<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 August 3, 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)
<TABLE>
<S> <C>
Delaware 31-1436998
- --------------------------------- -----------------------------------
( State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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.
<TABLE>
<S> <C>
Class A Common Stock Outstanding at August 30, 1996
-------------------- ------------------------------
$.01 Par Value 42,685,017 Shares
Class B Common Stock Outstanding at August 30, 1996
-------------------- ------------------------------
$.01 Par Value 210,000,000 Shares
</TABLE>
1
<PAGE>
INTIMATE BRANDS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
August 3, 1996 and July 29, 1995......................... 3
Consolidated Balance Sheets
August 3, 1996 and February 3, 1996...................... 4
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
August 3, 1996 and July 29, 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
</TABLE>
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 Twenty-six Weeks Ended
------------------------------- ------------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
NET SALES $653,291 $553,511 $1,239,499 $1,033,346
Cost of Goods Sold, Occupancy and Buying Costs 436,329 383,124 847,760 725,166
------------- ------------ ------------- --------------
GROSS INCOME 216,962 170,387 391,739 308,180
General, Administrative and Store Operating
Expenses 130,130 97,543 256,024 194,934
------------- ------------ ------------- --------------
OPERATING INCOME 86,832 72,844 135,715 113,246
Interest Expense (7,563) (16,914) (15,126) (16,914)
Other Income, Net 891 494 1,606 494
------------- ------------ ------------- --------------
INCOME BEFORE TAXES 80,160 56,424 122,195 96,826
Provision for Income Taxes 32,100 22,700 48,900 38,700
------------- ------------ ------------- --------------
NET INCOME $ 48,060 $ 33,724 $ 73,295 $ 58,126
============= ============ ============= ==============
NET INCOME PER SHARE $.19 $.16 $.29 $.28
============= ============ ============= ==============
DIVIDENDS PER SHARE $.12 - $.24 -
============= ============ ============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING 253,114 210,000 252,936 210,000
============= ============ ============= ==============
</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>
August 3, February 3,
1996 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $ 12,918 $ 12,095
Accounts Receivable 16,340 16,928
Inventories 357,246 358,846
Other 45,460 32,151
----------- -----------
TOTAL CURRENT ASSETS 431,964 420,020
INTERCOMPANY RECEIVABLE - 34,136
PROPERTY AND EQUIPMENT, NET 367,890 358,032
OTHER ASSETS 118,480 131,165
----------- -----------
TOTAL ASSETS $ 918,334 $ 943,353
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 71,900 $ 64,452
Accrued Expenses 90,280 104,023
Income Taxes 55,881 78,783
----------- -----------
TOTAL CURRENT LIABILITIES 218,061 247,258
INTERCOMPANY PAYABLE 14,680 -
LONG-TERM DEBT 350,000 350,000
DEFERRED INCOME TAXES 47,942 71,475
OTHER LONG-TERM LIABILITIES 6,735 5,683
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-in Capital 675,585 675,421
Retained Deficit (396,364) (409,011)
----------- -----------
281,748 268,937
Less Treasury Stock, at Average Cost (832) -
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 280,916 268,937
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $ 918,334 $ 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>
Twenty-six Weeks Ended
-----------------------
August 3, July 29,
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 73,295 $ 58,126
Net Income
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 40,740 38,944
Changes in Assets and Liabilities:
Accounts Receivable 588 80
Inventories 1,600 (47,699)
Accounts Payable and Accrued Expenses (6,295) 6,772
Income Taxes (49,435) 400
Other Assets and Liabilities 1,490 155
----------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 61,983 56,778
----------- ---------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (48,660) (50,079)
----------- ---------
FINANCING ACTIVITIES:
Dividends Paid (60,648) -
Increase in Short-term Borrowings - 250,000
Increase (Decrease) in Intercompany Payable 48,816 (5,287)
Purchase of Treasury Stock (832) -
Other Changes in Shareholders' Equity 164 (250,345)
----------- ---------
NET CASH USED FOR FINANCING ACTIVITIES (12,500) (5,632)
----------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 823 1,067
Cash and Equivalents, Beginning of Year 12,095 8,869
----------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 12,918 $ 9,936
=========== =========
</TABLE>
In the twenty-six weeks ended July 29, 1995 non-cash financing activities
include the transfer of equity to debt consisting of $400 million of short-term
intercompany borrowings and $350 million of long-term intercompany debt.
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 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, Inc. 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, Inc.
