<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 1-13814
-------
INTIMATE BRANDS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1436998
- --------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-6900
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at December 2, 1996
-------------------- -------------------------------
$.01 Par Value 42,497,502 Shares
Class B Common Stock Outstanding at December 2, 1996
-------------------- -------------------------------
$.01 Par Value 210,000,000 Shares
<PAGE>
INTIMATE BRANDS, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Thirty-nine Weeks Ended
November 2, 1996 and October 28, 1995................. 3
Consolidated Balance Sheets
November 2, 1996 and February 3, 1996................. 4
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended
November 2, 1996 and October 28, 1995................. 5
Notes to Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.............. 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................... 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------ ------------------------------------
November 2, 1996 October 28, 1995 November 2, 1996 October 28, 1995
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $596,985 $506,092 $1,836,484 $1,539,438
Cost of Goods Sold, Occupancy and
Buying Costs 402,954 358,546 1,250,714 1,083,712
----------------- ---------------- ---------------- -----------------
GROSS INCOME 194,031 147,546 585,770 455,726
General, Administrative and Store
Operating Expenses 140,802 102,067 396,826 297,001
----------------- ---------------- ---------------- -----------------
OPERATING INCOME 53,229 45,479 188,944 158,725
Interest Expense (9,352) (22,998) (24,478) (39,912)
Other Income, Net 1,418 936 3,024 1,430
----------------- ---------------- ---------------- -----------------
INCOME BEFORE INCOME TAXES 45,295 23,417 167,490 120,243
Provision for Income Taxes 18,100 9,400 67,000 48,100
----------------- ---------------- ---------------- -----------------
NET INCOME $ 27,195 $ 14,017 $ 100,490 $ 72,143
================= ================ ================ =================
NET INCOME PER SHARE $.11 $.07 $.40 $.34
================= ================ ================ =================
DIVIDENDS PER SHARE $.12 - $.36 -
================= ================ ================ =================
WEIGHTED AVERAGE SHARES OUTSTANDING 253,047 213,077 252,973 211,025
================= ================ ================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $ 15,299 $ 12,095
Accounts Receivable 21,211 16,928
Inventories 537,428 358,846
Other 52,286 32,151
---------- ---------
TOTAL CURRENT ASSETS 626,224 420,020
INTERCOMPANY RECEIVABLE -- 34,136
PROPERTY AND EQUIPMENT, NET 397,292 358,032
OTHER ASSETS 126,517 131,165
---------- ---------
TOTAL ASSETS $1,150,033 $ 943,353
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 139,858 $ 64,452
Accrued Expenses 90,569 104,023
Income Taxes 66,481 78,783
---------- ---------
TOTAL CURRENT LIABILITIES 296,908 247,258
INTERCOMPANY PAYABLE 169,483 --
LONG-TERM DEBT 350,000 350,000
DEFERRED INCOME TAXES 47,931 71,475
OTHER LONG-TERM LIABILITIES 7,792 5,683
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-in Capital 675,351 675,421
Retained Deficit (399,491) (409,011)
---------- ---------
278,387 268,937
Less Treasury Stock, at Average Cost (468) --
---------- ---------
TOTAL SHAREHOLDERS' EQUITY 277,919 268,937
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,150,033 $ 943,353
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
---------------------------
November 2, October 28,
1996 1995
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 100,490 $ 72,143
Impact of Other Operating Activities
on Cash Flows:
Depreciation and Amortization 63,472 57,643
Changes in Assets and Liabilities:
Inventories (178,582) (140,610)
Accounts Payable and Accrued
Expenses 61,952 38,412
Income Taxes (35,846) 15,190
Other Assets and Liabilities (120,324) (7,210)
------------- -----------
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES (8,838) 35,568
------------- -----------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (100,069) (97,265)
------------- -----------
FINANCING ACTIVITIES:
Proceeds from Short-term Borrowings -- 250,000
Repayment of Short-term Borrowings -- (646,181)
Net Proceeds from Sale of Stock -- 635,033
Dividends Paid (90,970) --
Purchase of Treasury Stock (832) --
Increase in Intercompany Payable 203,619 80,498
Stock Options and Other 294 (255,941)
------------- -----------
NET CASH PROVIDED FROM FINANCING 112,111 63,409
ACTIVITIES ------------- -----------
NET INCREASE IN CASH AND EQUIVALENTS 3,204 1,712
Cash and Equivalents, Beginning of Year 12,095 8,869
------------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 15,299 $ 10,581
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Intimate Brands, Inc. (the "Company") was incorporated on May 16, 1995, and
on May 19, 1995 acquired the assets and liabilities of the Intimate Brands
Businesses in exchange for 210 million shares of Class B common stock
issued to The Limited, Inc. ("The Limited"). The Intimate Brands
Businesses include specialty retail and catalogue operations which offer
women's intimate and other apparel, personal care products and accessories,
and, prior to their transfer to the Company, were direct or indirect
subsidiaries of The Limited. They consist of Victoria's Secret Stores,
Victoria's Secret Catalogue, Bath & Body Works, Cacique, Penhaligon's and
Gryphon Development. An initial public offering of 40 million shares of
the Company's Class A common stock was consummated on October 24, 1995, and
on November 21, 1995, the Company sold an additional 2.7 million shares as
a result of underwriters exercising options to purchase additional shares
at the initial public offering price per share to cover over-allotments.
After these transactions, approximately 83% of the outstanding common stock
of the Company is owned by The Limited.
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries which are more than 50 percent owned and
controlled. The common stock issued to The Limited (210 million Class B
shares) in connection with the incorporation of the Company has been
reflected as outstanding for all periods presented.
The consolidated financial statements as of November 2, 1996 and for the
thirteen week and thirty-nine week periods ended November 2, 1996 and
October 28, 1995 are unaudited and are presented pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, these
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Company's 1995 Annual Report. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(which are of a normal recurring nature) necessary to present fairly the
financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations
for a full fiscal year.
The consolidated financial statements as of November 2, 1996 and for the
thirteen and thirty-nine week periods ended November 2, 1996 and October
28, 1995 included herein have been reviewed by the independent public
accounting firm of Coopers & Lybrand L.L.P. and the report of such firm
follows the notes to consolidated financial statements.
2. ADOPTION OF ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The Company will make the
required disclosures in its 1996 Annual Report.
6
<PAGE>
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories
is based principally upon the lower of average cost or market determined on
a first-in, first-out basis utilizing the retail method. Inventory
valuation at the end of the first and third quarters reflects adjustments
for inventory markdowns and shrinkage estimates for the total selling
season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
----------- -----------
<S> <C> <C>
Property and equipment, at cost $ 691,262 $ 605,365
Accumulated depreciation and
amortization (293,970) (247,333)
----------- -----------
Property and equipment, net $ 397,292 $ 358,032
=========== ===========
</TABLE>
5. INCOME TAXES
The Company is included in The Limited's consolidated federal income tax
group for income tax purposes and is responsible for its proportionate
share of income taxes calculated upon its federal taxable income at a
current estimate of the annual consolidated effective tax rate.
The Internal Revenue Service has assessed The Limited for additional taxes
and interest for the years 1989-1992. The portion of the assessment
relating to the Company was based on treatment of construction allowances.
Although The Limited made a deposit to mitigate further interest being
assessed, the Company strongly disagrees with the assessment and is
vigorously contesting the matter. Management believes resolution of this
matter will not have a material adverse effect on the Company's results of
operations or financial condition. The Limited has allocated a portion of
the deposit to the Company which is included in deferred taxes.
7
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of unsecured intercompany notes which represent the
Company's proportionate share of certain long-term debt of The Limited.
The interest rates and maturities of the notes parallel those of the
corresponding debt of The Limited. Unsecured long-term debt consisted of
(thousands):
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
----------- -----------
<S> <C> <C>
7 1/2% Debentures due March 2023 $100,000 $100,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
-------- --------
$350,000 $350,000
======== ========
</TABLE>
Interest paid during the thirty-nine weeks ended November 2, 1996,
including interest on the intercompany cash management account (see note
7), approximated $35.1 million.
7. INTERCOMPANY RELATIONSHIP WITH PARENT
The Limited provides various services to the Company including, but not
limited to, store design and construction supervision, real estate
management, travel and flight support and merchandise sourcing. To the
extent expenditures are specifically identifiable they are charged to the
Company. All other related support expenses are charged to the Company and
other divisions of The Limited, based upon various allocation methods.
The Company participates in The Limited's centralized cash management
system whereby cash received from operations is transferred to The
Limited's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts on a daily basis. After the initial
capitalization of the Company, the intercompany cash management account
became an interest earning asset or interest bearing liability of the
Company depending upon the level of cash receipts and disbursements.
Interest on the intercompany cash management account is calculated based on
the commercial paper rates for "AA" rated companies as reported in the
Federal Reserve's H.15 statistical release. The amount of the intercompany
payable under these agreements to The Limited at November 2, 1996
approximated $169.5 million.
8
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
Intimate Brands, Inc.
