,424,373 (1,780,915) 643,458 469,499 129,793 599,292 classification. an operating loss at Structure in 1998 (compared to a modest profit in 1997) Interest expense (78,297) – (78,297) (68,528) – (68,528) (68,728) – (68,728) Other than the reversal of the $36.6 million reserve, no amounts related to and a significant increase in the operating loss at Limited Stores. Other income, net 51,037 – 51,037 59,265 – 59,265 36,886 – 36,886 the above plan were reversed or recorded to operating income during Minority interest (72,623) – (72,623) (63,616) 1,180 (62,436) (55,610) 493 (55,117) Interest Expense 1999 or 1998. Gain on sale of subsidiary stock 11,002 (11,002) – – – – 8,606 (8,606) – As of January 29, 2000, the Company had remaining restructuring liabilities In 1999, the Company incurred $20.9 million and $78.3 million in interest Income before income taxes 831,759 (41,474) 790,285 2,351,494 (1,779,735) 571,759 390,653 121,680 512,333 of $17.5 million related to the 1997 plan. This liability relates principally to expense for the fourth quarter and year, compared to $19.3 million and Provision for income taxes 371,000 (26,200) 344,800 305,000 (51,200) 253,800 179,000 48,100 227,100 future payments and estimated settlement amounts for store closings and $68.5 million in 1998 for the same periods. These increases were primarily the Net income $460,759 $(15,274) $445,485 $2,046,494 $(1,728,535) $317,959 $211,653 $73,580 $285,233 downsizings and will continue until final payments to landlords are made, cur- result of increased borrowing levels. For the year, the impact of the increased Earnings per share $2.00 $1.93 $8.29 $1.35 $0.77 $1.25 rently scheduled through the year 2011. Unless settlements with landlords borrowing levels was partially offset by a lower average effective interest rate. Weighted average shares outstanding 227,782 227,782 246,319 232,481 274,483 227,408 occur before the end of such lease periods, completion will run the full lease Fourth Quarter Year Notes to Adjusted Income Information term. In determining the provision for lease obligations, the Company consid- 1999 1998 1999 1998 1997 A) Excluded businesses ered the amount of time remaining on each store’s lease and estimated the Average daily TOO and A&F results were excluded in determining adjusted results for all years presented because these businesses have not been consolidated in the Company’s financial statements subsequent to their spin-off on August 23, 1999 amount necessary for either buying out the lease or continuing rent payments borrowings (millions) $968.6 $898.0 $969.6 $808.2 $835.9 (TOO) and split-off on May 19, 1998 (A&F). The captions affected by this presentation were net sales, gross income and general, administrative and store operating expenses. Additionally, minority interest was adjusted for the minor- through lease expiration. Average effective ity interest in earnings of A&F for the periods presented. The provision for income taxes was adjusted as described below (see item C). The $86 million of impairment charges reduced depreciation by approxi- interest rate 8.65% 8.60% 8.08% 8.48% 8.22% B) Special items mately $18 million in 1999 and 1998 and will have a similar impact in 2000. The The following special items were excluded in determining adjusted results: Cacique business had a pretax operating loss of $17 million in 1997, its last year A In 1999, the Company reversed a $36.6 million reserve related to downsizing costs for Henri Bendel. The Company also recognized an $11.0 million gain from the purchase by a third party of a 60% majority interest in Galyan’s Other Income of operations. Partially as a result of closing five of six locations, Henri Bendel’s and a $13.1 million charge for transaction costs related to the TOO spin-off. In 1999, the Company earned $13.5 million and $51.0 million in interest pretax operating loss improved by approximately $9 million in 1998 versus A In 1998, the Company recognized a $1.651 billion tax-free gain on the split-off of A&F, a $93.7 million gain from the sale of the Company’s remaining interest in Brylane and a $5.1 million charge for severance and other associate income for the fourth quarter and year, compared to $15.0 million and 1997, excluding reduced depreciation from the impairment charge. termination costs at Henri Bendel. A $59.3 million in 1998 for the same periods. These decreases were due to lower Additionally, the Company recognized a $13 million cost of sales charge in In 1997, the Company recognized a $276 million charge related to implementation of initiatives to strengthen the Company’s various retail brands, a $62.8 million net gain related to the sale of one-half of the Company’s invest- ment in Brylane, a $13.0 million Henri Bendel inventory liquidation charge and an $8.6 million gain in connection with the IPO of Brylane. interest rates on 1999 balances and lower average invested cash balances, prin- the fourth quarter of 1997 for inventory liquidation charges at Henri Bendel in C) Provision for income taxes cipally due to the impact of a $750 million share repurchase, net of proceeds accordance with EITF Issue No. 96-9, “Classification of Inventory Markdowns The tax effect of these adjustments was calculated using the Company’s overall effective rate of 40%. Additionally, the Company’s $11.0 million pretax gain from the purchase by a third party of a 60% majority interest in Galyan’s in from the Galyan’s sale of $182 million and the TOO spin-off of $62 million (see and Other Costs Associated with a Restructuring.” 1999 resulted in a $6.0 million provision for taxes, and the revised tax basis of the Company’s remaining investment in Galyan’s resulted in an additional $7.0 million deferred tax expense. the “Liquidity and Capital Resources” section included herein). The Company recognized a net $62.8 million gain during the third quarter of D) Weighted average shares outstanding 1997 related to the sale of approximately one-half of its investment in Brylane. Total weighted average shares outstanding were reduced as of the beginning of 1997 by the 47.1 million Limited shares tendered in the A&F split-off transaction. Gain on Sale of Subsidiary Stock This gain was net of $12.5 million in valuation adjustments on certain assets As discussed in Note 1 to the Consolidated Financial Statements, effective where the carrying values were permanently impaired. August 31, 1999, a third party purchased a 60% majority interest in Galyan’s. Operating Income As a result, the Company recorded a pretax gain on sale of subsidiary stock of $11 million, offset by a $6 million provision for taxes. In addition, the revised Fourth Quarter The fourth quarter of 1999 operating income rate (expressed as a percentage of tax basis of the Company’s remaining investment in Galyan’s resulted in an sales) increased to 18.5% compared to 13.6% in 1998. Excluding the special additional $7 million deferred tax expense. and nonrecurring item in 1999, the fourth quarter operating income rate During the first quarter of 1997, the Company recognized a gain of $8.6 mil- increased to 17.4% in 1999 from 13.6% in 1998. The rate improvement was lion in connection with the initial public offering (“IPO”) of Brylane. primarily driven by gross margin improvement at the apparel businesses. Other Data The fourth quarter of 1998 operating income rate was 13.6% versus 5.1% in 1997. Excluding special and nonrecurring items and the Henri Bendel invento- There were a number of significant transactions and events in 1999, 1998 and ry liquidation charge in 1997, the fourth quarter operating income rate was 1997 that impacted the comparability of the Company’s results. These items are 13.6% in 1998 versus 14.0% in 1997. Significant gains in fourth quarter oper- more fully described in the “Special and Nonrecurring Items” section included ating income at IBI were offset by the loss of operating income from A&F after herein and in Note 2 to the Consolidated Financial Statements. its May 19, 1998 split-off and lower operating income at the apparel retail busi- The following adjusted income information gives effect to: 1) the spin-off of nesses. Strong results at Express were more than offset by a significant fourth TOO on August 23, 1999 and the split-off of A&F on May 19, 1998, as if they quarter operating loss at Structure (which had an operating profit in 1997). occurred on February 2, 1997; and 2) the special items described in the Notes Additionally, lower profitability levels at Lerner New York and Lane Bryant also to Adjusted Income Information. impacted the apparel businesses’ fourth quarter results. 6 8 LT D A R 9 9 9 9 A R LT D 6 9