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, Inc. (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 August 3, 1996 and for the
thirteen week and twenty-six week periods ended August 3, 1996 and July 29,
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 August 3, 1996 and for the
thirteen and twenty-six week periods ended August 3, 1996 and July 29, 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>
August 3, February 3,
1996 1996
---------- -----------
<S> <C> <C>
Property and equipment, at cost $ 644,486 $ 605,365
Accumulated depreciation and
amortization (276,596) (247,333)
---------- ----------
Property and equipment, net $ 367,890 $ 358,032
========== ==========
</TABLE>
5. INCOME TAXES
The Company is included in The Limited, Inc.'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 he 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 tax assets.
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,
Inc. The interest rates and maturities of the notes parallel those of the
corresponding debt of The Limited, Inc. Unsecured long-term debt consisted
of (thousands):
<TABLE>
<CAPTION>
August 3, 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 twenty-six weeks ended August 3, 1996, including
interest on the intercompany cash management account (see note 7),
approximated $27.3 million.
7. INTERCOMPANY RELATIONSHIP WITH PARENT
The Limited, Inc. 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 Limited divisions 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 August 3, 1996
approximated $14.7 million.
8
<PAGE>
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 (the Company) at August 3, 1996, and the related
condensed consolidated statements of income and cash flows for the
thirteen-week and twenty-six-week periods ended August 3, 1996 and July
29, 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.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 10, 1996
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the second quarter of 1996, net sales increased 18% to $653.3 million
from $553.5 million a year ago. Second quarter operating income of $86.8
million increased 19% from last year's $72.8 million.
Earnings per share were $.19 per share compared to $.16 per share on a pro-forma
basis in 1995. The pro-forma 1995 results reflect 1) approximately 250 million
shares outstanding post 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 funds related to the
reconfiguration at the Company.
<TABLE>
<CAPTION>
Second Quarter
----------------------------------------------
Adjusted
As Reported Pro-Forma As Reported
July 29, 1995 July 29, 1995 August 3, 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Operating income $ 72,844 $ 72,844 $ 86,832
Interest expense (16,914) (7,516) (7,563)
Other income, net 494 - 891
-------------- ------------- --------------
Income before taxes 56,424 65,328 80,160
Provision for income taxes 22,700 26,100 32,100
-------------- ------------- --------------
Net income $ 33,724 $ 39,228 $ 48,060
============== ============= ==============
Net income per share $0.16 $0.16 $0.19
============== ============= ==============
Weighted average shares
outstanding 210,000 250,000 253,114
============== ============= ==============
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Year - to - Date
------------------------------------------------
Adjusted
As Reported Pro-Forma As Reported
July 29, 1995 July 29, 1995 August 3, 1996
---------------- --------------- ----------------
<S> <C> <C> <C>
Operating income $113,246 $113,246 $135,715
Interest expense (16,914) (15,032) (15,126)
Other income, net 494 - 1,606
---------------- --------------- ----------------
Income before taxes 96,826 98,214 122,195
Provision for income taxes 38,700 39,300 48,900
---------------- --------------- ----------------
Net income $ 58,126 $ 58,914 $ 73,295
================ =============== ================
Net income per share $0.28 $0.24 $0.29
================ =============== ================
Weighted average shares
outstanding 210,000 250,000 252,936
================ =============== ================
</TABLE>
Highlights include the following:
Victoria's Secret Stores had a 14% sales gain for the quarter, while operating
profits increased 16%. A continual flow of fresh merchandise and product
introductions were met with excellent customer response which led to strong
full price sell throughs. The quarter ended with the launch of the "Perfect
Silhouette", a perfectly smooth and seamless bra, supported by a national TV
campaign.
Bath & Body Works opened its 600th store while turning in another very solid
performance for the quarter. Comparable store sales increased 11%, while
operating profits increased 60% from last year. New product lines, such as
Hair Care and Sun Care, were featured during the quarter.
Sales for the twenty-six weeks ended August 3, 1996 of $1.239 billion increased
20% from sales of $1.033 billion for the same period last year. Operating
income increased 20% to $135.7 million from $113.2 million a year ago.