We have reviewed the condensed consolidated balance sheet of Intimate Brands,
Inc. and Subsidiaries at November 2, 1996, and the related condensed
consolidated statements of income and cash flows for the thirteen-week and
thirty-nine-week periods ended November 2, 1996 and November 4, 1995. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of February 3, 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
26, 1996, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of February 3, 1996, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 11, 1996
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the third quarter of 1996, net sales increased 18% to $597.0 million from
$506.1 million a year ago. Third quarter operating income of $53.2 million
increased 17% from last year's $45.5 million.
Earnings per share were $.11 per share compared to $.09 per share on a pro-forma
basis in 1995. The pro-forma 1995 results reflect 1) approximately 250 million
shares outstanding subsequent to the initial public offering ("IPO"); 2)
interest expense on the Company's outstanding long-term debt subsequent to the
IPO and 3) elimination of interest earned on temporary excess cash related to
the reconfiguration of the Company.
<TABLE>
<CAPTION>
Third Quarter
------------------------------------------------------------------------------------
Adjusted
As Reported Pro-Forma Adjustments Pro-Forma As Reported
October 28, 1995 October 28, 1995 October 28,1995 November 2, 1996
---------------- --------------------- --------------- ----------------
(thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating income $ 45,479 -- $ 45,479 $53,229
Interest expense (22,998) $15,482 (7,516) (9,352)
Other income, net 936 (936) -- 1,418
------------- -------------- ------------- --------------
Income before taxes 23,417 14,546 37,963 45,295
Provision for income taxes 9,400 5,800 15,200 18,100
------------- -------------- ------------- --------------
Net income $ 14,017 $ 8,746 $ 22,763 $ 27,195
============= ============== ============= ==============
Net income per share $.07 $.09 $.11
============= ============= ==============
Weighted average
shares outstanding 213,077 250,000 253,047
============= ============= ==============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Year-to-Date
------------------------------------------------------------------------------------
Adjusted
As Reported Pro-Forma Adjustments Pro-Forma As Reported
October 28, 1995 October 28, 1995 October 28,1995 November 2, 1996
---------------- --------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Operating income $158,725 -- $158,725 $188,944
Interest expense (39,912) $17,364 (22,548) (24,478)
Other income, net 1,430 (1,430) -- 3,024
------------- -------------- ------------- --------------
Income before taxes 120,243 15,934 136,177 167,490
Provision for income taxes 48,100 6,400 54,500 67,000
------------- -------------- ------------- --------------
Net income $ 72,143 $ 9,534 $ 81,677 $100,490
============= ============== ============= ==============
Net income per share $.34 $.33 $.40
============= ============= ==============
Weighted average shares
outstanding 211,026 250,000 252,973
============= ============= ==============
</TABLE>
Highlights include the following:
Victoria's Secret Stores, led by Grace Nichols, had a 15% sales gain in the
third quarter and an improved gross income rate. The business continued to see
excellent response to new products like the "Perfect Silhouette," its seamless
bra, and the ongoing inflow of fresh fashion sleepwear.
Bath & Body Works, under the leadership of Beth Pritchard, achieved a 53% sales
gain and a 32% increase in operating income in the third quarter. Year-to-
date, Bath & Body Works has added 239 stores, a 48% increase, helping to secure
its leadership position in the personal care industry.
Victoria's Secret Catalogue recorded relatively flat sales of $132.5 million,
while operating profits declined slightly from last year. Nonetheless, Cindy
Fedus and her team at Victoria's Secret Catalogue continue to record industry
leading profits in what has turned out to be a tough year for the catalogue
industry. Currently, efforts are focused on more effectively using the strong
brand identity of Victoria's Secret to return to the Company's higher
performance standards.
Sales for the thirty-nine weeks ended November 2, 1996 of $1.836 billion
increased 19% from sales of $1.539 billion for the same period last year.
Operating income increased 19% to $188.9 million from $158.7 million a year ago.
11
<PAGE>
Financial Summary
- -----------------
The following summarized financial data compares the thirteen and thirty-nine
week periods ended November 2, 1996 to the comparable periods for 1995:
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
-------------------------- -------------------------
Change Change
From From
Prior Prior
1996 1995 Year 1996 1995 Year
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Net Sales (millions):
Victoria's Secret Stores $ 304 $ 264 15% $ 910 $ 786 16%
Victoria's Secret Catalogue 133 132 1% 476 455 5%
Bath & Body Works 133 87 53% 378 237 59%
Cacique 20 19 5% 59 52 13%
Other 7 4 75% 13 9 44%
------ ----- -- ------ ------ --
Total Net Sales $ 597 $ 506 18% $1,836 $1,539 19%
====== ====== == ====== ====== ==
Increase (decrease) in
comparable store sales:
Victoria's Secret Stores 6% (6%) 6% (1%)
Bath & Body Works 2% 26% 8% 26%
Cacique 0% (18%) 9% (23%)
------ ----- ------ ------
Total comparable store
sales increase 5% (2%) 6% 2%
====== ====== ====== ======
Retail sales increase
attributable to new and
remodeled stores 19% 14% 19% 17%
Retail sales per average
selling square foot $ 95 $ 95 -- $ 293 $ 292 --
Retail sales per average
store (thousands) $ 303 $ 314 (4%) $ 935 $ 964 (3%)
Average store size at end of
quarter (square feet) 3,128 3,291 (5%)
Retail selling square feet
(thousands) 4,968 4,054 23%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
----------------------- -----------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Number of stores:
Beginning of period 1,430 1,132 1,293 1,037
Opened 158 100 300 197
Closed -- -- (5) (2)
------ ------ ------ ------
End of period 1,588 1,232 1,588 1,232
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
---------------------------------------- --------------------------------------
Change Change
November 2, October 28, From Prior November 2, October 28 From Prior
1996 1995 Year 1996 1995 Year
----------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 726 659 67 3,282 2,941 341
Bath & Body Works 737 450 287 1,313 748 565
Cacique 121 119 2 371 363 8
Penhaligon's 4 4 0 2 2 0
----------- ----------- ---------- ----------- ---------- ----------
Total stores and selling
square feet 1,588 1,232 356 4,968 4,054 914
=========== =========== ========== =========== ========== ==========
</TABLE>
Net Sales
- ---------
Net sales for the third quarter of 1996 increased 18% over the same period last
year. This increase was primarily attributable to the net addition of 356 new
stores which accounted for 78% of the increase. The remaining increase came
from a 5% increase in comparable store sales (representing 19% of the total net
sales increase) and a $2.4 million increase in Gryphon third party sales. Year-
to-date sales increased 19% over the same period in 1995, due to the addition of
new stores (70% of the total increase), a 6% increase in comparable store sales
(22% of the total increase) and a 5% increase in catalogue net sales.
Victoria's Secret Stores net sales for the third quarter of 1996 increased 15%
to $304 million from $264 million a year ago. The sales increase was
attributable to the net addition of 67 new stores representing 341,000 selling
square feet, with the balance coming from the 6% comparable store sales
increase.
Bath & Body Works net sales for the third quarter of 1996 increased 53% to $133
million from $87 million a year ago. This increase was primarily attributable
to a net increase of 287 stores representing 565,000 selling square feet (76%
increase in selling square feet) over 1995. In addition to the new stores, the
remaining increase resulted from a 2% increase in comparable store sales for the
quarter
Victoria's Secret Catalogue net sales for the third quarter of 1996 were about
flat at $133 million from a year ago. There was a 6% increase in catalogue
circulation to approximately 84 million catalogues mailed in the third quarter
1996 from approximately 79 million catalogues mailed for the same period in
1995.
13
<PAGE>
Gross Income
- ------------
Gross income increased as a percentage of net sales to 32.5% for the third
quarter 1996 from 29.2% for the same period in 1995. The increase was primarily
due to a 1.7% increase in merchandise margins and a 1.6% reduction in buying and
occupancy costs as a percentage of sales. In addition to the impact of Bath &
Body Works' increase in the sales mix for the Company, the gross income rate for
the quarter also benefited from the improvement in merchandise margins at
Victoria's Secret Stores, due to an increase in initial mark-up, partially
offset by an increase in the markdown rate.