  • FINANCIAL CONDITION lower in 1999 than 1998 because of lower fall inventories at the apparel In connection with the split-off of A&F, the Company paid $47.6 million to investments in intellectual property assets. Capital expenditures in 1997 businesses, including the impact of closed stores. The decrease in income tax settle its intercompany balance at May 19, 1998. included $30.2 million related to construction of the Bath & Body Works The Company’s balance sheet at January 29, 2000 provides continuing evidence accruals from 1998 primarily relates to a $112 million payment of taxes and At January 29, 2000, the Company had available $1 billion under its long-term distribution center. of financial strength and flexibility. The Company’s long-term debt-to-equity interest in 1999 related to an Internal Revenue Service assessment. credit agreement. Borrowings outstanding under the agreement are due The Company anticipates spending $475 to $500 million for capital ratio declined to 19% at the end of 1999 from 25% in 1998 and working capital The changes in cash provided by operating activities in 1998 compared to 1997 September 28, 2002. However, the revolving term of the agreement may be expenditures in 2000, of which $375 to $400 million will be for new stores and decreased 11% to $1.008 billion in 1999 from $1.127 billion in 1998, primarily primarily related to an increase in inventories and an increase in income tax extended an additional two years upon notification by the Company, subject to the for remodeling of and improvements to existing stores. Remaining capital due to an increase in the current portion of long-term debt. A more detailed accruals as the level of tax payments decreased from 1997. approval of the lending banks. The Company also has the ability to offer up to expenditures are primarily related to information technology, the Company’s discussion of liquidity, capital resources and capital requirements follows. $250 million of additional debt securities under its shelf registration statement. distribution centers and investments in intellectual property assets. Investing Activities The Company expects that substantially all 2000 capital expenditures will be STORES AND RETAIL SELLING SQUARE FEET Liquidity and Capital Resources In 1999, investing activities included the following: 1) $351.6 million decrease funded by net cash provided by operating activities. Cash provided by operating activities, commercial paper backed by funds in restricted cash related to the rescission of the Contingent Stock Redemption The Company expects to increase retail selling square footage by A summary of actual stores and retail selling square feet by business for 1999 and 1998 and the available under committed long-term credit agreements, and the Company’s Agreement; 2) $182.0 million in proceeds from the third party purchase of a 60% approximately 349,000 retail selling square feet in 2000. It is anticipated that the 2000 plan by business follows: capital structure continue to provide the resources to support current majority interest in Galyan’s and the sale of related property; 3) $375.4 million increase will result from the addition of approximately 300 stores (primarily End of Year Change From operations, projected growth, seasonal requirements and capital expenditures. in capital expenditures, $277.0 million of which was for new and remodeled within Intimate Brands), offset by the closing of 100 to 125 stores (primarily Plan 2000 1999 1998 2000-1999 1999-1998 stores; and 4) $10.6 million in net proceeds from the acquisition, development within the apparel businesses). A summary of the Company’s working capital position and capitalization follows (thousands): Express and sale of properties associated with the Easton project (see “Easton Real Stores 680 688 702 (8) (14) Easton Real Estate Investment Estate Investment” section on page 71). In 1998, major investing activities Retail selling square ft. 1999 1998 1997 4,377,000 4,429,000 4,511,000 (52,000) (82,000) included $347.4 million in capital expenditures, $236.5 million of which was for The Company’s real estate investments include Easton, a 1,200-acre planned Cash provided by Lerner New York new and remodeled stores, $131.3 million in proceeds from the sale of the community in Columbus, Ohio, that integrates office, hotel, retail, residential and operating activities $586,326 $571,014 $558,367 Stores 578 594 643 (16) (49) Company’s remaining investment in Brylane, Inc. and $31.1 million in net recreational space. The Company’s investments in partnerships, land and Working capital $1,008,071 $1,126,875 $1,001,348 Retail selling square ft. 4,392,000 4,592,000 5,000,000 (200,000) (408,000) proceeds from the acquisition, development and sale of properties associated infrastructure within the Easton property were $53.6 million at January 29, Capitalization Lane Bryant with the Easton project. 2000 and $74.6 million at January 30, 1999. Stores Long-term debt 698 688 730 10 (42) $400,000 $550,000 $650,000 In conjunction with the Easton development, the Company maintains an Retail selling square ft. Shareholders’ equity 3,392,000 3,343,000 3,517,000 49,000 (174,000) 2,147,077 2,166,959 1,985,765 Financing Activities indirect 43% operating interest in a partnership that owns the Easton Town Limited Stores Total capitalization $2,547,077 $2,716,959 $2,635,765 Financing activities in 1999 included proceeds of $300 million from floating rate Center. The Company is a co-guarantor on a $110 million loan agreement to this Stores 415 443 551 (28) (108) Additional amounts notes, $200 million of which was repaid during the year, and the repayment of partnership. The 1999 year-end loan balance was $97.1 million. Current lease Retail selling square ft. available under long-term 2,546,000 2,749,000 3,371,000 (203,000) (622,000) $100 million of term debt. The cash from the rescission of the Contingent Stock income on the Easton Town Center is sufficient to meet debt service costs on this credit agreements $1,000,000 $1,000,000 $1,000,000 Structure Redemption Agreement and other available funds were used to repurchase partnership loan. Stores 487 499 532 (12) (33) shares under a self-tender, which was funded June 14, 1999. A total of In 1999 and 1998, the Easton project was cash positive with proceeds of The Company considers the following to be appropriate measures of liquidity and capital resources: Retail selling square ft. 1,936,000 1,978,000 2,118,000 (42,000) (140,000) 15 million shares of the Company’s common stock was repurchased at $50 per $31.7 million in 1999 and $65.4 million in 1998 exceeding expenditures of Total apparel businesses 1999 1998 1997 share, resulting in a cash outflow of $750 million plus transaction costs. Cash used $21.1 million in 1999 and $34.3 million in 1998. In 1997, expenditures for the Debt-to-equity ratio 19% 25% 33% Stores 2,858 2,912 3,158 (54) (246) for financing activities in 1999 also reflected an IBI stock repurchase program Easton development totaled $41.8 million and net sales proceeds totaled (Long-term debt divided Retail selling square ft. 16,643,000 17,091,000 18,517,000 (448,000) (1,426,000) initiated during January 1999. During 1999, IBI repurchased 1.6 million shares $31.7 million. by shareholders’ equity) Victoria’s Secret Stores from its public shareholders for $62.6 million. Additionally, IBI repurchased Debt-to-capitalization ratio 16% 20% 25% Stores 971 896 829 75 67 Impact of Inflation (Long-term debt divided 8.6 million shares of its stock from The Limited at the same weighted average per Retail selling square ft. 4,270,000 3,976,000 3,702,000 294,000 274,000 by total capitalization) share price, with no net cash flow impact to The Limited. Financing activities also The Company’s results of operations and financial condition are presented Bath & Body Works Interest coverage ratio 15x 14x 14x reflected $62 million in receipts from a $50 million dividend and a $12 million based on historical cost. While it is difficult to accurately measure the impact of Stores 1,386 1,214 1,061 172 153 (Income, excluding special and nonrecurring items repayment of advances to TOO in connection with the August 23, 1999 spin-off. inflation due to the imprecise nature of the estimates required, the Company Retail selling square ft. 2,993,000 2,490,000 2,092,000 503,000 398,000 and gain on sale of subsidiary stock, before In addition, financing activities included an increase in the quarterly dividend believes the effects of inflation, if any, on the results of operations and financial Total Intimate Brands interest expense, income taxes, depreciation from $0.13 per share to $0.15 per share, which was partially offset by a lower condition have been minor. Stores 2,357 2,110 1,890 247 220 and amortization divided by interest expense) number of outstanding shares. Retail selling square ft. 7,263,000 6,466,000 5,794,000 797,000 672,000 Cash flow to capital investment 156% 164% 154% Safe Harbor Statement under the Private Securities Litigation Also, on February 22, 2000, the Company repaid the remaining $100 million Henri Bendel (Net cash provided by operating Reform Act of 1995 of floating rate notes and announced that the Board of Directors approved a Stores 1 1 1 – – activities divided by capital expenditures) $200 million stock repurchase program. The Company cautions that any forward-looking statements (as such term is Retail selling square ft. 35,000 35,000 35,000 – – The Company’s operations are seasonal in nature and consist of two principal Financing activities in 1998 reflected an increase in the quarterly dividend defined in the Private Securities Litigation Reform Act of 1995) contained in this Galyan’s selling seasons: spring (the first and second quarters) and fall (the third and to $0.13 per share from $0.12 per share that was more than offset by the Report or made by management of the Company involve risks and uncertainties Stores – – 14 – (14) fourth quarters). The fourth quarter, including the