11
<PAGE>
Financial Summary
- -----------------
The following summarized financial data compares the thirteen and twenty-six
week periods ended August 3, 1996 to the comparable periods for 1995:
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
----------------------------------------------------------
Change Change
From From
Prior Prior
1996 1995 Year 1996 1995 Year
------- ------- ----- -------- ------- ------
Net Sales (millions):
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores $ 319 $ 281 14% $ 605 $ 522 16%
Victoria's Secret Catalogue 176 168 5% 343 323 6%
Bath & Body Works 134 84 60% 245 151 62%
Cacique 21 18 17% 40 33 21%
Other 3 3 - 6 4 50%
------- ------- ----- -------- ------- ------
Total Net Sales $ 653 $ 554 18% $1,239 $1,033 20%
======= ======= ===== ======== ======= ======
Operating Income (millions): $ 87 $ 73 19% $ 136 $ 113 20%
======= ======= ===== ======== ======= ======
Increase (decrease) in comparable store sales:
Victoria's Secret Stores 3% 2% 5% 2%
Bath & Body Works 11% 26% 12% 27%
Cacique 11% (22%) 15% (25%)
------- ------- -------- -------
Total comparable store
sales increase 5% 4% 7% 3%
======= ======= ======== =======
Retail sales increase
attributable to new and
remodeled stores 19% 16% 19% 16%
Retail sales per average
selling square foot $ 106 $ 105 1% $ 202 $ 198 2%
Retail sales per average
store (thousands) $ 343 $ 347 (1%) $ 655 $ 655 -
Average store size at end of
quarter (square feet) 3,222 3,301 (2%)
Retail selling square feet
(thousands) 4,607 3,737 23%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Second Quarter Year-to-Date
-------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Number of stores:
Beginning of period 1,336 1,077 1,293 1,037
Opened 98 56 142 97
Closed (4) (1) (5) (2)
----- ----- ----- -----
End of period 1,430 1,132 1,430 1,132
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
----------------------------------- -----------------------------------
Change Change
August 3 July 29 From Prior August 3, July 29, From Prior
1996 1995 Year 1996 1995 Year
-------- ------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 703 629 74 3,195 2,763 432
Bath & Body Works 603 383 220 1,042 622 420
Cacique 120 116 4 368 350 18
Penhaligon's 4 4 0 2 2 0
-------- ------- ---------- -------- -------- ----------
Total stores and selling
square feet 1,430 1,132 298 4,607 3,737 870
======== ======= ========== ======== ======== ==========
</TABLE>
Net Sales
- ---------
Net sales for the second quarter of 1996 increased 18% over the same period last
year. This increase was primarily attributable to the net addition of 298 new
stores which accounted for 72% of the increase. The remaining increase came
from a 5% increase in comparable store sales (representing 20% of total net
sales increase) and a 5% increase in catalogue net sales. Year-to-date sales
increased 20% over the same period in 1995, due to the addition of new stores
(66% of total increase), a 7% increase in comparable store sales (23% of total
increase) and a 6% increase in catalogue net sales.
Victoria's Secret Stores net sales for the second quarter of 1996 increased 14%
to $319 million from $281 million a year ago. The sales increase was
attributable to the net addition of 74 new stores and 432,000 selling square
feet, with the balance coming from comparable store sales, which increased 3%
for the quarter.
Victoria's Secret Catalogue net sales for the second quarter of 1996 increased
5% to $176 million from $168 million a year ago. This increase was primarily
attributable to a 5% increase in catalogue circulation to approximately 95
million catalogues mailed in the second quarter 1996 from approximately 91
million catalogues mailed for the same period in 1995.
Bath & Body Works net sales for the second quarter of 1996 increased 60% to $134
million from $84 million a year ago. This increase was primarily attributable
to a net increase of 220 stores and 420,000 selling square feet, a 68% increase
in selling square feet over 1995. In addition to the new stores, the remaining
increase resulted from an 11% increase in comparable store sales for the
quarter.
13
<PAGE>
Gross Income
- ------------
Gross income increased as a percentage of net sales to 33.2% for the second
quarter 1996 from 30.8% for the same period in 1995. The increase was primarily
due to a 1.8% increase in merchandise margins and a 0.6% reduction in buying and
occupancy costs. In addition to the impact of Bath & Body Works described
below, the gross income rate in the second quarter also benefited from the
improvement in merchandise margins at Victoria's Secret Stores, due principally
from the increase in initial mark-up.
The 1996 year-to-date gross income percentage increased 1.8% to 31.6% in 1996
from 29.8% for the same period in 1995. The year-to-date increase resulted from
a combination of a 1.1% increase in merchandise margins and a 0.7% reduction in
buying and occupancy costs. In addition to the increase in initial mark-up at
Victoria's Secret Stores, the increase in gross income is primarily the result
of the growth of Bath & Body Works net sales in the second quarter and year-to-
date from approximately 15% of total Company sales in 1995 to 20% 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 rest of the Company. This
advantage results from the cost structure of the personal care products and the
high productivity, expressed in sales per selling square feet, 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 19.9% in the second quarter of 1996 from 17.6% for the same
period in 1995. Year-to-date, the rate increased as a percentage of sales to
20.7% for 1996 from 18.9% in 1995. The increase in the Company's expense rate
was primarily the result of the growth of Bath & Body Works net sales in the
second quarter from 15% of total Company sales in 1995 to 21% in 1996 and
investments made in store staffing and management for the personal care portion
of Victoria's Secret Stores. Due to an 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 operations 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 improvement
by other Company divisions.