The 1996 year-to-date gross income percentage increased 2.3% to 31.9% in 1996
from 29.6% for the same period in 1995. The year-to-date increase resulted from
a combination of a 1.3% increase in merchandise margins and a 1.0% reduction in
buying and occupancy costs as a percentage of sales. This increase is primarily
the result of the disproportionate growth of Bath & Body Works in the overall
mix of net sales for the Company. Specifically, in the third quarter Bath &
Body Works increased from approximately 17% of total Company sales in 1995 to
22% in 1996. Year-to-date net sales increased from 15% of total Company sales
in 1995 to 21% in 1996. Bath & Body Works has historically recorded
significantly higher merchandise margins and significantly lower buying and
occupancy costs (due to smaller store size and higher sales productivity), as
compared with the balance of the Company. This advantage results from higher
initial mark-up of the personal care products and the high productivity
(expressed in sales per selling square foot) that Bath & Body Works stores
enjoy. The Company believes that continued strong growth of Bath & Body Works
will have a positive impact on gross income as a percentage of total Company
sales.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses increased as a percentage
of net sales to 23.6% in the third quarter of 1996 from 20.2% for the same
period in 1995. Year-to-date, the rate increased as a percentage of sales to
21.6% for 1996 from 19.3% in 1995. This increase in rate was primarily the
result of the growth of Bath & Body Works and investments made in store staffing
and management for the personal care portion of Victoria's Secret Stores. Due
to the emphasis on point of sale marketing and sales floor coverage, both of
these operations have higher general, administrative and store operating
expenses as a percentage of net sales, which have been more than offset by
higher gross margins. The Company believes that continued strong growth of
these businesses as a percentage of total Company business may cause these costs
to continue to increase, expressed as a percentage of total Company sales,
without significant expense rate fluctuation by other Company divisions.
Operating Income
- ----------------
Third quarter and year-to-date operating income, as a percentage of sales, were
8.9% and 10.3% in 1996, which rates are essentially flat as compared to 1995.
The increase in gross income in these periods was offset by an increase in
general, administrative and store operating expenses, expressed as a percentage
of sales, as described above.
14
<PAGE>
Interest Expense and Other Income
- ---------------------------------
Third quarter interest expense of $9.4 was up $1.9 million over the pro forma
interest expense for the comparable period in 1995 due to interest on borrowings
to cover short-term cash requirements from The Limited's centralized cash
management system (see Note 7 of the Company's Consolidated Financial
Statements). Historical third quarter 1995 interest expense of $23.0 million
included interest on debt which was repaid from the proceeds of the offering in
October 1995. For year-to-date 1996, the Company incurred $24.5 million in
interest expense, $22.5 million of which is on the long-term debt that is
associated with the Company's on-going capital structure that is reflected in
the year-to-date 1995 pro-forma financial information.
In 1996, the Company earned $1.4 million and $3.0 million of other income for
the third quarter and year-to-date periods versus $0.9 million and $1.4 million,
respectively for the comparable periods in 1995 based on historical financial
statements. Other income is primarily interest earned from excess net cash from
operations managed through The Limited's centralized cash management system.
FINANCIAL CONDITION
The Company's consolidated balance sheet as of November 2, 1996 provides
evidence of financial strength and flexibility. A more detailed discussion of
liquidity, capital resources and capital requirements follows:
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities and cash funding from The Limited's
centralized cash management systems provide the resources to support operations,
including projected growth, seasonal requirements and capital expenditures. A
summary of the Company's working capital position and long-term on-going
capitalization follows (thousands):
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
----------- -----------
<S> <C> <C>
Working capital $329,316 $172,762
Intercompany payable (receivable) $169,483 $(34,136)
Capitalization:
Long-term debt $350,000 $350,000
Deferred income taxes 47,931 71,475
Shareholders' equity 277,919 268,937
----------- -----------
Total capitalization $675,850 $690,412
=========== ===========
</TABLE>
15
<PAGE>
Net cash used for operating activities totaled $8.8 million for the thirty-nine
weeks ended November 2, 1996 versus $35.6 million provided from operating
activities for the same period in 1995. The $178.6 million of cash used for
inventories in 1996 versus $140.6 million used in 1995 is primarily due to
planned inventory increases associated with the holiday selling period and an
increase in the number of stores. The $62.0 million increase in accounts
payable and accrued expenses resulted primarily from increases in merchandise
payables due to seasonal builds in inventory. The $35.8 million of cash used for
income taxes was due principally to the timing of tax payments on last year's
fourth quarter earnings.
Investing activities represented capital expenditures, primarily attributable to
new and remodeled stores.
Financing activities included net borrowings of $203.6 million from The Limited
through the intercompany payable account which helped fund capital expenditures
and seasonal builds in inventory. Other changes in shareholders' equity and
short-term borrowings in 1995 represent activities related to the formation of
the Company and related initial public offering.
Capital Expenditures
- --------------------
Capital expenditures, primarily for new and remodeled stores, totaled $100.1
million for the thirty-nine weeks ended November 2, 1996 compared to $97.3
million for the comparable period of 1995. The Company anticipates spending
$120 - $140 million in 1996 for capital expenditures, of which $110 - $120
million will be for new stores, the relocation and expansion of existing stores
and related improvements for the retail business.
The Company has previously announced its intention to add approximately 830,000
selling square feet in 1996, including approximately 320 new stores, which will
represent a 19% increase in selling square feet over year-end 1995. The Company
expects that future capital expenditures will be funded principally by net cash
provided by operating activities.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
- ---------------------------------------------------------------------------
1995
- ----
All forward-looking statements made by the Company involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors include, but are
not limited to, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, postal rate increases and
charges, paper and printing costs, availability of suitable store locations on
appropriate terms, ability to develop new merchandise and ability to hire nad
train assocites, and other factors that may be described in the Company's
filings with the Securities and Exchange Commission. The Company does not
undertake to publicly update or revise its forward-looking statements even if
expereince or future changes made it clear that any projected results expressed
or implied therein will not be realized.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3. Articles of Incorporation and Bylaws
3.1 Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 28, 1995.
3.2 Bylaws of the Company incorporated by reference to Exhibit
3.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended October 28, 1995.
4. Instruments Defining the Rights of Security Holders
4.1 Specimen Certificate of Class A Common Stock of the Company
incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No. 33-92568) (the
"Form S-1").
4.2 Certificate of Incorporation of The Limited, Inc. incorporated
by reference to Exhibit 4.2 to the Company's Form S-1.
4.3 Bylaws of The Limited, Inc. incorporated by reference to Exhibit
4.3 to the Company's Form S-1.
10. Material Contracts
10.1 Intimate Brands, Inc. 1995 Stock Option and Performance
Incentive Plan (1996 Restatement).
10.1 Intimate Brands, Inc. 1995 Stock Plan for Non-Associate
Directors.
10.1 Intimate Brands, Inc. Incentive Compensation Plan.
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent
Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
None.
17
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTIMATE BRANDS, INC.
(Registrant)
By /S/ Philip E. Mallot
--------------------
Philip E. Mallott,
Chief Financial Officer*
Date: December 13, 1996
- -----------------------
* Mr. Mallott is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
18
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- --------
10.1 Intimate Brands, Inc. 1995 Stock Option and Performance
Incentive Plan (1996 Restatement).
10.2 Intimate Brands, Inc. 1995 Stock Plan for Non-Associate
Directors.
10.3 Intimate Brands, Inc. Incentive Compensation Plan.
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Report of
Independent Accountants
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
INTIMATE BRANDS, INC.
1995 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Restatement)
(Amended and Restated as of November 1, 1996)
<PAGE>
INTIMATE BRANDS, INC.
1995 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Restatement)
TABLE OF CONTENTS
<TABLE>
Page
ARTICLE 1
ESTABLISHMENT AND PURPOSE
<C> <S> <C>
1.1 Establishment and Effective Date................................. 6
1.2 Purpose.......................................................... 6
<CAPTION>
ARTICLE 2
AWARDS
<C> <S> <C>
2.1 Form of Awards................................................... 6
2.2 Maximum Shares Available......................................... 7
2.3 Return of Prior Awards........................................... 7
<CAPTION>
ARTICLE 3
ADMINISTRATION
<C> <S> <C>
3.1 Committee........................................................ 7
3.2 Powers of Committee.............................................. 7
3.3 Delegation....................................................... 8
3.4 Interpretations.................................................. 8
3.5 Liability; Indemnification....................................... 8
<CAPTION>
ARTICLE 4
ELIGIBILITY
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 5
STOCK OPTIONS
<C> <S> <C>
5.1 Grant of Options................................................. 9
5.2 Option Price..................................................... 9
5.3 Term of Options.................................................. 9
5.4 Exercise of Options.............................................. 9
5.5 Cancellation of Stock Appreciation Rights........................ 10
<CAPTION>
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
<C> <S> <C>
6.1 Ten Percent Stockholder.......................................... 10
6.2 Limitation on Grants............................................. 10
6.3 Limitations on Time of Grants.................................... 10
<CAPTION>
ARTICLE 7
STOCK APPRECIATION RIGHTS
<C> <S> <C>
7.1 Grants of Stock Appreciation Rights.............................. 11
7.2 Limitations on Exercise.......................................... 11
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights........ 11
7.4 Exercise of Nontandem Stock Appreciation Rights.................. 11
7.5 Settlement of Stock Appreciation Rights.......................... 12
7.6 Cash Settlement.................................................. 12
<CAPTION>
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
ARTICLE 9
TERMINATION OF EMPLOYMENT
<C> <S> <C>
9.1 Exercise after Termination of Employment......................... 12
9.2 Total Disability................................................. 13
<CAPTION>
ARTICLE 10
DEATH OF ASSOCIATE
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ARTICLE 11
RESTRICTED SHARES
<C> <S> <C>
11.1 Grant of Restricted Shares....................................... 13
11.2 Restrictions..................................................... 13
11.3 Restricted Stock Certificates.................................... 14
11.4 Rights of Holders of Restricted Shares........................... 14
11.5 Forfeiture....................................................... 14
11.6 Delivery of Restricted Shares.................................... 14
11.7 Performance-Based Objectives..................................... 14
<CAPTION>
ARTICLE 12
PERFORMANCE SHARES
<C> <S> <C>
12.1 Award of Performance Shares...................................... 15
12.2 Performance Period............................................... 15
12.3 Right to Payment of Performance Shares........................... 15
12.4 Payment for Performance Shares................................... 15
12.5 Voting and Dividend Rights....................................... 16
<CAPTION>
ARTICLE 13
PERFORMANCE UNITS
<C> <S> <C>
13.1 Award of Performance Units....................................... 16
13.2 Right to Payment of Performance Units............................ 17
13.3 Payment for Performance Units.................................... 17
<CAPTION>
ARTICLE 14
UNRESTRICTED SHARES
<C> <S> <C>
14.1 Award of Unrestricted Shares..................................... 17
14.2 Delivery of Unrestricted Shares.................................. 17
<CAPTION>
ARTICLE 15
TAX OFFSET PAYMENTS
</TABLE>
4
<PAGE>
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
ARTICLE 17
AMENDMENT AND TERMINATION
ARTICLE 18
WRITTEN AGREEMENT
ARTICLE 19
MISCELLANEOUS PROVISIONS
<TABLE>
<CAPTION>
<C> <S> <C>
19.1 Fair Market Value............................... 19
19.2 Tax Withholding................................. 20
19.3 Compliance With Section 16 and Section 162(m)... 20
19.4 Successors...................................... 20
19.5 General Creditor Status......................... 20
19.6 No Right to Employment.......................... 21
19.7 Notices......................................... 21
19.8 Severability.................................... 21
19.9 Governing Law................................... 21
19.10 Term of Plan.................................... 21
</TABLE>
5
<PAGE>
INTIMATE BRANDS, INC.
