<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 1, 1997
----------------
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)415-6900
--------------------------
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 November 25, 1997
-------------------- --------------------------------
$.01 Par Value 42,582,166 Shares
Class B Common Stock Outstanding at November 25, 1997
-------------------- --------------------------------
$.01 Par Value 210,000,000 Shares
<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 Thirty-nine Weeks Ended
November 1, 1997 and November 2, 1996............... 3
Consolidated Balance Sheets
November 1, 1997 and February 1, 1997............... 4
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended
November 1, 1997 and November 2, 1996............... 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 1. Legal Proceedings.......................................... 17
Item 5. Other Information.......................................... 17
Item 6. Exhibits and Reports on Form 8-K........................... 18
</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 Thirty-nine Weeks Ended
--------------------------------------- ---------------------------------------
November 1, 1997 November 2, 1996 November 1, 1997 November 2, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 689,978 $ 596,985 $ 2,220,593 $ 1,836,484
Cost of Goods Sold, Occupancy and Buying
Costs 440,751 402,954 1,460,713 1,250,714
----------- ----------- ----------- -----------
GROSS INCOME 249,227 194,031 759,880 585,770
General, Administrative and Store
Operating Expenses 183,566 140,802 526,452 396,826
----------- ----------- ----------- -----------
OPERATING INCOME 65,661 53,229 233,428 188,944
Interest Expense (7,564) (9,352) (22,690) (24,478)
Other Income 1,037 1,418 4,892 3,024
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 59,134 45,295 215,630 167,490
Provision for Income Taxes 23,700 18,100 86,300 67,000
----------- ----------- ----------- -----------
NET INCOME $ 35,434 $ 27,195 $ 129,330 $ 100,490
=========== =========== =========== ===========
NET INCOME PER SHARE $ .14 $ .11 $ .51 $ .40
=========== =========== =========== ===========
DIVIDENDS PER SHARE $ .13 $ .12 $ .39 $ .36
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 253,795 253,047 253,386 252,973
=========== =========== =========== ===========
</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 1, February 1,
1997 1997
---------------- ---------------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and Equivalents $ 16,969 $ 135,111
Accounts Receivable 20,074 18,750
Inventories 578,406 434,800
Intercompany Receivable -- 60
Other 107,429 68,255
----------- -----------
TOTAL CURRENT ASSETS 722,878 656,976
PROPERTY AND EQUIPMENT, NET 417,381 395,647
OTHER ASSETS 84,182 82,539
----------- -----------
TOTAL ASSETS $ 1,224,441 $ 1,135,162
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 119,564 $ 88,896
Accrued Expenses 124,410 136,598
Intercompany Payable 78,725 --
Income Taxes Payable 58,898 98,187
----------- -----------
TOTAL CURRENT LIABILITIES 381,597 323,681
LONG-TERM DEBT 350,000 350,000
DEFERRED INCOME TAXES 49,210 50,935
OTHER LONG-TERM LIABILITIES 10,169 8,493
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-in Capital 674,794 675,240
Retained Deficit (241,235) (272,071)
----------- -----------
436,086 405,696
Less Treasury Stock, at Average Cost (2,621) (3,643)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 433,465 402,053
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,224,441 $ 1,135,162
=========== ===========
</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 1, November 2,
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 129,330 $ 100,490
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 70,188 63,472
Changes in Assets and Liabilities:
Inventories (143,606) (178,582)
Accounts Payable and Accrued Expenses 18,480 61,952
Income Taxes (41,014) (35,846)
Other Assets and Liabilities (38,420) (20,324)
--------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (5,042) (8,838)
--------- ---------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (93,967) (100,069)
--------- ---------
FINANCING ACTIVITIES:
Dividends Paid (98,494) (90,970)
Change in Intercompany Payable/Receivable 78,785 203,619
Stock Options and Other 576 (538)
--------- ---------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (19,133) 112,111
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (118,142) 3,204
Cash and Equivalents, Beginning of Year 135,111 12,095
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 16,969 $ 15,299
========= =========
</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") includes specialty retail and
catalogue operations which offer women's intimate and other apparel,
personal care products and accessories. They consist of Victoria's
Secret Stores, Victoria's Secret Catalogue, Bath & Body Works,
Cacique, and Gryphon Development. An initial public offering of 42.7
million shares of the Company's Class A common stock was consummated
in 1995 and, as a result, approximately 83% of the outstanding common
stock of the Company is owned by The Limited, Inc. ("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. All significant intercompany balances
and transactions have been eliminated in consolidation.