Holiday season, has reduction in shares outstanding from the split-off of A&F. Dividends for 1998 and are subject to change based on various important factors, many of which may Retail selling square ft. – – 964,000 – (964,000) accounted for 34%, 35% and 36% of net sales in 1999, 1998 and 1997. were $6.3 million less than 1997. be beyond the Company’s control. Accordingly, the Company’s future TOO Stores – – 319 – (319) Accordingly, cash requirements are highest in the third quarter as the Financing activities in 1998 also included three stock repurchases: one by the performance and financial results may differ materially from those expressed or Retail selling square ft. – – 1,006,000 – (1,006,000) Company’s inventory builds in anticipation of the Holiday season, which Company and two by IBI. First, to reduce the impact of dilution from the implied in any such forward-looking statements. The following factors, among Total retail businesses generates a substantial portion of the Company’s operating cash flow for the year. exercise of stock options, the Company used $43 million of proceeds from stock others, in some cases have affected and in the future could affect the Company’s Stores 5,216 5,023 5,382 193 (359) option exercises to repurchase 1.9 million Limited shares. Second, in a financial performance and actual results and could cause actual results for 2000 Operating Activities Retail selling square ft. 23,941,000 23,592,000 26,316,000 349,000 (2,724,000) repurchase completed in August 1998, IBI acquired 4.7 million shares of its and beyond to differ materially from those expressed or implied in any forward- Net cash provided by operating activities was $586.3 million in 1999, common stock for $106 million from its public shareholders. The repurchased looking statements included in this Report or otherwise made by management: Capital Expenditures $571.0 million in 1998 and $558.4 million in 1997 and continued to serve as the shares were specifically reserved to cover shares needed for employee benefit changes in consumer spending patterns, consumer preferences and overall Company’s primary source of liquidity. plans. Finally, in January 1999, IBI announced its intention to repurchase up to Capital expenditures amounted to $375.4 million, $347.4 million and economic conditions, the impact of competition and pricing, changes in The primary changes in cash provided by operating activities between $500 million of its common stock. As of January 30, 1999, IBI repurchased 0.4 $362.8 million for 1999, 1998 and 1997, of which $277.0 million, weather patterns, political stability, currency and exchange risks and changes in 1999 and 1998 were due to significant improvement in net income excluding million shares from public shareholders for $14.8 million. Additionally, IBI $236.5 million and $194.4 million were for new stores and for remodeling of and existing or potential duties, tariffs or quotas, availability of suitable store special and nonrecurring items and working capital changes related to repurchased 2.4 million shares from The Limited at the same weighted average improvements to existing stores. Remaining capital expenditures are primarily locations at appropriate terms, ability to develop new merchandise and ability to inventories and income taxes. The cash used for inventories was significantly per share price, which had no cash flow impact to The Limited. related to information technology, the Company’s distribution centers and hire and train associates. 7 0 LT D A R 9 9 9 9 A R LT D 7 1
  • CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED BALANCE SHEETS (Thousands except per share amounts) (Thousands) 1999 1998 1997 Net sales Assets January 29, 2000 January 30, 1999 $9,723,334 $9,346,911 $9,188,804 Costs of goods sold, occupancy and buying costs Current assets (6,365,857) (6,375,651) (6,393,322) Gross income Cash and equivalents 3,357,477 2,971,260 2,795,482 $817,268 $870,317 General, administrative and store operating expenses Accounts receivable (2,460,338) (2,286,917) (2,112,768) 108,794 77,715 Special and nonrecurring items, net Inventories 23,501 1,740,030 (213,215) 1,050,913 1,119,670 Operating income Store supplies 920,640 2,424,373 469,499 99,916 98,797 Interest expense Other (78,297) (68,528) (68,728) 169,386 140,380 Other income, net Total current assets 51,037 59,265 36,886 2,246,277 2,306,879 Minority interest Property and equipment, net (72,623) (63,616) (55,610) 1,229,612 1,361,761 Gain on sale of subsidiary stock Restricted cash 11,002 – 8,606 – 351,600 Income before income taxes Deferred income taxes 831,759 2,351,494 390,653 125,145 48,782 Provision for income taxes Other assets 371,000 305,000 179,000 486,655 480,686 Net income Total assets $460,759 $2,046,494 $211,653 $4,087,689 $4,549,708 Net income per share: Liabilities and Shareholders’ Equity Basic Current liabilities $2.10 $8.50 $0.78 Diluted Accounts payable $2.00 $8.29 $0.77 $256,306 $289,947 Current portion of long-term debt 250,000 100,000 The accompanying Notes are an integral part of these Consolidated Financial Statements. Accrued expenses 579,442 661,784 Income taxes 152,458 128,273 Total current liabilities 1,238,206 1,180,004 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Long-term debt 400,000 550,000 (Thousands) Other long-term liabilities 183,398 195,641 Common Stock Treasury Total Minority interest 119,008 105,504 Shares Retained Stock, at Shareholders’ Contingent stock redemption agreement – 351,600 Outstanding Par Value Paid-In Capital Earnings Average Cost Equity Shareholders’ equity Balance, February 1, 1997 271,071 $180,352 $142,860 $3,472,801 $(1,926,886) $1,869,127 Common stock 189,727 180,352 Net income – – – 211,653 – 211,653 Paid-in capital 178,374 157,214 Cash dividends – – – (130,472) – (130,472) Retained earnings 6,109,371 5,470,689 Exercise of stock options and other 1,729 – 5,158 – 30,299 35,457 6,477,472 5,808,255 Balance, January 31, 1998 272,800 $180,352 $148,018 $3,553,982 $(1,896,587) $1,985,765 Less: treasury stock, at average cost (4,330,395) (3,641,296) Net income – – – 2,046,494 – 2,046,494 Total shareholders’ equity 2,147,077 2,166,959 Cash dividends – – – (124,203) – (124,203) Total liabilities and shareholders’ equity $4,087,689 $4,549,708 Repurchase of common stock (1,890) – – – (43,095) (43,095) Split-off of Abercrombie & Fitch (47,075) – – (5,584) (1,766,138) (1,771,722) The accompanying Notes are an integral part of these Consolidated Financial Statements. Exercise of stock options and other 2,737 – 9,196 – 64,524 73,720 Balance, January 30, 1999 226,572 $180,352 $157,214 $5,470,689 $(3,641,296) $2,166,959 Net income – – – 460,759 – 460,759 Cash dividends – – – (130,449) – ( 130,449) Repurchase of common stock, including transaction costs (15,000) – – – (752,612) ( 752,612) Spin-off of Limited Too – – – (24,675) – ( 24,675) Rescission of contingent stock redemption agreement – 9,375 7,639 334,586 – 351,600 Exercise of stock options and other 3,392 – 13,521 (1,539) 63,513 75,495 Balance, January 29, 2000 214,964 $189,727 $178,374 $6,109,371 $(4,330,395) $2,147,077 The accompanying Notes are an integral part of these Consolidated Financial Statements. 7 2 LT D A R 9 9 9 9 A R LT D 7 3
  • CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS repairs are charged to expense as incurred. Major renewals and betterments that (Thousands) extend service lives are capitalized. Long-lived assets are reviewed for 1. Summary of Significant Accounting Policies impairment whenever events or changes in circumstances indicate that full Principles of Consolidation Operating Activities 1999 1998 1997 recoverability is questionable. Factors used in the valuation include, but are not Net income The consolidated financial statements include the accounts of The Limited, Inc. limited to, management’s plans for future operations, brand initiatives, recent $460,759 $2,046,494 $211,653 Impact of Other Operating Activities on Cash Flows (the “Company”) and all significant subsidiaries which are more than 50 operating results and projected cash flows. Depreciation and amortization 272,443 286,000 313,292 percent owned and controlled. All significant intercompany balances and Special and nonrecurring items, net of income taxes Intangible Assets (13,501) (1,705,030) 128,215 transactions have been eliminated in consolidation. The consolidated financial Minority interest, net of dividends paid 50,517 40,838 33,873 statements include the results of Abercrombie & Fitch (“A&F”) through May 19, Goodwill represents the excess of the purchase price over the fair value of the net (Gain) loss on sale of subsidiary stock, net of income taxes 2,198 – (5,606) 1998, when it was established as an independent company, Limited Too assets of acquired companies and is amortized on a straight-line basis over 30 Change in Assets and Liabilities (“TOO”) through August 23, 1999, when it was established as an independent years. Unamortized goodwill related to the $106 million IBI stock buyback in 1998 Accounts receivable (36,775) 4,704 (14,033) company, and Galyan’s Trading Co. (“Galyan’s”) through August 31, 1999, when will reverse as the shares are reissued to cover shares needed for employee Inventories (54,270) (153,667) (5,407) a third party purchased a majority interest. benefit plans. The cost of intellectual