Operating Income
- ----------------
Second quarter and year-to-date operating income, as a percentage of sales, were
13.3% and 10.9% in 1996, 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.
Interest Expense and Other Income
- ---------------------------------
Second quarter interest expense of $7.6 million, representing principally the
costs of the Company's continuing long-term debt, was essentially flat with pro
forma interest expense for 1995. Historical second quarter 1995 interest
expense of $16.9 million included interest on the debt used to effect the
initial public offering of the Company which was repaid with the proceeds of the
offering in October 1995. For year-to-date 1996, the Company incurred $15.1
14
<PAGE>
million in interest expense which approximates the pro-forma interest expense
for 1995 associated with the Company's on-going capital structure.
In 1996, the Company reflected $0.9 million and $1.6 million in other income for
the second quarter and year-to-date whereas $0.5 million was earned in 1995 (all
in the second quarter). Other income is primarily interest earned from excess
net cash from operations managed through The Limited Inc.'s centralized cash
management system. (see Note 7 of the Company's Consolidated Financial
Statements).
FINANCIAL CONDITION
The Company's consolidated balance sheet as of August 3, 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,
Inc.'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>
August 3, February 3,
1996 1996
---------- ------------
<S> <C> <C>
Working Capital $213,903 $172,762
Capitalization:
Long-term debt $350,000 $350,000
Deferred income taxes 47,942 71,475
Shareholders' equity 280,916 268,937
---------- ------------
Total Capitalization $678,858 $690,412
========== ============
</TABLE>
Net cash provided from operating activities totaled $62.0 million for the
twenty-six weeks ended August 3, 1996 versus $56.8 million for the same period
in 1995. The net change of $49.4 million for income tax payables was due
principally to the timing of tax payments on last year's fourth quarter
earnings. Prior to September 1995, the Company's tax liability resided on The
Limited, Inc.'s balance sheet. The $1.6 million of cash provided from
inventories in 1996 versus a $47.7 million use for 1995 was due to improved
inventory planning and the reduction of clearance inventory by both Victoria's
Secret Stores and Catalogue. In addition, the new planning methods have
enabled the divisions to reduce their warehouse inventories, thus shortening
holding time. Bath & Body Works also contributed to the reduction by reducing
the in-house production time for gift sets, consequently reducing the lead time
and holding period for gift set componentry.
Investing activities were all for capital expenditures, which are primarily for
new and remodeled stores.
15
<PAGE>
Financing activities included funding of $48.8 million from The Limited, Inc.
through the intercompany payable which helped fund the $60.6 million dividends
paid in the first half of 1996. Other changes in shareholders' equity and
short-term borrowings in 1995 represent activities related to the incorporation
of the Company.
Capital Expenditures
- --------------------
Capital expenditures, primarily for new and remodeled stores, totaled $48.7
million for the twenty-six weeks ended August 3, 1996 compared to $50.1 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 800,000
selling square feet in 1996, which will represent a 19% increase over year-end
1995. It is anticipated that the increase will result from the addition of
approximately 300 new stores and the remodeling/expansion of approximately 50
stores. The Company expects that future capital expenditures will be funded
principally by net cash provided by operating activities.
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 incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-04923).
10.2 Intimate Brands, Inc. 1995 Stock Plan for Non-Associate Directors
incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-04921).
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: September 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
-------------
<TABLE>
<CAPTION>
Exhibit No. Document
- ----------- --------------------------------
<C> <S>
15 Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Independent Accountants'
Report
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 15
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated September 10, 1996, on our review of
the interim consolidated financial information of Intimate Brands, Inc.
and Subsidiaries for the thirteen-week and twenty-six-week periods ended
August 3, 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.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 12, 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 AUGUST 3, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 12,918
<SECURITIES> 0
<RECEIVABLES> 16,340
<ALLOWANCES> 0
<INVENTORY> 357,246
<CURRENT-ASSETS> 431,964
<PP&E> 644,486
<DEPRECIATION> 276,596
<TOTAL-ASSETS> 918,334
<CURRENT-LIABILITIES> 218,061
<BONDS> 350,000
0
0
<COMMON> 2,527
<OTHER-SE> 280,916
<TOTAL-LIABILITY-AND-EQUITY> 918,334
<SALES> 1,239,499
<TOTAL-REVENUES> 1,239,499
<CGS> 847,760
<TOTAL-COSTS> 847,760
<OTHER-EXPENSES> 256,024
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,126
<INCOME-PRETAX> 122,195
<INCOME-TAX> 48,900
<INCOME-CONTINUING> 73,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,295
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