The consolidated financial statements as of November 1, 1997 and for
the thirteen and thirty-nine week periods ended November 1, 1997 and
November 2, 1996 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 1996 Annual Report on Form 10-K.
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 1, 1997 and for
the thirteen and thirty-nine week periods ended November 1, 1997 and
November 2, 1996 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 February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
--------
Per Share." The Company will adopt the requirements for earnings per
---------
share in the fourth quarter of 1997, the effect of which will not be
material to the Company's consolidated financial statements.
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 1, February 1,
1997 1997
-------------- --------------
<S> <C> <C>
Property and equipment, at cost $766,572 $701,599
Accumulated depreciation and
amortization (349,191) (305,952)
-------------- ---------------
Property and equipment, net $417,381 $395,647
============== ===============
</TABLE>
5. INCOME TAXES
The Company is included in The Limited's consolidated federal and
certain state income tax groups for income tax reporting purposes and
is responsible for its proportionate share of income taxes calculated
based upon its federal taxable income at a current estimate of the
Company's annual effective tax rate. Income taxes paid during the
thirty-nine weeks ended November 1, 1997 and November 2, 1996
approximated $127.3 million and $102.8 million.
6. LONG-TERM DEBT
Long-term debt consists of notes which represent the Company's
portion of certain long-term debt of The Limited with interest rates
and maturities paralleling those of the corresponding debt of The
Limited. The 7 1/2% debentures are subject to early redemption
beginning in 2003 concurrent with any prepayment of the corresponding
debt by The Limited. Unsecured long-term debt consisted of
(thousands):
<TABLE>
<CAPTION>
November 1, February 1,
1997 1997
--------------- ---------------
<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>
- 7 -
<PAGE>
Interest paid during the thirty-nine weeks ended November 1, 1997 and
November 2, 1996, including interest on the intercompany cash
management account (see Note 7), approximated $30.3 million and $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. Interest on the
intercompany cash management account is calculated based on 30-day
commercial paper rates for "AA" rated companies as reported in the
Federal Reserve's H.15 statistical release.
The Company's proprietary credit card processing is performed by
Alliance Data Systems which is approximately 40%-owned by The
Limited.
The Company and The Limited are parties to a corporate agreement
under which the Company granted to The Limited a continuing option to
purchase, under certain circumstances, additional shares of Class B
Common Stock or shares of nonvoting capital stock of the Company. The
Corporate Agreement further provides that, upon request of The
Limited, the Company will use its best efforts to effect the
registration of any of the shares of Class B Common Stock and
nonvoting capital stock held by The Limited for sale.
- 8 -
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
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 November 1, 1997, and the related
condensed consolidated statements of income and cash flows for the thirteen-week
and thirty-nine-week periods ended November 1, 1997 and November 2, 1996. 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 1, 1997, 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
24, 1997 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 1, 1997, 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
November 17, 1997
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the third quarter of 1997, net sales increased 16% to $690.0 million from
$597.0 million a year ago. Third quarter operating income of $65.7 million
increased 23% from last year's $53.2 million. Earnings per share increased 27%
to $.14 per share compared to $.11 per share in 1996.
Highlights include the following:
Victoria's Secret Stores recorded a sales increase of 9%, while operating
income increased 12%. Sales and profits were driven by the successful new
"Angels" lingerie line, the continuing growth of Victoria's Secret Bath &
Fragrance, and a strategy of fewer price promotions.
Bath & Body Works recorded a comparable store sales increase of 9%, with
23% more stores than last year. Total sales grew 37% while operating
earnings increased 25%. The third quarter was highlighted by greater than
anticipated demand for two new product lines, Face Care and the White Barn
Home Fragrance Collection.
Victoria's Secret Catalogue continued to enjoy good momentum, with
operating profits up 27% on an 8% sales increase. The profit increase
resulted primarily from stronger merchandise margins.
Sales for the thirty-nine weeks ended November 1, 1997 of $2.221 billion
increased 21% from sales of $1.836 billion for the same period last year.
Operating income increased 24% to $233.4 million from $188.9 million a year ago,
and earnings per share grew 28% to $.51 per share, compared to $.40 per share in
1996.