property assets is amortized based on the Accounts payable and accrued expenses (20,201) 45,580 90,061 The consolidated financial statements also include the results of Intimate sell-through of the related products, over the shorter of the term of the license Income taxes (83,637) 25,895 (149,832) Brands, Inc. (“IBI”), an 84.2%-owned subsidiary. Minority interest of $119.0 mil- agreement or the estimated useful life of the asset, not to exceed 10 years. Other assets and liabilities 8,793 (19,800) (43,849) lion and $105.5 million at January 29, 2000 and January 30, 1999, represents a Net cash provided by operating activities 586,326 571,014 558,367 Interest Rate Swap Agreements 15.8% and 15.5% interest in the net equity of IBI. Investing Activities Investments in other entities (including joint ventures) where the Company The difference between the amount of interest to be paid and the amount of Net proceeds (expenditures) related to has the ability to significantly influence operating and financial policies, interest to be received under interest rate swap agreements due to changing Easton real estate investment 10,635 31,073 (10,148) including Galyan’s for periods after August 31, 1999, are accounted for on the interest rates is charged or credited to interest expense over the life of the swap Capital expenditures (375,405) (347,356) (362,840) equity method. agreement. Gains and losses from the disposition of swap agreements are Proceeds from sale of property and related interests – – 234,976 deferred and amortized over the term of the related agreements. Net proceeds from partial sale of interest in subsidiary and investee 182,000 131,262 108,259 Fiscal Year Decrease in restricted cash 351,600 – – Income Taxes The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years Net cash provided by (used for) investing activities 168,830 (185,021) (29,753) are designated in the financial statements and notes by the calendar year in which The Company accounts for income taxes in accordance with Statement of Financing Activities the fiscal year commences. The results for fiscal years 1999, 1998 and 1997 Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Proceeds from floating rate notes 300,000 – – represent the 52-week periods ended January 29, 2000, January 30, 1999 and Taxes,” which requires the use of the liability method. Under this method, Repayment of long-term debt (300,000) – – January 31, 1998. deferred tax assets and liabilities are recognized based on the difference Repurchase of common stock, including transaction costs (752,612) (43,095) – between the financial statement carrying amounts of existing assets and Repurchase of Intimate Brands, Inc. common stock (62,639) (120,844) – Cash and Equivalents liabilities and their respective tax bases. Deferred tax assets and liabilities are Dividends paid (130,449) (124,203) (130,472) Cash and equivalents include amounts on deposit with financial institutions measured using enacted tax rates in effect in the years in which those temporary Dividend received from Limited Too 50,000 – – and money market investments with original maturities of less than 90 days. differences are expected to reverse. Under SFAS No. 109, the effect on deferred Settlement of Limited Too (1999) and Abercrombie & Fitch (1998) taxes of a change in tax rates is recognized in income in the period that includes intercompany accounts 12,000 (47,649) – Inventories the enactment date. Stock options and other 75,495 73,720 35,457 Inventories are principally valued at the lower of average cost or market, on a Net cash used for financing activities (808,205) (262,071) (95,015) Shareholders’ Equity first-in first-out basis, utilizing the retail method. Net (decrease) increase in cash and equivalents (53,049) 123,922 433,599 At January 29, 2000, 500.0 million shares of $.50 par value common stock were Cash and equivalents, beginning of year 870,317 746,395 312,796 Store Supplies authorized and 379.5 million shares were issued. At January 29, 2000 and Cash and equivalents, end of year $817,268 $870,317 $746,395 The initial inventory of supplies for new stores including, but not limited to, January 30, 1999, 215.0 million shares and 226.6 million shares were hangers, signage, security tags, packaging and point-of-sale supplies, is outstanding. Ten million shares of $1.00 par value preferred stock were In 1999, noncash financing activities included a $25 million reduction to retained earnings in connection with the spin-off of Limited Too (see Note 2) and the pro rata purchase by IBI of 8.6 million shares of its common stock from The Limited. capitalized at the store opening date. In lieu of amortizing the initial balance, authorized, none of which were issued. In 1998, noncash financing activities included the addition of $1.766 billion treasury stock as a result of the exchange of 40.5 million common shares of Abercrombie & Fitch (“A&F”) previously owned by the Company for 47.1 million shares subsequent shipments are expensed, except for new merchandise presentation On June 3, 1999, the Company completed an issuer tender offer by of common stock of the Company. Additional noncash financing activities included a $5.6 million dividend effected by a pro rata spin-off of the Company’s remaining shares of A&F (see Note 2). In 1997, noncash financing activities included programs, which are capitalized. Store supplies are periodically inventoried and purchasing 15 million shares of its common stock at $50 per share and on $2.2 million for stock issued in connection with the acquisition of Galyan’s. adjusted as appropriate for changes in supply levels or costs. May 19, 1998, the Company acquired 47.1 million shares of its common stock The accompanying Notes are an integral part of these Consolidated Financial Statements. via a tax-free exchange offer to establish A&F as an independent company Catalogue and Advertising Costs (see Note 2). Catalogue costs, primarily consisting of catalogue production and mailing costs, Revenue Recognition are amortized over the expected future revenue stream, which is principally from three to six months from the date catalogues are mailed. All other The Company recognizes retail sales at the time the customer takes possession of advertising costs are expensed at the time the promotion first appears in media merchandise — that is, the point of sale. Revenue for gift certificate sales and store or in the store. Catalogue and advertising costs amounted to $324 million, $303 credits are recognized when they are redeemed. Revenue recognition for million and $275 million in 1999, 1998 and 1997. layaway sales is deferred until final payment is made by the customer. Catalogue sales are recorded upon shipment of merchandise. A reserve is provided for Property and Equipment projected merchandise returns based on prior experience. Depreciation and amortization of property and equipment are computed for In the fourth quarter of 1999, the Company changed its accounting for gift financial reporting purposes on a straight-line basis, using service lives ranging certificates, store credits and layaway sales to the policy stated above. The principally from 10 to 15 years for building and leasehold improvements, and 3 Company filed an amended Form 10-K for fiscal year ended January 30, 1999 and to 10 years for other property and equipment. The cost of assets sold or retired restated the unaudited quarterly financial data in Note 13 to reflect this and the related accumulated depreciation or amortization are removed from the accounting change. accounts with any resulting gain or loss included in net income. Maintenance and 7 4 LT D A R 9 9 9 9 A R LT D 7 5
  • Earnings Per Share Reclassifications taken in 1997; 2) impaired asset charges of $86 million, all of which were taken At January 29, 2000, the Company was committed to noncancelable leases Net income per share is computed in accordance with SFAS No. 128, “Earnings Certain prior year amounts have been reclassified to conform with current year in 1997; 3) other liabilities such as severance and cancellations of merchandise with remaining terms generally from one to twenty years. A substantial por- Per Share.” Earnings per basic share is computed based on the weighted average presentation. on order of $16 million, all of which were paid in 1998; and 4) store closing and tion of these commitments consist of store leases with initial terms ranging number of outstanding common shares. Earnings per diluted share includes lease termination liabilities of $107 million, of which $21 million and $32 mil- from ten to twenty years, with options to renew at varying terms. 