<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 1, 1997
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ______________
Commission file number 1-13814
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INTIMATE BRANDS, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 31-1436998
- -------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
Three Limited Parkway, P.O. Box 16000, Columbus, Ohio 43216
- ----------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 479-7000
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each Class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Class A Common Stock, $.01 Par Value The New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
-
Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of March 28, 1997: $829,277,397.
Number of shares outstanding of the registrant's Common Stock as of March 28,
1997: 42,527,046 shares of Class A common stock; 210,000,000 shares of Class B
common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's annual report to shareholders for the fiscal year
ended February 1, 1997 are incorporated by reference into Part I, Part II and
Part IV, and portions of the registrant's proxy statement for the Annual Meeting
of Shareholders scheduled for May 19, 1997 are incorporated by reference into
Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL.
Intimate Brands, Inc., a Delaware corporation (the "Company"), is principally
engaged in the purchase, distribution and sale of lingerie, personal care
products and women's apparel. The Company's retail activities are conducted
under various trade names through retail stores and the catalogue division of
the Company. Apparel merchandise is targeted to appeal to customers in specialty
markets who have distinctive consumer characteristics. The Company's catalogue
offers variously priced women's fashion apparel, including lingerie, swimwear,
shirts, blouses, sweaters, pants, skirts, coats, dresses and shoes. In addition,
the Company's retail stores offer lingerie and accessories, fragrances, bath,
personal care products and specialty gift items.
DESCRIPTION OF OPERATIONS.
General.
- -------
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"). An initial public offering of 42.7 million shares of the Company's
Class A common stock was consummated in the Fall of 1995 and, as a result,
approximately 83% of the outstanding common stock of the Company is owned by The
Limited.
As of February 1, 1997, the Company operated three lingerie businesses,
including two retail businesses and one catalogue business (Victoria's Secret
Catalogue ), and two personal care businesses. The following chart reflects the
retail businesses and the number of stores in operation for each business at
February 1, 1997 and February 3, 1996.
<TABLE>
<CAPTION>
RETAIL BUSINESSES NUMBER OF STORES
----------------- ----------------
February 1, February 3,
1997 1996
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<S> <C> <C>
Victoria's Secret Stores 736 671
Bath & Body Works 750 498
Cacique 119 120
Penhaligon's* 4 4
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Total 1,609 1,293
=========== ===========
</TABLE>
* Penhaligon's was sold in March 1997.
2
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The following table shows the changes in the number of retail stores operated by
the Company for the past five fiscal years:
<TABLE>
<CAPTION>
Fiscal Beginning
Year of Year Opened Closed End of Year
------ --------- ------ ------ -----------
<S> <C> <C> <C> <C>
1992 662 87 (6) 743
1993 743 155 (19) 879
1994 879 166 (8) 1,037
1995 1,037 260 (4) 1,293
1996 1,293 325 (9) 1,609
</TABLE>
The Company also operates Gryphon Development, Inc. ("Gryphon"). Gryphon
creates, develops and sources a substantial portion of the bath and personal
care products sold by the Company.
During fiscal year 1996, the Company purchased merchandise from approximately
1,000 suppliers and factories located throughout the world. The Company sourced
approximately 21% of its merchandise through Mast Industries, Inc., a wholly-
owned contract manufacturing subsidiary of The Limited. In addition to
purchases from Mast, the Company purchases merchandise directly in foreign
markets, with additional merchandise purchased in the domestic market, some of
which is manufactured overseas. No more than 5% of goods purchased originated
from any single third party manufacturer.
Most of the merchandise and related materials for the Company's stores and
catalogue is shipped to distribution centers owned by The Limited in the
Columbus, Ohio area, where the merchandise is received and inspected. The
Limited uses common and contract carriers to distribute merchandise and related
materials to the Company's stores. The Company pays outbound freight for stores
to The Limited based on cartons shipped. The catalogue division contracts and
ships to its customers via independent third parties including the U.S. Postal
Service. The Company's divisions generally have independent distribution
capabilities and no division receives priority over any other division. There
are no distribution channels between the divisions.
The Company's policy is to maintain sufficient quantities of inventory on hand
in its retail stores and distribution centers so that it can offer customers a
full selection of current merchandise. The Company emphasizes rapid turnover
and takes markdowns where required to keep merchandise fresh and current with
fashion trends.
The Company views the retail apparel market as having two principal selling
seasons, Spring and Fall. As is generally the case in the apparel industry, the
Company experiences its peak sales activity during the Fall season. This
seasonal sales pattern results in increased inventory during the Fall and
Christmas holiday selling periods. During fiscal year 1996, the highest
inventory level approximated $584 million at the November 1996 month-end and the
lowest inventory level approximated $321 million at the May 1996 month-end.