1995 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN
(1996 Restatement)
ARTICLE 1
ESTABLISHMENT AND PURPOSE
1.1 Establishment and Effective Date. Intimate Brands, Inc., a Delaware
corporation (the "Company"), hereby establishes a stock incentive plan to be
known as the "Intimate Brands, Inc. 1995 Stock Option and Performance Incentive
Plan" (the "Plan"). The Plan shall become effective on the effective date of
the initial public offering of the Company's Class A Common Stock, par value
$.01 per share ("Common Stock"), subject to the consummation of such initial
public offering. Upon approval of the Plan by the Board of Directors of the
Company (the "Board"), awards may be made as provided herein, subject to such
consummation. In the event that such public offering is not consummated, any
such awards shall be cancelled and all rights of associates with respect to such
awards shall thereupon cease.
1.2 Purpose. The Company desires to attract and retain the best available
executive and key management associates for itself and its subsidiaries and to
encourage the highest level of performance by such associates in order to serve
the best interests of the Company and its stockholders. The Plan is expected to
contribute to the attainment of these objectives by offering eligible associates
the opportunity to acquire stock ownership interests in the Company, and other
rights with respect to stock of the Company, and to thereby provide them with
incentives to put forth maximum efforts for the success of the Company and its
subsidiaries.
ARTICLE 2
AWARDS
2.1 Form of Awards. Awards under the Plan may be granted in any one or
all of the following forms: (i) incentive stock options ("Incentive Stock
Options") meeting the requirements of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"); (ii) nonstatutory stock options ("Nonstatutory
Stock Options") (unless otherwise indicated, references in the Plan to Options
shall include both Incentive Stock Options and Nonstatutory Stock Options);
(iii) stock appreciation rights ("Stock Appreciation Rights"), as described in
Article 7, which may be awarded either in tandem with Options ("Tandem Stock
Appreciation Rights") or on a stand-alone basis ("Nontandem Stock Appreciation
Rights"); (iv) shares of Class A
6
<PAGE>
Common Stock of the Company ("Common Stock") which are restricted as provided in
Article 11 ("Restricted Shares"); (v) units representing shares of Common Stock,
as described in Article 12 ("Performance Shares"); (vi) units which do not
represent shares of Common Stock but which may be paid in the form of Common
Stock, as described in Article 13 ("Performance Units"); (vii) shares of
unrestricted Common Stock ("Unrestricted Shares") and (viii) tax offset payments
("Tax Offset Payments"), as described in Article 15.
2.2 Maximum Shares Available. The maximum aggregate number of shares of
Common Stock available for award under the Plan, including shares of Common
Stock awarded as Tax Offset Payments, is 17,500,000, subject to adjustment
pursuant to Article 16. Shares of Common Stock issued pursuant to the Plan may
be either authorized but unissued shares or issued shares reacquired by the
Company. In the event that prior to the end of the period during which Options
may be granted under the Plan, any Option or any Nontandem Stock Appreciation
Right under the Plan expires unexercised or is terminated, surrendered or
cancelled (other than in connection with the exercise of a Stock Appreciation
Right) without being exercised in whole or in part for any reason, or any
Restricted Shares, Performance Shares or Performance Units are forfeited, or if
such awards are settled in cash in lieu of shares of Common Stock, then such
shares or units may, at the discretion of the Committee to the extent
permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Act"), be made available for subsequent awards under the Plan, upon such terms
as the Committee may determine.
2.3 Return of Prior Awards. As a condition to any subsequent award, the
Committee shall have the right, at its discretion, to require associates to
return to the Company awards previously granted under this Plan. Subject to the
provisions of this Plan, such new award shall be upon such terms and conditions
as are specified by the Committee at the time the new award is granted to the
extent permitted by Rule 16b-3 under the Act.
ARTICLE 3
ADMINISTRATION
3.1 Committee. The Plan shall be administered by a Committee (the
"Committee") appointed by the Board and consisting of not less than two (2)
members of the Board. Each member of the Committee shall be an "outside
director" (within the meaning of Section 162(m) of the Code) and a "non-employee
director" (within the meaning of Rule 16b-3(b)(3)(i) under the Act).
3.2 Powers of Committee. Subject to the express provisions of the Plan,
the Committee shall have the power and authority (i) to grant Options and to
determine
7
<PAGE>
the purchase price of the Common Stock covered by each Option, the term of each
Option, the number of shares of Common Stock to be covered by each Option and
any performance objectives or vesting standards applicable to each Option, (ii)
to designate Options as Incentive Stock Options or Nonstatutory Stock Options
and to determine which Options, if any shall be accompanied by Tandem Stock
Appreciation Rights; (iii) to grant Tandem Stock Appreciation Rights and
Nontandem Stock Appreciation Rights and to determine the terms and conditions of
such rights; (iv) to grant Restricted Shares and to determine the term of the
restricted period and other conditions and restrictions applicable to such
shares; (v) to grant Performance Shares and Performance Units and to determine
the performance objectives, performance periods and other conditions applicable
to such shares or units; (vi) to grant Unrestricted Shares; (vii) to determine
the amount of, and to make, Tax Offset Payments; and (viii) to determine the
associates to whom, and the time or times at which, Options, Stock Appreciation
Rights, Restricted Shares, Performance Shares, Performance Units and
Unrestricted Shares shall be granted.
3.3 Delegation. The Committee may delegate to one or more of its members
or to any other person or persons such ministerial duties as it may deem
advisable; provided, however, that the Committee may not delegate any of its
responsibilities hereunder if such delegation will cause (i) transactions under
the Plan to fail to comply with Section 16 of the Act or (ii) the Committee to
fail to qualify as "outside directors" under Section 162(m) of the Code. The
Committee may also employ attorneys, consultants, accountants or other
professional advisors and shall be entitled to rely upon the advice, opinions or
valuations of any such advisors.
3.4 Interpretations. The Committee shall have sole discretionary
authority to interpret the terms of the Plan, to adopt and revise rules,
regulations and policies to administer the Plan and to make any other factual
determinations which it believes to be necessary or advisable for the
administration of the Plan. All actions taken and interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Company, all associates who have received awards under the Plan and all
other interested persons.
3.5 Liability; Indemnification. No member of the Committee, nor any
associate to whom ministerial duties have been delegated, shall be personally
liable for any action, interpretation or determination made with respect to the
Plan or awards made thereunder, and each member of the Committee shall be fully
indemnified and protected by the Company with respect to any liability he or she
may incur with respect to any such action, interpretation or determination, to
the extent permitted by applicable law and to the extent provided in the
Company's Certificate of Incorporation and Bylaws, as amended from time to time.