2. Special and Nonrecurring Items the weighted average effect of dilutive options and restricted stock on the lion were paid in 1999 and 1998. For leases that contain predetermined fixed escalations of the minimum weighted average shares outstanding. Additionally, earnings per diluted share On July 15, 1999, the Company’s Board of Directors approved a formal plan The above plan included $36.6 million in charges related to downsizing rentals and/or rent abatements, the Company recognizes the related rental includes the impact of the dilutive options and restricted stock at IBI as to spin-off Limited Too. The record date for the spin-off was August 11, 1999, the existing Henri Bendel store space in New York. The execution of the plan expense on a straight-line basis and records the difference between the a reduction to earnings. This resulted in a $0.02 reduction in 1999 earnings per with The Limited, Inc. shareholders receiving one share of Too, Inc. (the suc- to downsize the New York store was primarily based on negotiations with the recognized rental expense and amounts payable under the leases as deferred diluted share, a $0.01 reduction in 1998 earnings per diluted share and no cessor company to Limited Too) common stock for every seven shares of original landlord. However, a change in landlords ultimately resulted in lease credits, which are included in other long-term liabilities. At January 29, impact on the 1997 calculation. The Limited common stock held on that date. The spin-off was completed on the termination of negotiations during the fourth quarter of 1999, which 2000 and January 30, 1999, this liability amounted to $124.5 million and August 23, 1999. The Company recorded the spin-off as a $25 million dividend, prevented the successful completion of the original plan. As a result, the $139.6 million. (Thousands) which represents the carrying value of the net assets underlying the common Company reversed the $36.6 million liability through the special and nonrecur- The Company maintains an indirect 43% operating interest in a partnership stock distributed. As part of the transaction, the Company received total ring items classification. that is developing the Easton Town Center in Columbus, Ohio. The Company is Weighted Average Common Shares Outstanding 1999 1998 1997 proceeds of $62 million that included a $50 million dividend from TOO and a Other than the reversal of the $36.6 million reserve, no amounts related a co-guarantor on a $110 million loan agreement to this partnership. The 1999 Common shares issued 379,454 379,454 379,454 $12 million repayment of advances to TOO. During the second quarter of 1999, to the above plan were reversed or recorded to operating income during 1999 year-end loan balance was $97.1 million. Treasury shares (159,872) (138,547) (107,556) the Company recognized a $13.1 million charge for transaction costs related to or 1998. Basic shares (Thousands) 219,582 240,907 271,898 the spin-off. As of January 29, 2000, the Company had remaining restructuring liabilities Dilutive effect of options On May 19, 1998, the Company completed a tax-free exchange offer to estab- of $17.5 million relating to the 1997 plan. This liability relates principally to and restricted shares 8,200 5,412 2,585 Minimum Rent Commitments Under Noncancelable Leases lish A&F as an independent company. A total of 47.1 million shares of the future payments and estimated settlement amounts for store closings and Diluted shares 227,782 246,319 274,483 2000 $596,281 Company’s common stock were exchanged at a ratio of 0.86 of a share of A&F downsizings and will continue until final payments to landlords are made, cur- 2001 595,777 common stock for each Limited share tendered. In connection with the rently scheduled through the year 2011. Unless settlements with landlords 2002 552,118 The computation of earnings per diluted share excludes options with an exer- exchange, the Company recorded a $1.651 billion tax-free gain. This gain was occur before the end of such lease periods, completion will run the full lease 2003 493,065 cise price that was greater than the average market price of the common measured based on the $43 5/8 per share market value of the A&F common term. In determining the provision for lease obligations, the Company consid- 2004 432,455 stock at the expiration date of the exchange offer. In addition, on June 1, 1998, ered the amount of time remaining on each store’s lease and estimated the shares. The excluded options totaled 0.6 million, 3.2 million and 0.7 million Thereafter 1,074,838 a $5.6 million dividend was effected through a pro rata spin-off to sharehold- amount necessary for either buying out the lease or continuing rent payments shares of common stock that were outstanding at year-end 1999, 1998 and ers of the Company’s remaining 3.1 million A&F shares. Limited shareholders through lease expiration. 1997. In addition, 18.75 million shares that were previously subject to the 5. Accrued Expenses of record as of the close of trading on May 29, 1998 received .013673 of a share During the third quarter of 1997, the Company recognized a $75.3 million Contingent Stock Redemption Agreement (see Note 8) were excluded from of A&F for each Limited share owned at that time. gain in connection with the sale of 2.4 million shares of Brylane for $46 per the dilution calculation in 1998 and 1997 because their redemption would (Thousands) During the first quarter of 1998, the Company recognized a gain of $93.7 mil- share, generating cash proceeds of $108 million. This gain was partially offset not have had a dilutive effect on earnings per share. lion from the sale of 2.57 million shares of Brylane at $51 per share, represent- by valuation adjustments of $12.5 million on certain assets where the carrying Accrued Expenses 1999 1998 ing its remaining interest in Brylane. This gain was partially offset by a values were permanently impaired. Gain on Sale of Subsidiary Stock Compensation, payroll taxes and benefits $149,327 $157,785 $5.1 million charge for severance and other associate termination costs related Gains in connection with the sale of subsidiary stock are recognized in the Deferred revenue 125,500 106,900 3. Property and Equipment to the closing of five of six Henri Bendel stores. The severance charge was paid current year’s income. Taxes, other than income 46,878 46,413 in 1998. Effective August 31, 1999, an affiliate of Freeman, Spogli & Co. (together with Interest 18,053 21,057 (Thousands) As a result of a plan adopted in connection with a 1997 review of the Other Galyan’s management) purchased a 60% majority interest in Galyan’s, with the 239,684 329,629 Company’s retail businesses and investments as well as implementation of ini- Total Company retaining a 40% interest. In addition, the Company sold certain $579,442 $661,784 Property and Equipment, at Cost 1999 1998 tiatives intended to promote and strengthen the Company’s various retail property for $71 million to a third party, which then leased the property to Land, buildings and improvements $390,121 $411,483 brands (including closing businesses, identification and disposal of noncore Galyan’s under operating leases. The Company received total cash proceeds Furniture, fixtures and equipment 2,016,237 1,930,906 assets and identification of store locations not consistent with a particular from these transactions of approximately $182 million, as well as subordinated Leaseholds and improvements 498,232 563,217 brand), the Company recognized special and nonrecurring charges of $276 debt and warrants of $20 million from Galyan’s. The transactions resulted in a Construction in progress 40,237 108,478 million during the fourth quarter of 1997 comprised of: • third quarter pretax gain on sale of subsidiary stock of $11 million, offset by a Total 2,944,827 3,014,084 A $68 million charge for the closing of the 118 store Cacique lingerie busi- $6 million provision for taxes. In addition, the revised tax basis of the Less: accumulated depreciation and amortization 1,715,215 1,652,323 ness effective January 31, 1998. The amount was comprised of write-offs and Company’s remaining investment in Galyan’s resulted in an additional Property and equipment, net $1,229,612 $1,361,761 liquidations of store assets and accruals related to cancellations of merchandise $7 million deferred tax expense. During the first five years, interest (at 12% to on order and other exit costs such as severance, service contract termination 13%) on the subordinated debt may be paid in kind rather than in cash. 4. Leased Facilities, Commitments and Contingencies fees and lease termination costs. • In 1997, the Company recognized a gain of $8.6 million in connection with the An $82 million charge related to streamlining the Henri Bendel business Annual store rent is comprised of a fixed minimum amount and/or contingent initial public offering (“IPO”) of Brylane, Inc. (“Brylane”), a 26%-owned from six stores to one store (the five stores were closed by August 1, 1998), rent based on a percentage of sales exceeding a stipulated amount. Store lease (post-IPO) catalogue retailer. write-offs of store assets, and accruals for contract cancellations and lease ter- terms generally require additional payments covering taxes, common area costs mination costs. and certain other expenses. • Use of Estimates in the Preparation of Financial Statements An $86 million impaired asset charge related to the apparel businesses and The preparation of financial statements in conformity with generally accepted (Thousands) Henri Bendel, covering certain store locations where the carrying values were accounting principles requires management to make estimates and permanently impaired. • assumptions that affect the reported amounts of assets and liabilities at the date Rent Expense 1999 1998 1997 A $28 million accrual for closing and downsizing oversized stores, of the financial statements and the reported amounts of revenues and expenses Store rent primarily within the Limited Stores, Lerner New York, Lane Bryant and Express during the reporting period. Since actual results may differ from those Fixed minimum $635,543 $666,729 $714,995 businesses. • estimates, the Company revises its estimates and assumptions as new Contingent 53,371 39,642 32,918 A $12 million write-down to net realizable value of a real estate investment information becomes available. Total store rent 688,914 706,371 747,913 previously acquired in connection with closing and downsizing certain stores. Equipment and other 32,201 22,511 23,492 The $276 million special and nonrecurring charge was made up of the fol- Total rent expense $721,115 $728,882 $771,405 lowing components: 1) asset write-downs of $67 million, all of which were 7 6 LT D A R 9 9 9 9 A R LT D 7 7