Merchandise sales are paid for in cash or by personal check, credit cards issued
by third parties or The Limited's 40% owned credit card processing venture,
Alliance Data Services ("ADS"). ADS was
3
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formed in part from World Financial Network National Bank ("WFNNB"), a wholly-
owned subsidiary of The Limited prior to January 1996, when a 60% interest was
sold to a New York investment firm, resulting in the formation of a venture that
provides private-label and bank card transaction processing and database
management services to retailers, including the Company's private-label credit
card operations.
The Company offers its customers a liberal return policy stated as "No Sale is
Ever Final." The Company believes that certain of its competitors offer similar
credit card and service policies.
The following is a brief description of each of the Company's operating
divisions, including their respective target markets.
Victoria's Secret Stores - The most successful brand of elegant intimate
apparel, foundations and related products for women.
Cacique - Uniquely designed, high-quality lingerie for the elegant, intelligent
and sophisticated woman, aged twenty-five and up.
Victoria's Secret Catalogue - The industry-leading catalogue of women's intimate
and fashion apparel.
Bath & Body Works - Healthy, natural, good-for-you personal care products and
gifts from America's heartland.
Additional information about the Company's business, including its revenues and
profits for the last three years, plus selling square footage and other
information about each of the Company's operating divisions, is set forth under
the caption "Management's Discussion and Analysis" of the Intimate Brands, Inc.
1996 Annual Report to Shareholders, portions of which are annexed hereto as
Exhibit 13 (the "1996 Annual Report") and is incorporated herein by reference.
COMPETITION.
The sale of apparel, lingerie and personal care products through retail stores
is a highly competitive business with numerous competitors, including individual
and chain fashion specialty stores and department stores. Design, price,
service, selection and quality are the principal competitive factors in retail
store sales. The Company's Catalogue business competes with numerous national
and regional catalogue merchandisers. Design, price, quality and catalogue
presentation are the principal competitive factors in Catalogue sales.
The Company is unable to estimate the number of competitors or its relative
competitive position due to the large number of companies selling apparel and
personal care products at retail, both through stores and catalogue. However,
the Company estimates its total share of the domestic lingerie market at
approximately 10%.
4
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ASSOCIATE RELATIONS.
On February 1, 1997, the Company employed approximately 43,900 associates,
32,400 of whom were part-time. In addition, temporary associates are hired
during peak periods, such as the Holiday season.
ITEM 2. PROPERTIES.
The Company's business is principally conducted from office, distribution and
shipping facilities located in the Columbus, Ohio area. Additional facilities
are located in New York City, New York, Kettering, Ohio and London, England.
The distribution and shipping facilities are owned by The Limited and are leased
by the Company under fifteen year leases, with options to renew.
Substantially all of the retail stores operated by the Company are located in
leased facilities, primarily in shopping centers throughout the continental
United States. The leases expire at various dates principally between 1997 and
2017 and generally have renewal options.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to defray a portion of the cost of
improvements. The cost of improvements varies widely, depending on the size and
location of the store. Rental terms for new locations usually include a fixed
minimum rent plus a percentage of sales in excess of a specified amount.
Certain operating costs such as common area maintenance, utilities, insurance,
and taxes are typically paid by tenants.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in lawsuits arising in the ordinary course of
business. Although the amount of any liability that could arise with respect to
any such lawsuit cannot be accurately predicted, in the opinion of management,
the resolution of these matters is not expected to have a material adverse
effect on the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of February 1, 1997.
Leslie H. Wexner, 59, has been Chairman of the Board and Chief Executive Officer
of the Company since 1995. Mr. Wexner has been President and Chief Executive
Officer of The Limited since he founded The Limited in 1963 and has been
Chairman of the Board of Directors of The Limited for more than five years.
Kenneth B. Gilman, 50, has been Vice Chairman of the Company since 1995. Mr.
Gilman has been Vice Chairman and Chief Financial Officer of The Limited since
June 1993 and was Executive Vice President and Chief Financial Officer of The
Limited for more than five years prior thereto.
5
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Cynthia D. Fedus, 47, has been President and Chief Executive Officer of
Victoria's Secret Catalogue since August 1988, and assumed such position with
the Company in 1995.
Grace A. Nichols, 50, has been President and Chief Executive Officer of
Victoria's Secret Stores, Inc. since January 1991, and assumed such position
with the Company in 1995. For three years prior thereto, Ms. Nichols was
Executive Vice President, General Merchandise Manager of Victoria's Secret
Stores.
Beth M. Pritchard, 50, has been President and Chief Executive Officer of Bath &
Body Works, Inc. ("BBW") since November 1993, and assumed such position with the
Company in 1995. For approximately one and one-half years prior thereto, Ms.
Pritchard held the position of Executive Vice President and General Manager at
BBW. From 1991 until 1993, Ms. Pritchard was Executive Vice President at
Express, a business operated by The Limited.