10
<PAGE>
Financial Summary
- -----------------
The following summarized financial and statistical data compares the third
quarter and year-to-date periods ended November 1, 1997 to the comparable 1996
periods:
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
------------------------------------------- --------------------------------------------
Change Change
From From
Prior Prior
1997 1996 Year 1997 1996 Year
----------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales (millions):
Victoria's Secret Stores $332 $304 9% $1,046 $910 15%
Victoria's Secret Catalogue 143 133 8% 519 476 9%
Bath & Body Works 182 133 37% 572 378 51%
Cacique 22 20 10% 64 59 8%
Other 11 7 57% 20 13 54%
----------- ----------- ------------- ------------ ----------- -------------
Total Net Sales $690 $597 16% $2,221 $1,836 21%
=========== =========== ============= ============ =========== =============
Increase in comparable store sales:
Victoria's Secret Stores 3% 6% 9% 6%
Bath & Body Works 9% 2% 13% 8%
Cacique 16% 0% 11% 9%
----------- ----------- ------------ -----------
Total Intimate Brands, Inc. 5% 5% 10% 6%
=========== =========== ============ ===========
Retail Sales Excluding Catalogue and Other:
Retail sales increase
attributable to new and
remodeled stores 12% 19% 15% 19%
Retail sales per average
selling square foot $98 $95 3% $315 $293 8%
Retail sales per average
store (thousands) $304 $303 - $984 $935 5%
Average store size at end of
quarter (selling square feet) 3,111 3,128 (1%)
Retail selling square feet at end
of quarter (thousands) 5,624 4,968 13%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Third Quarter Year - to - Date
-------------------------- -------------------------------
1997 1996 1997 1996
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Number of stores:
Beginning of period 1,719 1,430 1,609 1,293
Opened 93 158 213 300
Closed (4) - *(14) (5)
----------- ----------- ------------- -------------
End of period 1,808 1,588 1,808 1,588
=========== =========== ============= =============
</TABLE>
* Includes sale of four Penhaligon's stores in April 1997.
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
----------------------------------------- ------------------------------------------
Change Change
November 1, November 2, From Prior November 1, November 2, From Prior
1997 1996 Year 1997 1996 Year
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 784 726 58 3,533 3,282 251
Bath & Body Works 906 737 169 1,728 1,313 415
Cacique 118 121 (3) 363 371 (8)
Penhaligon's - 4 (4) - 2 (2)
----------- ----------- ---------- ----------- ----------- ----------
Total stores and selling
square feet 1,808 1,588 220 5,624 4,968 656
=========== =========== ========== =========== =========== ==========
</TABLE>
Net Sales
- ---------
Net sales for the third quarter of 1997 increased by 16% over the same period
last year. This increase was primarily attributable to the net addition of 220
new stores which accounted for 60% of the increase. The remainder came from a 5%
increase in comparable store sales (representing 24% of the total net sales
increase) and a 10% increase in catalogue and other net sales. Year-to-date
sales increased 21% over same period in 1996, due to the addition of new stores
(55% of total increase), a 10% increase in comparable store sales (32% of total
increase) and a 10% increase in catalogue and other net sales.
Victoria's Secret Stores net sales for the third quarter of 1997 increased 9% to
$332 million from $304 million a year ago. The sales increase was due to a 3%
increase in comparable store sales for the quarter and the net addition of 58
new stores and 251,000 selling square feet (an 8% increase in selling square
feet over 1996).
Bath & Body Works net sales for the third quarter of 1997 increased 37% to $182
million from $133 million a year ago. The sales increase was primarily
attributable to a net addition of 169 stores and 415,000 selling square feet, a
32% increase in selling square feet over 1996. The balance of the increase was
from a 9% increase in comparable store sales for the quarter.
Victoria's Secret Catalogue net sales for the third quarter of 1997 increased 8%
to $143 million from $133 million a year ago. This increase was primarily
attributable to an increase in catalogue circulation in the third quarter of
1997 over the same period last year.
12
<PAGE>
Gross Income
- ------------
Gross income increased as a percentage of net sales to 36.1% for the third
quarter of 1997 from 32.5% for the same period in 1996. The increase was a
combination of a 3.1% increase in merchandise margin and a 0.5% reduction in
buying and occupancy costs. The increase in merchandise margin is primarily
attributable to a less promotional, full price business at Victoria's Secret
Stores as well as the increase in Bath & Body Works (IBI's highest merchandise
margin business) as a percentage of total Company sales, from 22% of total
Company net sales in 1996 to 26% in 1997. The reduction in buying and occupancy
costs, expressed as a percentage of net sales, was primarily due to leverage
associated with a 5% increase in comparable store sales and an increase in the
mix of Company sales to Bath & Body Works, which experiences a lower buying and
occupancy rate due to higher sales productivity (expressed in sales per selling
square foot) and a smaller store size.