8
<PAGE>
ARTICLE 4
ELIGIBILITY
Awards shall be limited to executive and key management associates who are
regular, full-time associates of the Company, its present and future
subsidiaries, its parent and subsidiaries thereof. In determining the
associates to whom awards shall be granted and the number of shares to be
covered by each award, the Committee shall take into account the nature of the
services rendered by such associates, their present and potential contributions
to the success of the Company and its subsidiaries and such other factors as the
Committee in its sole discretion shall deem relevant. As used in this Plan, the
term "subsidiary" shall mean any corporation which at the time qualifies as a
subsidiary of the Company under the definition of "subsidiary corporation" set
forth in Section 424(f) of the Code, or any successor provision hereafter
enacted. No associate may be granted in any calendar year awards covering more
than 400,000 shares of Common Stock.
ARTICLE 5
STOCK OPTIONS
5.1 Grant of Options. Options may be granted under this Plan for the
purchase of shares of Common Stock. Options shall be granted in such form and
upon such terms and conditions, including the satisfaction of corporate or
individual performance objectives and other vesting standards, as the Committee
shall from time to time determine.
5.2 Option Price. The option price of each Option to purchase Common
Stock shall be determined by the Committee at the time of grant, but shall not
be less than 100 percent of the fair market value of the Common Stock subject to
such Option on the date of grant. The option price so determined shall also be
applicable in connection with the exercise of any Tandem Stock Appreciation
Right granted with respect to such option.
5.3 Term of Options. The term of each Nonstatutory Stock Option granted
under the Plan shall not exceed ten (10) years and one day from the date of
grant, subject to earlier termination as provided in Articles 9 and 10. Except
as otherwise provided in Section 6.1 with respect to ten (10) percent
stockholders of the Company, the term of each Incentive Stock Option shall not
exceed ten (10) years from the date of grant, subject to earlier termination as
provided in Articles 9 and 10.
5.4 Exercise of Options. An Option may be exercised, in whole or in part,
at such time or times as the Committee shall determine. The Committee may, in
its
9
<PAGE>
discretion, accelerate the exercisability of any Option at any time. Options
may be exercised by an associate by giving written notice to the committee
stating the number of shares of Common Stock with respect to which the Option is
being exercised and tendering payment therefor. Payment for the Common Stock
issuable upon exercise of the Option shall be made in full in cash, or by
certified check or, if the Committee, in its sole discretion, permits, in shares
of Common Stock (valued at fair market value on the date of exercise). As soon
as reasonably practicable following such exercise, a certificate representing
the shares of Common Stock purchased, registered in the name of the associate,
shall be delivered to the associate. Notwithstanding the foregoing, an
associate may not exercise an Option prior to the consummation of the initial
public offering referred to in Section 1.1 hereof.
5.5 Cancellation of Stock Appreciation Rights. Upon exercise of all or a
portion of an Option, the related Tandem Stock Appreciation Rights shall be
cancelled with respect to an equal number of shares of Common Stock.
ARTICLE 6
SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS
6.1 Ten Percent Stockholder. Notwithstanding any other provision of this
Plan to the contrary, no associate may receive an Incentive Stock Option under
the Plan if such associate, at the time the award is granted, owns (after
application of the rules contained in Section 424(d) for the Code) stock
possessing more than ten (10) percent of the total combined voting power of all
classes of stock of the Company or its subsidiaries, unless (i) the option price
for such Incentive Stock Option is at least 110 percent of the fair market value
of the Common Stock subject to such Incentive Stock Option on the date of grant
and (ii) such Option is not exercisable after the date five (5) years from the
date such Incentive Stock Option is granted.
6.2 Limitation on Grants. The aggregate fair market value (determined
with respect to each Incentive Stock Option at the time such Incentive Stock
Option is granted) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an associate during any
calendar year (under this Plan or any other plan of the Company or a subsidiary)
shall not exceed $100,000.
6.3 Limitations on Time of Grants. No grant of an Incentive Stock Option
shall be made under this Plan after the termination date set forth in Section
19.10 hereof.
10
<PAGE>
ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation Rights
may be awarded by the Committee in connection with any Option granted under the
Plan, either at the time the Option is granted or thereafter at any time prior
to the exercise, termination or expiration of the Option. Nontandem Stock
Appreciation Rights may also be granted by the Committee at any time. At the
time of grant of a Nontandem Stock Appreciation Right, the Committee shall
specify the number of shares of Common Stock covered by such right and the base
price of shares of Common Stock to be used in connection with the calculation
described in Section 7.4 below. The base price of a Nontandem Stock
Appreciation Right Shall be not less than 100 percent of the fair market value
of a share of Common Stock on the date of grant. Stock Appreciation Rights
shall be subject to such terms and conditions not inconsistent with the other
provisions of this Plan as the Committee shall determine.
7.2 Limitations on Exercise. A Tandem Stock Appreciation Right shall be
exercisable only to the extent that the related Option is exercisable and shall
be exercisable only for such period as the Committee may determine (which period
may expire prior to the expiration date of the related Option). Upon the
exercise of all or a portion of Tandem Stock Appreciation Rights, the related
Option shall be cancelled with respect to an equal number of shares of Common
Stock. Shares of Common Stock subject to Options or portions thereof,
surrendered upon exercise of a Tandem Stock Appreciation Right, shall not be
available for subsequent awards under the Plan. A Nontandem Stock Appreciation
Right shall be exercisable during such period as the Committee shall determine.
7.3 Surrender or Exchange of Tandem Stock Appreciation Rights. A Tandem
Stock Appreciation Right shall entitle the associate to surrender to the Company
unexercised the related Option, or any portion thereof, and to receive from the
Company in exchange therefor that number of shares of Common Stock having an
aggregate fair market value equal to (A) the excess of (i) the fair market value
of one (1) share of Common Stock as of the date the Tandem Stock Appreciation
Right is exercised over (ii) the option price per share specified in such
Option, multiplied by (B) the number of shares of Common Stock subject to the
Option, or portion thereof, which is surrendered. Cash shall be delivered in
lieu of any fractional shares.
7.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of a
Nontandem Stock Appreciation Right shall entitle the associate to receive from
the Company that number of shares of Common Stock having an aggregate fair
market value equal to (A) the excess of (i) the fair market value of one (1)
share of Common Stock as of the date on which the Nontandem Stock Appreciation
Right is exercised over (ii) the base price of the shares covered by the
Nontandem Stock Appreciation
11
<PAGE>
Right, multiplied by (B) the number of shares of Common Stock covered by the
Nontandem Stock Appreciation Right, or the portion thereof being exercised.
Cash shall be delivered in lieu of any fractional shares.
7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably
practicable after the exercise of a Stock Appreciation Right, the Company shall
(i) issue, in the name of the associate, stock certificates representing the
total number of full shares of Common Stock to which the associate is entitled
pursuant to Section 7.3 or 7.4 hereof and cash in an amount equal to the fair
market value, as of the date of exercise, of any resulting fractional shares,
and (ii) if the Committee causes the Company to elect to settle all or part of
its obligations arising out of the exercise of the Stock Appreciation Right in
cash pursuant to Section 7.6, deliver to the associate an amount in cash equal
to the fair market value, as of the date of exercise, of the shares of Common
Stock it would otherwise be obligated to deliver.
7.6 Cash Settlement. The Committee, in its discretion, may cause the
Company to settle all or any part of its obligation arising out of the exercise
of a Stock Appreciation Right by the payment of cash in lieu of all or part of
the shares of Common Stock it would otherwise be obligated to deliver in an
amount equal to the fair market value of such shares on the date of exercise.
ARTICLE 8
NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS
No Option or Stock Appreciation Right may be transferred, assigned, pledged
or hypothecated (whether by operation of law or otherwise), except as provided
by will or the applicable laws of descent and distribution, and no Option or
Stock Appreciation Right shall be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation or other
disposition of an Option or a Stock Appreciation Right not specifically
permitted herein shall be null and void and without effect. An Option or Stock
Appreciation Right may be exercised by an associate only during his or her
lifetime, or following his or her death pursuant to Article 10.
ARTICLE 9
TERMINATION OF EMPLOYMENT
9.1 Exercise after Termination of Employment. In the event that the
employment of an associate to whom an Option or Stock Appreciation Right has
been granted under the Plan shall be terminated (for reasons other than death or
total
12
<PAGE>
disability), such Option or Stock Appreciation Right may be exercised (to the
extent that the associate was entitled to do so on the date of the termination
of his employment) at any time within three (3) months after such termination of
employment.
9.2 Total Disability. In the event that an associate to whom an Option or
Stock Appreciation Right has been granted under the Plan shall become totally
disabled, such Option or Stock Appreciation Right may be exercised at any time
during the first nine (9) months that the associate receives benefits under the
Company's Long-Term Disability Plan (the "Disability Plan") to the extent
otherwise exercisable during such nine-month period. For purposes hereof,
"total disability" shall have the definition set forth in the Disability Plan,
which definition is hereby incorporated by reference.
ARTICLE 10
DEATH OF ASSOCIATE
If an associate to whom an Option or Stock Appreciation Right has been
granted under the Plan shall die while employed by the Company or one of its
subsidiaries or within three (3) months after the termination of such
employment, such Option or Stock Appreciation Right may be exercised to the
extent that the associate was entitled to do so at the time of his or her death,
by the associate's estate or by the person who acquires the right to exercise
such Option or Stock Appreciation Right upon his or her death by bequest or
inheritance. Such exercise may occur at any time within one (1) year after the
date of the associate's death, but in no case later than the date on which the
Option or Stock Appreciation Right terminates.