  • 6. Income Taxes 8. Contingent Stock Redemption Agreement and September 7, 1999, the United States Tax Court sustained the position of the Additionally, the expense recognized from the issuance of IBI and A&F Restricted Cash IRS with respect to the 1992 year. In connection with an appeal of the Tax Court restricted stock grants impacted the Company’s consolidated results. IBI grant- (Thousands) On May 3, 1999, the Company, Leslie H. Wexner, Chairman and CEO of the judgment, the Company made a $112 million payment of taxes and interest for ed 170,000, 425,000 and 1,514,000 restricted shares in 1999, 1998 and 1997. Company, and The Wexner Children’s Trust (the “Trust”) entered into an the years 1992 to 1998 that reduced deferred tax liabilities. Management A&F granted 540,000 restricted shares in 1997. Vesting terms for the IBI Provision for Income Taxes 1999 1998 1997 agreement (the “Rescission Agreement”) rescinding the Contingent Stock believes the ultimate resolution of this matter will not have a material adverse restricted shares are similar to those of The Limited. The market value of Currently payable Redemption Agreement dated as of January 26, 1996, as amended, among the effect on the Company’s results of operations or financial condition. restricted shares is being amortized as compensation expense over the vesting Federal $389,000 $194,100 $304,300 Company, Mr. Wexner and the Trust. Pursuant to the Rescission Agreement, the period, generally four to six years. Compensation expense related to restricted State 58,000 38,800 33,800 7. Long-Term Debt rights and obligations of the Company, Mr. Wexner and the Trust under the stock awards, including expense related to awards granted at IBI (and A&F in Foreign 2,100 4,500 3,700 Contingent Stock Redemption Agreement were terminated, and the Company 1997), amounted to $28.8 million in 1999, $31.3 million in 1998 and $29.0 Total 449,100 237,400 341,800 (Thousands) utilized the $351.6 million of restricted cash to purchase shares in the million in 1997. Deferred Company’s tender offer, which expired on June 1, 1999. Federal (82,100) 53,100 (160,600) Unsecured Long-Term Debt 1999 1998 Stock Options Outstanding at January 29, 2000 The Company earned interest of $4.1 million, $17.9 million and $18.6 mil- State 4,000 14,500 (2,200) 7 1⁄2 % Debentures due March 2023 $250,000 $250,000 lion in 1999, 1998 and 1997 on the restricted cash. Total (78,100) 67,600 (162,800) 7 4⁄5 % Notes due May 2002 150,000 150,000 Options Outstanding Options Exercisable Total provision $371,000 $305,000 $179,000 Weighted 9 1⁄8 % Notes due February 2001 150,000 150,000 9. Stock Options and Restricted Stock Average Weighted Weighted 8 7⁄8 % Notes paid August 1999 – 100,000 Under the Company’s stock plans, associates may be granted up to a total of The foreign component of pretax income, arising principally from overseas Range of Remaining Average Average Floating rate notes 100,000 – 31.5 million restricted shares and options to purchase the Company’s common sourcing operations, was $41.5 million, $65.5 million and $62.3 million in Exercise Number Contractual Exercise Number Exercise 650,000 650,000 stock at the market price on the date of grant. Options generally vest 25% per 1999, 1998 and 1997. Prices Outstanding Life Price Exercisable Price Less: current portion of long-term debt 250,000 100,000 year over the first four years of the grant. Of the options granted, 2.5 million $14 - $21 8,064,000 6.6 $18 3,069,000 $18 Reconciliation Between the Statutory Federal Total $400,000 $550,000 options in 1999 and 2.3 million options in 1998 had graduated vesting sched- $22 - $26 3,571,000 7.3 $24 922,000 $23 Income Tax Rate and the Effective Tax Rate 1999 1998 1997 ules over six years. Virtually all options have a maximum term of ten years. $27 - $33 3,551,000 8.9 $32 66,000 $29 Federal income tax rate 35.0% 35.0% 35.0% Under separate IBI stock plans, IBI associates may be granted up to a total of In May 1999, the Company issued $300 million of floating rate notes, consist- $34 - $47 1,101,000 9.6 $40 – – State income taxes, net of 18.4 million restricted shares and options to purchase IBI’s common stock at ing of three individual series (Series A, B and C) of $100 million each. The notes $14 - $47 16,287,000 7.5 $24 4,057,000 $19 Federal income tax effect 4.5% 4.5% 4.5% the market price on the date of grant. As of January 29, 2000, options to pur- are senior, unsecured obligations and bear interest based on LIBOR, payable Other items, net 0.5% 0.4% 0.6% chase 7.2 million IBI shares were outstanding, of which 1.4 million options quarterly in arrears. Total 40.0% 39.9% 40.1% were exercisable. Under these plans, options generally vest over periods from The notes were originally repayable as follows: Series A due May 2000, Series Weighted Average four to six years. B due November 2000 and Series C due May 2001. However, on November Number of Option Price The Company measures compensation expense under APB Opinion No. 25, The reconciliation between the statutory Federal income tax rate and the 22,1999, the Company redeemed the Series A and Series B notes. In addition, Stock Option Activity Shares Per Share 1997 “Accounting for Stock Issued to Employees,” and no compensation expense has effective income tax rate on pretax earnings excludes the nontaxable gain on February 22, 2000, the Company redeemed the Series C notes. Accordingly, Outstanding at beginning of year 9,199,000 $19.14 been recognized for its stock option plans. In accordance with SFAS No. 123, from the split-off of A&F in May 1998, tax effects (if any) related to gains on the Series C notes are included in the current portion of long-term debt at Granted 7,331,000 20.02 “Accounting for Stock-Based Compensation,” the fair value of each option sale of subsidiary stock and minority interest. January 29, 2000. Exercised (1,377,000) 17.70 grant is estimated on the date of grant using the Black-Scholes option-pricing The Company maintains a $1 billion unsecured revolving credit agreement (Thousands) Canceled (1,083,000) 19.64 model discussed below. If compensation expense had been determined using (the “Agreement”), established on September 29, 1997 (the “Effective Date”). Outstanding at end of year 14,070,000 $19.70 the estimated fair value of options under SFAS No. 123, the pro forma effects on Borrowings outstanding under the Agreement, if any, are due September 28, Effect of Temporary Options exercisable at end of year 4,907,000 $19.89 net income and earnings per share, including the impact of options issued by 2002. However, the revolving term of the Agreement may be extended an addi- Differences That Give Rise 1999 1998 1998 IBI (and A&F in 1997), would have been a reduction of approximately tional two years upon notification by the Company on September 29, 2001, sub- to Deferred Income Taxes Assets Liabilities Total Assets Liabilities Total Outstanding at beginning of year 14,070,000 $19.70 $18.7 million or $0.08 per share in 1999, $13.9 million or $0.06 per share in ject to the approval of the lending banks. The Agreement has several borrowing Tax under book Granted 3,885,000 26.32 1998 and $11.4 million or $0.04 per share in 1997. options, including interest rates which are based on either the lender’s “Base depreciation $56,100 – $56,100 $16,300 – $16,300 Exercised (2,439,000) 18.62 The weighted average per share fair value of options granted ($11.28, $8.32 Rate,” as defined, LIBOR, CD-based options or at a rate submitted under a bid- Undistributed Canceled (593,000) 24.26 and $5.79 during 1999, 1998 and 1997) was used to calculate the pro forma ding process. Facilities fees payable under the Agreement are based on the earnings of Outstanding at end of year 14,923,000 $21.42 compensation expense. The fair value was estimated using the Black-Scholes Company’s long-term credit ratings, and currently approximate 0.1% of the foreign affiliates – $(28,100) (28,100) – $(104,900) (104,900) Options exercisable at end of year 4,454,000 $19.57 option-pricing model with the following weighted average assumptions for committed amount per annum. Special and 1999 nonrecurring items 37,100 – 37,100 63,200 – 63,200 1999, 1998 and 1997: dividend yields of 2.1%, 2.2% and 2.8%; volatility of The Agreement supports the Company’s commercial paper program, which Outstanding at beginning of year Rent 14,923,000 $21.42 54,900 – 54,900 65,300 – 65,300 32%, 29% and 27%; risk-free interest rates of 7%, 5% and 6%; assumed for- is used from time to time to fund working capital and other