The 1997 year-to-date gross income percentage increased 2.3% to 34.2% in 1997
from 31.9% for the same period in 1996. The year-to-date increase was primarily
attributable to a 1.2% rate increase in merchandise margins and a 1.1% rate
reduction in buying and occupancy costs, resulting from the factors as discussed
above for the third quarter. The Company believes that strong sales growth of
Bath & Body Works will continue to have a positive impact on gross income
expressed 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 26.6% in the third quarter of 1997 from 23.6% for the same
period in 1996. Year-to-date, the rate increased as a percentage of sales to
23.7% for 1997 from 21.6% in 1996. The increase in the Company's expense rate
was primarily due to three factors: the growth of Bath & Body Works net sales as
a percentage of total Company sales, the investments made in store staffing and
management for the personal care portion of the business at Victoria's Secret
Stores and increased advertising costs for Victoria's Secret. Compared to
Company average, Bath & Body Works has higher general, administrative and store
operating expenses due to their emphasis on point-of-sale marketing and in-store
staffing. The Company believes that continued strong growth of Bath & Body Works
as a percentage of total Company sales may cause these costs to continue to
increase, expressed as a percentage of total Company sales.
Operating Income
- ----------------
Third quarter and year-to-date operating income, as a percentage of net sales,
was 9.5% and 10.5% in 1997 compared to 8.9% and 10.3% in 1996, respectively. The
improvement in gross income, expressed as a percentage of sales, outpaced the
general, administrative and store operating expenses in the third quarter and
year-to-date for 1997, as explained above.
13
<PAGE>
Interest Expense and Other Income
- ---------------------------------
The Company incurred $7.6 million in interest expense for third quarter 1997
compared to $9.4 million in 1996 and $22.7 million for 1997 year-to-date
compared to $24.5 million in 1996. The interest expense arose primarily from
the Company's $350 million long-term debt.
Other income is primarily interest earned from excess net cash from operations
managed through The Limited'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 November 1, 1997 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 system provide the resources to support operations,
including projected growth, seasonal working capital requirements and capital
expenditures. A summary of the Company's working capital position and long-term
on-going capitalization follows (thousands):
<TABLE>
<CAPTION>
November 1, February 1,
1997 1997
------------- -------------
<S> <C> <C>
Working Capital $341,281 $333,295
============= =============
Capitalization:
Long-term debt $350,000 $350,000
Shareholders' equity 433,465 402,053
------------- -------------
Total Capitalization $783,465 $752,053
============= =============
</TABLE>
14
<PAGE>
Net cash used for operating activities totaled $5.0 million for the thirty-nine
weeks ended November 1, 1997 versus a use of $8.8 million for the same period in
1996. The $143.6 and $178.6 million of cash used for inventories in 1997 and
1996 is primarily due to planned increases associated with the holiday selling
period and an increase in the number of stores. The decline from the prior
year in cash used for inventories is due to merchandise deliveries moving into
the first month of the fourth quarter. The timing of the inventory receipts also
resulted in a decline in cash provided from increases in accounts payable and
accrued expenses. The $38.4 million of cash used for other assets and
liabilities in 1997 includes a $20.9 million increase in paper inventory at
Victoria's Secret Catalogue to hedge against expected increases in the cost of
paper and provide flexibility in catalogue production.
Investing activities were all for capital expenditures, of which $59.8 million
was for new and remodeled stores and $17.9 million was for equipment and
leasehold improvements for Bath & Body Works' new distribution center and world
headquarters.
Financing activities included the payment of $98.5 million of dividends for the
first three quarters of 1997 and $78.8 million of net cash received through The
Limited's centralized cash management system to help fund seasonal builds in
inventory (see Note 7).
Capital Expenditures
- --------------------
Capital expenditures, including equipment and leasehold improvements for Bath &
Body Works' new distribution center and world headquarters, totaled $94.0
million for the thirty-nine weeks ended November 1, 1997 compared to $100.1
million for the comparable period of 1996. The Company anticipates spending
$110 - $130 million in 1997 for capital expenditures, of which $75 - $95 million
will be for new stores, the relocation and expansion of existing stores and
related improvements for the retail businesses.
The Company intends to add approximately 640,000 selling square feet in 1997,
which will represent a 13% increase over year-end 1996. It is anticipated that
the increase will result from the addition of approximately 222 new stores and
the remodeling/expansion of approximately 38 stores. The Company expects that
future capital expenditures will be funded principally by net cash provided by
operating activities.