ARTICLE 11
RESTRICTED SHARES
11.1 Grant of Restricted Shares. The Committee may from time to time
cause the Company to grant Restricted Shares under the Plan to associates,
subject to such restrictions, conditions and other terms as the Committee may
determine.
11.2 Restrictions. At the time a grant of Restricted Shares is made, the
Committee shall establish a period of time (the "Restricted Period") applicable
to such Restricted Shares. Each grant of Restricted Shares may be subject to a
different Restricted Period. The Committee may, in its sole discretion, at the
time a grant is made, prescribe restrictions in addition to or other than the
expiration of the Restricted Period, including the satisfaction of corporate or
individual performance
13
<PAGE>
objectives as provided in Section 11.7, which may be applicable to all or any
portion of the Restricted Shares. Except with respect to grants of Restricted
Shares intended to qualify as performance-based compensation for purposes of
Section 162(m) of the Code, the Committee may also, in its sole discretion,
shorten or terminate the Restricted Period or waive any other restrictions
applicable to all or a portion of such Restricted Shares. None of the
Restricted Shares may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Committee with respect
to such Restricted Shares.
11.3 Restricted Stock Certificates. The Company shall issue, in the name
of each associate to whom Restricted Shares have been granted, stock
certificates representing the total number of Restricted Shares granted to the
associate, as soon as reasonably practicable after the grant. The Secretary of
the Company shall hold such certificates, properly endorsed for transfer, for
the associate's benefit until such time as the Restricted Shares are forfeited
to the Company, or the restrictions lapse.
11.4 Rights of Holders of Restricted Shares. Except as determined by the
Committee either at the time Restricted Shares are awarded or at any time
thereafter prior to the lapse of the restrictions, holders of Restricted Shares
shall not have the right to vote such shares or the right to receive any
dividends with respect to such shares. All distributions, if any, received by
an associate with respect to Restricted Shares as a result of any stock split-
up, stock distribution, a combination of shares, or other similar transaction
shall be subject to the restrictions of this Article 11.
11.5 Forfeiture. Any Restricted Shares granted to an associate pursuant
to the Plan shall be forfeited if the associate terminates employment with the
Company or its subsidiaries prior to the expiration or termination of the
Restricted Period and the satisfaction of any other conditions applicable to
such Restricted Shares. Upon such forfeiture, the Secretary of the Company
shall either cancel or retain in its treasury the Restricted Shares that are
forfeited to the Company. If the associate's employment terminates as a result
of his or her death or total disability (as defined in Article 9), Restricted
Shares of such associate shall be forfeited, unless the Committee, in its sole
discretion, shall determine otherwise.
11.6 Delivery of Restricted Shares. Upon the expiration or termination of
the Restricted Period and the satisfaction of any other conditions prescribed by
the Committee, the restrictions applicable to the Restricted Shares shall lapse
and a stock certificate for the number of Restricted Shares with respect to
which the restrictions have lapsed shall be delivered, free of all such
restrictions, to the associate or the associate's beneficiary or estate, as the
case may be.
11.7 Performance-Based Objectives. At the time of the grant of Restricted
Shares to an associate, and prior to the beginning of the performance period to
which
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performance objectives relate, the Committee may establish performance
objectives based on operating income and/or gross margin objectives of the
Company or any subsidiary or division thereof. These objectives shall be based
on an analysis of historical performance and growth expectations for the
relevant business unit, financial results of other comparable businesses both
inside and outside the Company, and progress towards achieving the long-range
strategic plan for that business unit. These objectives and determination of
results shall be based entirely on such financial measures, and the Committee
shall have no discretion to modify such results.
ARTICLE 12
PERFORMANCE SHARES
12.1 Award of Performance Shares. For each Performance Period (as defined
in Section 12.2), Performance Shares may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall determine.
Each Performance Share shall be deemed to be equivalent to one (1) share of
Common Stock. Performance Shares granted to an associate shall be credited to
an account (a "Performance Share Account") established and maintained for such
associate.
12.2 Performance Period. "Performance Period" shall mean such period of
time as shall be determined by the Committee in its sole discretion. Different
Performance Periods may be established for different associates receiving
Performance Shares. Performance Periods may run consecutively or concurrently.
12.3 Right to Payment of Performance Shares. With respect to each award
of Performance Shares under this Plan, the Committee shall specify performance
objectives (the "Performance Objectives") which must be satisfied in order for
the associate to vest in the Performance Shares which have been awarded to him
or her for the Performance Period. If the Performance Objectives established
for an associate for the Performance Period are partially but not fully met, the
Committee may, nonetheless, in its sole discretion, determine that all or a
portion of the Performance Shares have vested. If the Performance Objectives
for a Performance Period are exceeded, the Committee may, in its sole
discretion, grant additional, fully vested Performance Shares to the associate.
The Committee may also determine, in its sole discretion, that Performance
Shares awarded to an associate shall become partially or fully vested upon the
associate's death, total disability (as defined in Article 9) or retirement, or
upon the termination of the associate's employment prior to the end of the
Performance Period.
12.4 Payment for Performance Shares. As soon as practicable following the
end of a Performance Period, the Committee shall determine whether the
Performance
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Objectives for the Performance Period have been achieved (or partially achieved
to the extent necessary to permit partial vesting at the discretion of the
Committee pursuant to Section 12.3). If the Performance Objectives for the
Performance Period have been exceeded, the Committee shall determine whether
additional Performance Shares shall be granted to the associate pursuant to
Section 12.3. As soon as reasonably practicable after such determinations, or
at such later date as the Committee shall determine at the time of grant, the
Company shall pay to the associate an amount with respect to each vested
Performance Share equal to the fair market value of a share of Common Stock on
such payment date or, if the Committee shall so specify at the time of grant, an
amount equal to (i) the fair market value of a share of Common Stock on the
payment date less (ii) the fair market value of a share of Common Stock on the
date of grant of the Performance Share. Payment shall be made entirely in cash,
entirely in Common Stock (including Restricted Shares) or in such combination of
cash and Common Stock as the Committee shall determine.
12.5 Voting and Dividend Rights. No associate shall be entitled to any
voting rights, to receive any dividends, or to have his or her Performance Share
Account credited or increased as a result of any dividends or other distribution
with respect to Common Stock. Notwithstanding the foregoing, within sixty (60)
days from the date of payment of a dividend by the Company on its shares of
Common Stock, the Committee, in its discretion, may credit an associate's
Performance Share Account with additional Performance Shares having an aggregate
fair market value equal to the dividend per share paid on the Common Stock
multiplied by the number of Performance Shares credited to his or her account at
the time the dividend was declared.
ARTICLE 13
PERFORMANCE UNITS
13.1 Award of Performance Units. For each Performance Period (as defined
in Section 12.2), Performance Units may be granted under the Plan to such
associates of the Company and its subsidiaries as the Committee shall determine.
The award agreement covering such Performance Units shall specify a value for
each Performance Unit or shall set forth a formula for determining the value of
each Performance Unit at the time of payment (the "Ending Value"). If necessary
to make the calculation of the amount to be paid to the associate pursuant to
Section 13.3, the Committee shall also state in the award agreement the initial
value of each Performance Unit (the "Initial Value"). Performance Units granted
to an associate shall be credited to an account (a "Performance Unit Account")
established and maintained for such associate.
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13.2 Right to Payment of Performance Units. With respect to each award of
Performance Units under this Plan, the Committee shall specify Performance
Objectives which must be satisfied in order for the associate to vest in the
Performance Units which have been awarded to him or her for the Performance
Period. If the Performance Objectives established for an associate for the
Performance Period are partially but not fully met, the Committee may,
nonetheless, in its sole discretion, determine that all or a portion of the
Performance Units have vested. If the Performance Objectives for a Performance
Period are exceeded, the Committee may, in its sole discretion, grant
additional, fully vested Performance Units to the associate. The Committee may
also determine, in its sole discretion, that Performance Units awarded to an
associate shall become partially or fully vested upon the associate's death,
total disability (as defined in Article 9) or retirement, or upon the
termination of employment of the associate by the Company.
13.3 Payment for Performance Units. As soon as practicable following the
end of a Performance Period, the Committee shall determine whether the
Performance Objectives for the Performance Period have been achieved (or
partially achieved to the extent necessary to permit partial vesting at the
discretion of the Committee pursuant to Section 13.2). If the Performance
Objectives for the Performance Period have been exceeded, the Committee shall
determine whether additional Performance Units shall be granted to the associate
pursuant to Section 13.2. As soon as reasonably practicable after such
determinations, or at such later date as the Committee shall determine at the
time of grant, the Company shall pay to the associate an amount with respect to
each vested Performance Unit equal to the Ending Value of the Performance Unit
or, if the Committee shall so specify at the time of grant, an amount equal to
(i) the Ending Value of the Performance Unit less (ii) the Initial Value of the
Performance Unit. Payment shall be made entirely in cash, entirely in Common
Stock (including Restricted Shares) or in such combination of cash and Common
Stock as the Committee shall determine.