general corporate Granted Inventory 5,007,000 34.62 46,300 – 46,300 22,100 – 22,100 feiture rates of 20%, 20% and 15%; and expected lives of 5.2 years, 6.3 years requirements. The Agreement contains covenants relating to the Company’s Investments in Exercised (2,674,000) 18.40 and 6.5 years. The pro forma effect on net income for 1997 is not representa- working capital, debt and net worth. No commercial paper or amounts under affiliates – (37,100) (37,100) – (28,000) (28,000) Canceled (969,000) 23.89 tive of the pro forma effect on net income in future years because it does not the Agreement were outstanding at January 29, 2000 and January 30, 1999. State income Outstanding at end of year 16,287,000 $24.06 take into consideration pro forma compensation expense related to grants The Company has a shelf registration statement, under which up to $250 mil- taxes 34,000 – 34,000 27,700 – 27,700 Options exercisable at end of year 4,057,000 $19.36 made prior to 1995. lion of debt securities and warrants to purchase debt securities may be issued. Other, net 55,200 (54,800) 400 48,200 (24,400) 23,800 At January 29, 2000, the Company had an interest rate swap that effectively Total deferred Restricted Shares changed the Company’s interest rate exposure on $100 million of variable rate income taxes $283,600 $(120,000) $163,600 $242,800 $(157,300) $85,500 10. Retirement Benefits Approximately 520,000, 858,000 and 2,120,000 restricted Limited shares were debt to a fixed rate of 8.09% through July 2000. granted in 1999, 1998 and 1997, with market values at date of grant of Interest paid was $81.3 million, $68.6 million and $69.1 million in 1999, The Company sponsors a qualified defined contribution retirement plan and a $18.5 million, $27.4 million and $43.9 million. Restricted shares generally vest Income taxes payable included net current deferred tax assets of $38.5 mil- 1998 and 1997. nonqualified supplemental retirement plan. Participation in the qualified plan either on a graduated scale over four years or 100% at the end of a fixed vesting lion and $36.7 million at January 29, 2000 and January 30, 1999. is available to all associates who have completed 1,000 or more hours of service period, principally five years. In 1999 and 1997, 50,000 and 1,700,000 restrict- Income tax payments were $408.8 million, $241.7 million and $410.8 mil- with the Company during certain 12-month periods and attained the age of 21. ed shares were granted with a graduated vesting schedule over six years. lion for 1999, 1998 and 1997. Participation in the nonqualified plan is subject to service and compensation Approximately 157,000 and 685,000 restricted shares granted in 1999 and 1997 The Internal Revenue Service has assessed the Company for additional taxes requirements. Company contributions to these plans are based on a percentage include performance requirements, all of which have been met. and interest for the years 1992 to 1996 relating to the undistributed earnings of of associates’ eligible annual compensation. The cost of these plans was foreign affiliates for which the Company has provided deferred taxes. On $40.9 million in 1999, $40.4 million in 1998 and $36.4 million in 1997. 7 8 LT D A R 9 9 9 9 A R LT D 7 9
  • 11. Fair Value of Financial Instruments 13. Quarterly Financial Data (Unaudited) REPORT OF INDEPENDENT ACCOUNTANTS (Thousands) The following methods and assumptions were used to estimate the fair value of To the Board of Directors and Shareholders of The Limited, Inc. Apparel Intimate Reconciling Summarized quarterly financial results for 1999 and 1998 (thousands except per share amounts) each class of financial instruments for which it is practicable to estimate that In our opinion, the accompanying consolidated balance sheets and the related Segment Information Businesses Brands Other Items Total A value. consolidated statements of income, shareholders’ equity, and cash flows pre- 1999 1999 Quarters First Second Third Fourth sent fairly, in all material respects, the financial position of The Limited, Inc. Net sales $4,785,328 $4,510,836 $427,170 – $9,723,334 Current Assets, Current Liabilities and Restricted Cash and its subsidiaries at January 29, 2000 and January 30, 1999, and the results of Net sales $2,104,798 $2,267,821 $2,064,105 $3,286,610 Intersegment sales B 570,659 – – $(570,659) – The carrying value of cash equivalents, restricted cash, accounts receivable, their operations and their cash flows for each of the three fiscal years in the Depreciation and Gross income 653,368 727,647 670,249 1,306,213 accounts payable, current portion of long-term debt, and accrued expenses amortization period ended January 29, 2000 (on pages 72-81) in conformity with accounting 107,810 104,625 60,008 – 272,443 Net income A 45,451 57,482 41,362 316,464 approximates fair value because of their short maturity. Operating income (loss) C principles generally accepted in the United States. These financial statements 131,728 793,516 (28,105) 23,501 920,640 Net income per share: Total assets D are the responsibility of the Company’s management; our responsibility is 1,106,072 1,344,991 1,612,885 23,741 4,087,689 Basic $0.20 $0.26 $0.19 $1.47 Long-Term Debt Capital expenditures to express an opinion on these financial statements based on our audits. 118,710 205,516 51,179 – 375,405 Diluted A 0.19 0.24 0.18 1.41 The fair value of the Company’s long-term debt is estimated based on the We conducted our audits of these statements in accordance with auditing stan- quoted market prices for the same or similar issues or on the current rates 1998 dards generally accepted in the United States, which require that we plan and 1998 Quarters offered to the Company for debt of the same remaining maturities. Net sales perform the audit to obtain reasonable assurance about whether the financial $4,668,029 $3,885,753 $793,129 – $9,346,911 Net sales $2,008,077 $2,083,101 $1,999,862 $3,255,871 Intersegment sales B statements are free of material misstatement. An audit includes examining, on 457,204 – – $(457,204) – Gross income 581,655 609,584 609,178 1,170,843 Interest Rate Swap Agreement Depreciation and a test basis, evidence supporting the amounts and disclosures in the financial Net income 89,659 1,688,068 40,593 228,174 The fair value of the interest rate swap is the estimated amount that the amortization statements, assessing the accounting principles used and significant estimates 126,438 101,221 58,341 – 286,000 Net income per share: Company would receive or pay to terminate the swap agreement at the report- Operating income (loss) E made by management, and evaluating the overall financial statement presenta- (45,153) 670,849 58,647 1,740,030 2,424,373 Basic $0.33 $7.15 $0.18 $1.01 ing date, taking into account current interest rates and the current creditwor- Total assets D tion. We believe that our audits provide a reasonable basis for the opinion 1,186,243 1,448,077 1,909,528 5,860 4,549,708 Diluted 0.32 6.94 0.17 0.97 thiness of the swap counterparty. Capital expenditures expressed above. 68,695 121,543 157,118 – 347,356 1999: Special and nonrecurring items included a $13.1 million charge in the second quarter for transaction costs (Thousands) 1997 PricewaterhouseCoopers LLP related to the TOO spin-off and the reserve reversal of $36.6 million in the fourth quarter related to downsizing 1999 1998 Net sales Columbus, Ohio $4,484,300 $3,617,856 $1,086,648 – $9,188,804 costs for Henri Bendel. Estimated Fair Values of the Carrying Fair Carrying Fair Intersegment sales B February 22, 2000 491,343 – – $(491,343) – 1998: Special and nonrecurring items included a $93.7 million gain in the first quarter from the sale of the Company’s Company’s Financial Instruments Amount Value Amount Value Depreciation and remaining interest in Brylane, a 26% owned (post-IPO) catalogue retailer, a $5.1 million charge in the first quarter Long-term debt $(400,000) $(371,752) $(550,000) $(561,594) amortization for severance and other associate termination costs related to the closing of Henri Bendel stores, and a $1.651 136,903 106,197 70,192 – 313,292 Interest rate swap $(1,351) $(1,351) $(96) $(3,896) billion tax-free gain in the second quarter on the split-off of A&F. Operating income (loss) F 33,726 563,152 98,836 (226,215) 469,499 A In the fourth quarter of 1999, the Company changed its accounting for gift certificates, store credits and layaway Total assets D 1,053,518 1,347,700 1,912,000 (12,457) 4,300,761 sales. The Company filed an amended Form 10-K for fiscal year ended January 30, 1999 to reflect this Capital expenditures 73,691 124,275 164,874 – 362,840 accounting change. Prior to this restatement, net income and net income per diluted share amounts reported in 12. Segment Information the Company’s 1999 quarterly reports on Form 10-Q were as follows: first quarter, $33.5 million and $0.14; A Included in the “Other” category are Henri Bendel, TOO (through August 23, 1999), Galyan’s (through August 31, The Company identifies operating segments based on a business’s operating second quarter, $52.4 million and $0.22; and third quarter, $40.7 million and $0.18. 