15
<PAGE>
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, ability to hire and train
associates, 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 experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business.
On November 13, 1997, the United States District Court for the
Southern District of Ohio, Eastern Division, dismissed with prejudice
an amended complaint previously transferred to that court by the
United States District Court, Central District of California. The
amended complaint, which had been filed against the Company, The
Limited and certain of The Limited's other subsidiaries by the
American Textile Manufacturers Institute ("ATMI"), a textile industry
trade association, alleged that the defendants violated the federal
False Claims Act by submitting false country of origin records to the
US Customs Service. On November 26, 1997, ATMI served a motion to
alter or amend judgment and a motion to disqualify the presiding
judge and to vacate the order of dismissal. The Company is vigorously
opposing these motions.
Although it is not possible to predict with certainty the eventual
outcome of any litigation, in the opinion of management, the foregoing
proceedings are not expected to have a material adverse effect on the
Company's financial position or results of operations.
Item 5. OTHER INFORMATION
The Company's Certificate of Incorporation includes provisions
relating to potential conflicts of interest that may arise between the
Company and The Limited. Such provisions were adopted in light of the
fact that the Company and The Limited and its subsidiaries are engaged
in retail businesses and may pursue similar opportunities in the
ordinary course of business. Among other things, these provisions
generally eliminate the liability of directors and officers of the
Company with respect to certain matters involving The Limited and its
subsidiaries, including matters that may constitute corporate
opportunities of The Limited, its subsidiaries or the Company. Any
person purchasing or acquiring an interest in shares of capital stock
of the Company will be deemed to have consented to such provisions
relating to conflicts of interest and corporate opportunities, and
such consent may restrict such person's ability to challenge
transactions carried out in compliance with such provisions. Investors
should review the Company's Certificate of Incorporation before making
any investment in shares of the Company's capital stock.
17
<PAGE>
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. 1996 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. Incentive Compensation Plan incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement
on Form S-8 (File No. 333-04921).
11. Statements re: Computation of Per Share Earnings.
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.
18
<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. Mallott
-----------------------------
Philip E. Mallott,
Chief Financial Officer*
Date: December 15, 1997
- -------------------------------
* Mr. Mallott is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
19
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- ----------------------------------------------------------------
11 Statement re: Computation of Per Share Earnings.
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 11
----------
INTIMATE BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------------------------
November 1, November 2,
1997 1996
------------------- -------------------
<S> <C> <C>
Net income $ 35,434 $ 27,195
=================== ===================
Common shares outstanding:
Weighted average 252,700 252,700
Dilutive effect of stock options 1,222 355
Weighted average treasury shares (127) (8)
------------------- -------------------
Weighted average used to calculate
net income per share 253,795 253,047
=================== ===================
Net income per share $ .14 $ .11
=================== ===================
<CAPTION>
Thirty-nine Weeks Ended
----------------------------------------
November 1, November 2,
1997 1996
------------------- -------------------
<S> <C> <C>
Net income $129,330 $100,490
=================== ===================
Common shares outstanding:
Weighted average 252,700 252,700
Dilutive effect of stock options 836 279
Weighted average treasury shares (150) (6)
------------------- -------------------
Weighted average used to calculate
net income per share 253,386 252,973
=================== ===================
Net income per share $ .51 $ .40
=================== ===================
</TABLE>
<PAGE>
EXHIBIT 15
----------
[Letterhead of Coopers & Lybrand appears here]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated November 17, 1997, 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
1, 1997 and included in this Form 10-Q is incorporated by reference in the
Company's registration statements on Form S-8, Registration Nos. 333-04921 and
333-04923. 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, 1997
<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 1, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 16,969
<SECURITIES> 0
<RECEIVABLES> 20,074
<ALLOWANCES> 0
<INVENTORY> 578,406
<CURRENT-ASSETS> 722,878
<PP&E> 766,572
<DEPRECIATION> 349,191
<TOTAL-ASSETS> 1,224,441
<CURRENT-LIABILITIES> 381,597
<BONDS> 350,000
0
0
<COMMON> 2,527
<OTHER-SE> 430,938
<TOTAL-LIABILITY-AND-EQUITY> 1,224,441
<SALES> 2,220,593
<TOTAL-REVENUES> 2,220,593
<CGS> 1,460,713
<TOTAL-COSTS> 1,460,713
<OTHER-EXPENSES> 526,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,690
<INCOME-PRETAX> 215,630
<INCOME-TAX> 86,300
<INCOME-CONTINUING> 129,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,330
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