ARTICLE 14
UNRESTRICTED SHARES
14.1 Award of Unrestricted Shares. The Committee may cause the Company to
grant Unrestricted Shares to associates at such time or times, in such amounts
and for such reasons as the Committee, in its sole discretion, shall determine.
Except as required by applicable law, no payment shall be required for
Unrestricted Shares.
14.2 Delivery of Unrestricted Shares. The Company shall issue, in the
name of each associate to whom Unrestricted Shares have been granted, stock
certificates representing the total number of Unrestricted Shares granted to the
associate, and shall deliver such certificates to the associate as soon as
reasonably practicable after
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the date of grant or on such later date as the Committee shall determine at the
time of grant.
ARTICLE 15
TAX OFFSET PAYMENTS
The Committee shall have the authority at the time of any award under this
Plan or anytime thereafter to make Tax Offset Payments to assist associates in
paying income taxes incurred as a result of their participation in this Plan.
The Tax Offset Payments, which, if awarded, may be in cash or shares of Common
Stock, shall be determined by multiplying a percentage established by the
Committee by all or a portion (as the Committee shall determine) of the taxable
income recognized by an associate upon (i) the exercise of a Nonstatutory Stock
Option or a Stock Appreciation Right, (ii) the disposition of shares received
upon exercise of an Incentive Stock Option, (iii) the lapse of restrictions on
Restricted Shares, (iv) the award of Unrestricted Shares, or (v) payments for
Performance Shares or Performance Units. The percentage shall be established,
from time to time, by the Committee at that rate which the Committee, in its
sole discretion, determines to be appropriate and in the best interests of the
Company to assist associates in paying income taxes incurred as a result of the
events described in the preceding sentence. Tax Offset Payments shall be
subject to the restrictions on transferability applicable to Options and Stock
Appreciation Rights under Article 8.
ARTICLE 16
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
Notwithstanding any other provision of the Plan, the Committee may at any
time make or provide for such adjustments to the Plan, to the number and class
of shares available thereunder or to any outstanding Options, Stock Appreciation
Rights, Restricted Shares or Performance Shares as it shall deem appropriate to
prevent dilution or enlargement of rights, including adjustments in the event of
changes in the number of shares of outstanding Common Stock by reason of stock
dividends, extraordinary cash dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like.
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ARTICLE 17
AMENDMENT AND TERMINATION
The Board may suspend, terminate, modify or amend the Plan, provided that
any amendment that would (i) materially increase the aggregate number of shares
which may be issued under the Plan; (ii) materially increase the benefits
accruing to associates under the Plan; or (iii) materially modify the
requirements as to eligibility for participation in the Plan, shall be subject
to the approval of the Company's stockholders, except that any such increase or
modification that may result from adjustments authorized by Article 16 does not
require such approval. If the Plan is terminated, the terms of the Plan shall,
notwithstanding such termination, continue to apply to awards granted prior to
such termination. No suspension, termination, modification or amendment of the
Plan may, without the consent of the associate to whom an award shall
theretofore have been granted, adversely affect the rights of such associate
under such award.
ARTICLE 18
WRITTEN AGREEMENT
Each award of Options, Stock Appreciation Rights, Restricted Shares,
Performance Shares, Performance Units, Unrestricted Shares and Tax Offset
Payments shall be evidenced by a written agreement, executed by the associate
and the Company, and containing such restrictions, terms and conditions, if any,
as the Committee may require. In the event of any conflict between a written
agreement and the Plan, the terms of the Plan shall govern.
ARTICLE 19
MISCELLANEOUS PROVISIONS
19.1 Fair Market Value. For purposes of this Plan, fair market value with
respect to the exercise price of options granted prior to and subject to the
consummation of the initial public offering referred to in Section 1.1 hereof
shall be the price at which shares of Common Stock are sold to the public
pursuant to such offering and, for all other purposes hereunder, shall be the
closing price of the Common Stock as reported on the principal exchange on which
the shares are listed for the date on which the grant, exercise or other
transaction occurs, or if there were no sales on such date, the most recent
prior date on which there were sales.
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19.2 Tax Withholding. The Company shall have the right to require
associates or their beneficiaries or legal representatives to remit to the
Company an amount sufficient to satisfy Federal, state and local withholding tax
requirements, or to deduct from all payments under this Plan, including Tax
Offset Payments, amounts sufficient to satisfy all withholding tax requirements.
Whenever payments under the Plan are to be made to an associate in cash, such
payments shall be net of any amounts sufficient to satisfy all Federal, state
and local withholding tax requirements. The Committee may, in its discretion,
permit an associate to satisfy his or her tax withholding obligation either by
(i) surrendering shares owned by the associate or (ii) having the Company
withhold from shares otherwise deliverable to the associate. Shares surrendered
or withheld shall be valued at their fair market value as of the date on which
income is required to be recognized for income tax purposes. In the case of an
award of Incentive Stock Options, the foregoing right shall be deemed to be
provided to the associate at the time of such award.
19.3 Compliance With Section 16 and Section 162(m). In the case of
associates who are or may be subject to Section 16 of the Act, it is the intent
of the Company that any award granted hereunder satisfy and be interpreted in a
manner that satisfies the applicable requirements of Rule 16b-3, so that such
person will be entitled to the benefits of Rule 16b-3 or other exemptive rules
under Section 16 of the Act and will not be subjected to liability thereunder.
If any provision of the Plan or any award would otherwise conflict with the
intent expressed herein, that provision to the extent possible, shall be
interpreted and deemed amended so as to avoid such conflict. To the extent of
any remaining irreconcilable conflict with such intent, such provision shall be
deemed void as applicable to associates who are or may be subject to Section 16
of the Act. If any award hereunder is intended to qualify as performance-based
for purposes of Section 162(m) of the Code, the Committee shall not exercise any
discretion to increase the payment under such award except to the extent
permitted by Section 162(m) and the regulations thereunder.
19.4 Successors. The obligations of the Company under the Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or upon any
successor corporation or organization succeeding to substantially all of the
assets and business of the Company. In the event of any of the foregoing, the
Committee may, at its discretion prior to the consummation of the transaction,
cancel, offer to purchase, exchange, adjust or modify any outstanding awards, at
such time and in such manner as the Committee deems appropriate and in
accordance with applicable law.
19.5 General Creditor Status. Associates shall have no right, title, or
interest whatsoever in or to any investments which the Company may make to aid
it in meeting its obligations under the Plan. Nothing contained in the Plan,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
any associate or
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beneficiary or legal representative of such associate. To the extent than any
person acquires a right to receive payments from the Company under the Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company. All payments to be made hereunder shall be paid from the
general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan.
19.6 No Right to Employment. Nothing in the Plan or in any written
agreement entered into pursuant to Article 18, nor the grant of any award, shall
confer upon any associate any right to continue in the employ of the Company or
a subsidiary or to be entitled to any remuneration or benefits not set forth in
the Plan or such written agreement or interfere with or limit the right of the
Company or a subsidiary to modify the terms of or terminate such associate's
employment at any time.
19.7 Notices. Notices required or permitted to be made under the Plan
shall be sufficiently made if sent by registered or certified mail addressed (a)
to the associate at the associate's address as set forth in the books and
records of the Company or its subsidiaries, or (b) to the Company or the
Committee at the principal office of the Company.
19.8 Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
19.9 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
19.10 Term of Plan. Unless earlier terminated pursuant to Article 17
hereof, the Plan shall terminate on the tenth (10th) anniversary of the earlier
of the date of adoption of the Plan by the Board or the date of the consummation
of the initial public offering referred to in Section 1.1 hereof.
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EXHIBIT 10.2
INTIMATE BRANDS, INC.
1995 STOCK PLAN FOR NON-ASSOCIATE DIRECTORS
1. Purpose
The purpose of the Intimate Brands, Inc. 1995 Stock Plan for Non-
Associate Directors (the "Plan") is to promote the interests of Intimate Brands,
Inc. (the "Company") and its stockholders by increasing the proprietary interest
of non-associate directors in the growth and performance of the Company by
granting such directors options to purchase shares of Class A Common Stock, par
value $.01 per share (the "Shares") of the Company and by awarding Shares to
such directors in respect of a portion of the Retainer (as defined in Section
6(b)) payable to such directors.
2. Administration
The Plan shall be administered by the Company's Board of Directors
(the "Board"). Subject to the provisions of the Plan, the Board shall be
authorized to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan; provided, however, that the
Board shall have no discretion with respect to the selection of directors to
receive options, the number of Shares subject to any such options, the purchase
price thereunder or the timing of grants of options under the Plan. The
determinations of the Board in the administration of the Plan, as described
herein, shall be final and conclusive. The Secretary of the Company shall be
authorized to implement the Plan in accordance with its terms and to take such
actions of a ministerial nature as shall be necessary to effectuate the intent
and purposes thereof. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware.