1999), A&F (through May 19, 1998), non-core real estate, and corporate, none of which are significant operating characteristics. Reportable segments were determined based on similar eco- segments. nomic characteristics, the nature of products and services and the method of B Represents intersegment sales elimination. MARKET PRICE AND DIVIDEND INFORMATION distribution. The apparel segment derives its revenues from sales of women’s D Represents intersegment receivable/payable elimination. and men’s apparel. The Intimate Brands segment derives its revenues from The Company’s common stock is traded on the New York Stock Exchange C 1999 special and nonrecurring items: 1) a $13.1 million charge for transaction costs related to the TOO spin-off; sales of women’s intimate and other apparel, and personal care products and (“LTD”) and the London Stock Exchange. On January 29, 2000, there were and 2) the reserve reversal of $36.6 million related to downsizing costs for Henri Bendel. These special items accessories. Sales outside the United States were not significant. approximately 80,500 shareholders of record. However, when including active relate to the “Other” category. The Company and IBI have entered into intercompany agreements for serv- associates who participate in the Company’s stock purchase plan, associates E 1998 special and nonrecurring items: 1) a $1.651 billion tax-free gain on the split-off of A&F; 2) a $93.7 million ices that include merchandise purchases, capital expenditures, real estate man- who own shares through Company-sponsored retirement plans and others gain from the sale of the Company’s remaining interest in Brylane; and 3) a $5.1 million charge for severance agement and leasing, inbound and outbound transportation and corporate and other associate termination costs related to the closing of Henri Bendel stores. These special items relate holding shares in broker accounts under street names, the Company estimates services. These agreements specify that identifiable costs be passed through to to the “Other” category. the shareholder base to be approximately 230,000. F 1997 special and nonrecurring items: 1) an $89.0 million charge for the apparel businesses related to asset IBI and that other service-related costs be allocated in accordance with the impairment and the closing and downsizing of certain stores; 2) a $67.6 million charge for Intimate Brands related Market Price Cash Dividend intercompany agreement. Costs are passed through and allocated to the appar- to the closing of the Cacique business (effective January 31, 1998); and 3) a $107.4 million charge related to the Fiscal Year End 1999 High Low Per Share el businesses in a similar manner. closing of five of six Henri Bendel stores, $62.8 million of income related to the gain from the sale of 4th quarter $43 13/16 $30 1/2 $0.15 As a result of its spin-off, the operating results of TOO were reclassified from approximately one-half of the Company’s interest in Brylane (net of $12.5 million in valuation adjustments on 3rd quarter A 45 15/16 36 7/16 0.15 the apparel segment to the “Other” category for all periods presented. The investments), and a $12.0 million write-down of a real estate investment to net realizable value, all of which relate 2nd quarter 50 1/8 44 3/16 0.15 operating results of Galyan’s are included in the “Other” category. However, to the “Other” category. Additionally, includes a $13.0 million inventory liquidation charge associated with the Henri 1st quarter 44 34 1/4 0.15 subsequent to August 31, 1999, the Company includes only its 40% share of Bendel closings. Galyan’s income or loss. Fiscal Year End 1998 4th quarter $34 1/8 $25 5/16 $0.13 3rd quarter 27 3/16 20 7/8 0.13 2nd quarter 36 1/4 26 13/16 0.13 1st quarter 33 7/8 27 1/8 0.13 A Limited Too was spun off to The Limited shareholders in the form of a dividend valued at approximately $2.36 per share on the date of the spin-off (August 23, 1999). 8 0 LT D A R 9 9 9 9 A R LT D 8 1
  • EXECUTIVE OFFICERS Nicholas LaHowchic, President David T. Kollat Overseas O∞ces Limited Distribution Services Chairman, 22, Inc. Budapest, Cairo, Hong Kong, Jakarta, Leslie H. Wexner Westerville, Ohio London, Santa Fe Mexico, Milan, Porto, Chairman and Chief Executive O∞cer Edward G. Razek, President and Port Louis Mauritius, Seoul, Shanghai, Chief Marketing O∞cer Claudine B. Malone Taipei, Tokyo Kenneth B. Gilman Limited Brand & Creative Services President, Financial & Management Consulting, Inc. B D Vice Chairman and 10-K Report and Information Requests Chief Administrative O∞cer Jon J. Ricker, President McLean, Virginia A copy of form 10-K is available with- Limited Technology Services out charge through our Web site, V. Ann Hailey Donald B. Shackelford www.limited.com, or upon written Executive Vice President and Wade H. Buff, Vice President Chairman of the Board request to: Fifth Third Bank, Central Ohio B A D Chief Financial O∞cer Internal Audit The Limited, Inc., P.O. Box 28603 Columbus, Ohio Columbus, Ohio 43228. Leonard A. Schlesinger Timothy J. Faber, Vice President For information please call Executive Vice President, Organization, Treasury, Mergers and Aquisitions Allan R. Tessler 614.415.6400. Leadership and Human Resources Chairman and Chief Executive O∞cer, Daniel P. Finkelman International Financial Group, Inc. Stock Transfer Agent, Registrar, BDC BUSINESS UNIT LEADERS Senior Vice President and Dividend Agent Brand and Business Planning New York, New York First Chicago Trust Company of New York, Robert E. Bernard, President A division of Equiserve The Limited Samuel P. Fried, Senior Vice President Abigail S. Wexner P.O. Box 2500, Jersey City, New Jersey Attorney at Law D General Counsel and Secretary 07303-2500 Robin Burns, President Columbus, Ohio 800.317.4445 Intimate Beauty Corporation Peter L. Gartman www.Equiserve.com Senior Vice President Bella Wexner Ed Burstell, Vice President and Chief Sourcing Officer Director Emeritus The Limited, Inc. General Merchandise Manager Founded 1963 Henri Bendel Timothy B. Lyons, Senior Vice President Raymond Zimmerman As of January 29, 2000: Tax Non-Executive Chairman of the Board, Number of associates: 114,600 Service Merchandise Co., Inc. B D Richard P. Crystal, President Approximate shareholder base: 230,000 © 2000 The Limited, Inc. Lerner New York Jeffrey G. Naylor, Vice President Brentwood, Tennessee Controller B = Member of the Audit Committee Jill Brown Dean, President ANTICIPATED MONTHLY SALES A = Member of the Compensation Lane Bryant Bruce A. Soll, Senior Vice President RELEASE DATES FOR 2000: and Counsel Committee D = Member of the Finance Committee Cynthia D. Fields, President Company Affairs February Sales 3/2/00 C = Member of the Nominating Committee Victoria’s Secret Catalogue March Sales 4/6/00 Andrea M. Weiss April Sales 5/4/00 Grace A. Nichols, President Executive Vice President and COMPANY INFORMATION May Sales 6/1/00 Victoria’s Secret Stores Chief Stores Officer June Sales 7/6/00 Headquarters July Sales 8/3/00 Beth M. Pritchard, President BOARD OF DIRECTORS The Limited, Inc. August Sales 8/31/00 Bath & Body Works Three Limited Parkway September Sales 10/5/00 Leslie H. Wexner Columbus, Ohio 43230 October Sales 11/2/00 Chairman and Chief Executive O∞cer C Robert J. Ruttenberg, President 614.415.7000 November Sales 11/30/00 Gryphon www.limited.com December Sales 1/4/01 Kenneth B. Gilman January Sales 2/8/01 Martin Trust, President Vice Chairman and Annual Meeting Mast Industries Chief Administrative O∞cer The Annual Meeting of Shareholders A listing of quarterly earnings release is scheduled for: dates can be accessed through our Michael A. Weiss, President Leonard A. Schlesinger 9:00 A.M., Monday, May 15, 2000 Web site, www.limited.com. Express Executive Vice President, Organization, Three Limited Parkway Leadership and Human Resources Columbus, Ohio 43230 Live audio of the quarterly earnings Peter D. Whitford, President conference calls can be accessed Structure Martin Trust Stock Exchange Listings through our Web site, www.limited.com. President, Mast Industries, Inc. New York Stock Exchange CENTER FUNCTIONS Andover, Massachusetts (Trading Symbol “LTD”) Audio replays of both monthly sales London Stock Exchange and quarterly earnings conference Charles W. Hinson, President Eugene M. Freedman Commonly listed in newspapers as calls can be accessed through our Web Limited Store Planning Senior Advisor and Director, “Limitd” site, www.limited.com, or by dialing Monitor Clipper Partners, Inc. D 800.696.1585 followed by the confer- Marie Holman-Rao, President Cambridge, Massachusetts Independent Public Accountants ence call identification number, 189295. Limited Design Services PricewaterhouseCoopers LLP E. Gordon Gee Columbus, Ohio Chancellor, Vanderbilt University A Barry D. Kaufman, President Limited Property Services (effective August 1, 2000) ompany information Nashville, Tennessee 8 2 LT D A R 9 9
  • MODELS: Phillipa Allam, Mini Anden, Tyra Banks, Ben Bennett, Andre Brown, Oliver Bjerjus, Laetitia Casta, Cheyenne, Kate Dillon, Lonneke Engel, Karolina Evans, Randi Graves, Eva Herzigova, Carmen Kass, Luis Kelleman, James King, Heidi Klum, Noemie Lanois, Alex Manning, Astrid Muñoz, Oluchi, Daniela Pestova, Kevin Rice, Ines Rivero, Stephanie Seymour, Veronica Varekova PHOTOGRAPHERS: George Anderson, Walter Chin, Sante D’Orazio, Marc Hispard, Dominique Isserman, Russell James, Kathryn Kleinman, Peter Lindbergh, Richard Phibbs, Max Vadukul ILLUSTRATOR: Izak DESIGN: VIA Inc. New York PRINTING: Heritage Press