3. Eligibility
The class of individuals eligible to receive grants of options and
awards of Shares in respect of the Retainer under the Plan shall be directors of
the Company who are not associates of the Company or its affiliates ("Eligible
Directors"). Any holder of an option or Shares granted hereunder shall
hereinafter be referred to as a "Participant".
<PAGE>
4. Shares Subject to the Plan
Subject to adjustment as provided in Section 7, an aggregate of 70,000
Shares shall be available for issuance under the Plan. The Shares deliverable
upon the exercise of options or in respect of the Retainer may be made available
from authorized but unissued Shares or treasury Shares. If any option granted
under the Plan shall terminate for any reason without having been exercised, the
Shares subject to, but not delivered under, such option shall be available for
issuance under the Plan.
5. Grant, Terms and Conditions of Options
(a) Subject to the consummation prior to December 31, 1995 of the
initial public offering of the Company's Class A Common Stock, each Eligible
Director on the Effective Date (as defined in Section 11) will be granted on
such date an option to purchase 1,000 Shares.
(b) Each Eligible Director on the first business day of a fiscal year
of the Company beginning after the Effective Date, will be granted on such a day
an option to purchase 1,000 Shares.
(c) The options granted will be nonstatutory stock options not
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and shall have the following terms and conditions:
(i) Price. The purchase price per Share deliverable upon the exercise
of each option shall be 100% of the Fair Market Value per Share on the date
the option is granted. For purposes of the Plan, Fair Market Value with
respect to the exercise price of options granted under Section 5(a) hereof
subject to the consummation of such initial public offering shall be the
price at which Shares are sold to the public pursuant to such offering and,
for all other purposes hereunder, shall be the closing price of the Shares
as reported on the principal exchange on which the shares are listed for
the date in question, or if there were no sales on such date, the most
recent prior date on which there were sales.
(ii) Payment. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash.
(iii) Exercisability and Term of Options. Options shall become
exercisable in four equal annual installments commencing on the first
anniversary of the date of grant, provided the holder of such Option is an
Eligible Director on such anniversary, and shall be exercisable until the
earlier of ten years from the date of grant and the expiration of the one
year period provided in paragraph (iv) below.
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(iv) Termination of Service as Eligible Director. Upon termination of a
Participant's service as a director of the Company for any reason, all
outstanding options held by such Eligible Director, to the extent then
exercisable, shall be exercisable in whole or in part for a period of one
year from the date upon which the Participant ceases to be a Director,
provided that in no event shall the options be exercisable beyond the
period provided for in paragraph (iii) above.
(v) Nontransferability of Options. No option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the Participant to whom an option
is granted it may be exercised only by the Participant or by the
Participant's guardian or legal representative. Notwithstanding the
foregoing, options may be transferred pursuant to a qualified domestic
relations order.
(vi) Option Agreement. Each option granted hereunder shall be
evidenced by an agreement with the Company which shall contain the terms
and provisions set forth herein and shall otherwise be consistent with the
provisions of the Plan.
6. Grant of Shares
(a) From and after the Effective Date, 50% of the Retainer of each
Eligible Director shall be paid in a number of Shares equal to the quotient of
(i) 50% of the Retainer divided by (ii) the Fair Market Value on the Retainer
Payment Date. Cash shall be paid to an Eligible Director in lieu of a
fractional Share.
(b) For purposes of this Plan "Retainer" shall mean the annual
retainer payable to an Eligible Director (as defined in Section 3) for any
fiscal quarter of the Company, the amount of which Retainer may not be changed
for purposes of this Plan more often than once every six months and
"Retainer Payment Date" shall mean the first business day of the
Company's calendar quarter.
7. Adjustment of and Changes in Shares
In the event of a stock split, stock dividend, extraordinary cash
dividend, subdivision or combination of the Shares or other change in corporate
structure affecting the Shares, the number of Shares authorized by the Plan
shall be increased or decreased proportionately, as the case may be, and the
number of Shares subject to any outstanding option shall be increased or
decreased proportionately, as
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the case may be, with appropriate corresponding adjustment in the purchase price
per Share thereunder.
8. No Rights of Shareholders
Neither a Participant nor a Participant's legal representative shall
be, or have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole or
in part, unless and until certificates for such Shares shall have been issued.
9. Plan Amendments
The Plan may be amended by the Board as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of shareholders
of the Company: (i) increase the number of Shares which may be purchased
pursuant to options hereunder, either individually or in the aggregate, except
as permitted by Section 7, (ii) change the requirement of Section 5(b) that
option grants be priced at Fair Market Value, except as permitted by Section 7,
(iii) modify in any respect the class of individuals who constitute Eligible
Directors or (iv) materially increase the benefits accruing to Participants
hereunder. The provisions of Sections 3, 5 and/or 6 may not be amended more
often than once every six months, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules under either
such statute.
10. Listing and Registration.
Each Share shall be subject to the requirement that if at any time the
Board shall determine, in its discretion, that the listing, registration or
qualification of the Shares upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Shares, no such Share may be disposed of unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Board.
11. Effective Date and Duration of Plan
The Plan shall become effective on the effective date of the initial
public offering of the Company's Class A Common Stock, subject to the
consummation of such offering. In the event such public offering is not
consummated, all options and Shares previously granted hereunder shall be
cancelled and all rights of Eligible Directors with respect to such options and
Shares shall thereupon cease. The Plan shall terminate the day following the
tenth Annual Shareholders Meeting at which Directors are elected succeeding such
initial public
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offering, unless the Plan is extended or terminated at an earlier date by
Shareholders or is terminated by exhaustion of the Shares available for issuance
hereunder.
5
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Exhibit 10.3
Intimate Brands, Inc.
Incentive Compensation Plan
The Intimate Brands Incentive Compensation Plan (the "Incentive Plan") is
intended to satisfy the applicable provisions of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Incentive Plan shall be
administered by the Compensation Committee (the "Committee") of the Company's
Board of Directors. The Committee shall determine which key executives of the
Company with significant operating and financial responsibility will be eligible
to earn seasonal cash incentive compensation payments to be paid twice each year
under the Incentive Plan. Neither Leslie H. Wexner nor Kenneth B. Gilman are
eligible to participate in the Incentive Plan.
Prior to the beginning of each spring and fall selling season, the
Committee may establish operating income and/or gross margin objectives for each
division of the Company. These objectives must assume an increased performance
level, and be based on an analysis of historical performance and growth
expectations for the division, financial results of other comparable businesses
both inside and outside the Company, and progress towards achieving the long-
range strategic plan for that division. These objectives and determination of
results are based entirely on financial measures, and the Committee may not use
any discretion to modify award results.
Annual incentive compensation targets may be established for eligible
executives ranging from 10% to 110% of base salary. Targeted incentive
compensation will equal a percentage of an eligible executive's total
compensation as established under the Company's pay guidelines. Executives may
earn their target incentive compensation if their business achieves the
established operating income and/or gross margin objectives. The target
incentive compensation percentage for each executive will be based on the level
and functional responsibility of his or her position, size of the business for
which the executive is responsible, and competitive practices, in that order of
priority. The annual incentive compensation targets for the Company's eligible
executive officers required to be named in the Company's proxy statement may
range from 50% to 110% of base salary. The amount of incentive compensation
paid to participating executives may range from zero to double their targets,
based upon the extent to which operating income and/or gross margin objectives
are achieved or exceeded. The minimum level at which a participating
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executive will earn any incentive payment, and the level at which an executive
will earn the maximum incentive payment of double the target, must be
established by the Committee prior to the commencement of each bonus period.
Actual payouts must be based on a straight-line interpolation based on these
minimum and maximum levels and the target operating income and/or gross margin
objectives.
The seasonal operating income and/or gross margin objectives for executive
officers eligible at the Company's corporate level will be a mathematical
aggregation of the divisional operating income and/or gross margin objectives.
The actual payout for executive participating officers will be based on the
aggregate seasonal operating income and/or gross margin results of the
individual divisions. The maximum dollar amount to be paid for any year under
the Incentive Plan to any participant may not exceed $2,000,000.
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EXHIBIT 15
[LETTERHEAD OF COOPERS & LYBRAND]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated December 11, 1996, on our review of the
interim consolidated financial information of Intimate Brands, Inc. and
Subsidiaries for the thirteen-week and thirty-nine-week periods ended November
2, 1996 and included in this Form 10-Q is incorporated by reference in the
Company's registration statements on Form S-8, Registration Nos. 333-1960, 333-
04921, 333-04923 and 333-10215. Pursuant to Rule 436(c) under the Securities Act
of 1933, this report should not be considered a part of the registration
statement prepared or certified by us within the meaning of Sections 7 and 11 of
that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
December 11, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements (unaudited) of Intimate Brands, Inc. and
Subsidiaries for the quarter ended November 2, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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</TABLE>