Philip E. Mallott, 39, has been Vice President Finance and Chief Financial
Officer of the Company since 1995. For approximately one year prior thereto,
Mr. Mallott was Chief Financial Officer at Structure, a business operated by The
Limited, Inc. From 1991 until 1994, Mr. Mallott was Vice President, Finance at
Structure.
All of the above officers serve at the pleasure of the Board of Directors of the
Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Information regarding markets in which the Company's common stock was traded
during fiscal year 1996 and 1995, approximate number of holders of common stock,
and quarterly cash dividend per share information of the Company's common stock
for the fiscal year 1996 and 1995 is set forth under the caption "Market Price
and Dividend Information" on page 47 of the 1996 Annual Report and is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data is set forth under the caption "Financial Summary" on
page 30 of the 1996 Annual Report and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is set forth under the caption "Management's Discussion and Analysis"
on pages 31 through 36 of the 1996 Annual Report and is incorporated herein by
reference.
- ------------------------------------------------------
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No.
128 is effective for the Company's 1997 annual financial statements. The
Company believes that the impact on its financial statements will be immaterial.
6
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and subsidiaries, the Notes
to Consolidated Financial Statements and the Report of Independent Accountants
are set forth in the 1996 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company is set forth under the captions
"ELECTION OF DIRECTORS - Nominees and Directors", "- Business Experience", "-
Information Concerning the Board of Directors" and "- Security Ownership of
Directors and Management" on pages 1 through 5 of the Company's proxy statement
for the Annual Meeting of Shareholders to be held May 19, 1997 (the "Proxy
Statement") and is incorporated herein by reference. Information regarding
compliance with Section 16 (a) of the Securities Exchange Act of 1934, as
amended, is set forth under the caption "EXECUTIVE COMPENSATION - Section 16 (a)
Beneficial Ownership Reporting Compliance" on page 10 of the Proxy Statement and
is incorporated herein by reference. Information regarding executive officers
is set forth herein under the caption "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF
THE REGISTRANT" in Part I.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth under the caption
"EXECUTIVE COMPENSATION" on pages 6 through 10 of the Proxy Statement and is
incorporated herein by reference. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "ELECTION OF DIRECTORS - Security
Ownership of Directors and Management" on pages 4 and 5 of the Proxy Statement
and "PRINCIPAL HOLDERS OF VOTING SECURITIES" on page 14 of the Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is set
forth under the caption "ELECTION OF DIRECTORS - Business Experience" on pages 2
and 3 of the Proxy Statement and is incorporated herein by reference.
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 and 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.
7
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) List of Financial Statements.
----------------------------
The following consolidated financial statements of Intimate Brands, Inc.
and subsidiaries and the related notes are filed as a part of this report
pursuant to ITEM 8:
Consolidated Statements of Income for the fiscal years ended February 1,
1997, February 3, 1996 and January 28, 1995.
Consolidated Balance Sheets as of February 1, 1997 and February 3, 1996.
Consolidated Statements of Shareholders' Equity for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a)(2) List of Financial Statement Schedules.
-------------------------------------
All schedules are omitted because the required information is
either presented in the financial statements or notes thereto, or
is not applicable, required or material.
(a)(3) List of Exhibits.
-----------------
3. Articles of Incorporation and Bylaws.
3.1. Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
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.
8
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10. Material Contracts.
10.1. Services Agreement by Intimate Brands, Inc. and The Limited,
Inc., dated October 23, 1995 incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 28, 1995.
10.2. Credit Card Processing Agreement by World Financial Network
National Bank and Victoria's Secret Stores, Inc., dated
October 23, 1995 incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended October 28, 1995.
10.3. Credit Card Processing Agreement by World Financial Network
National Bank and Victoria's Secret Catalogue, Inc., dated
October 23, 1995 incorporated by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended October 28, 1995.
10.4. Corporate Agreement by Intimate Brands, Inc. and The Limited,
Inc., dated October 23, 1995 incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 28, 1995.
10.5. Tax Sharing Agreement by Intimate Brands, Inc. and The
Limited, Inc., dated October 23, 1995 incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 28, 1995.
10.6. Building Lease Agreement by Distribution Land Corp. and
Victoria's Secret Stores, Inc., dated June 1, 1995
incorporated by reference to Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
28, 1995.
10.7. Building Lease Agreement by Distribution Land Corp. and
Victoria's Secret Catalogue , Inc., dated June 1, 1995
incorporated by reference to Exhibit 10.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
28, 1995.
10.8. Sublease Agreement by The Limited London-Paris-New York, Inc.
and Bath & Body Works, Inc., dated June 1, 1995 incorporated
by reference to Exhibit 10.8 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995.
10.9. Sublease Agreement by Lane Bryant, Inc. and Cacique, Inc.,
dated June 1, 1995 incorporated by reference to Exhibit 10.9
to the Company's Quarterly Report on Form 10-Q for the quarter
ended October 28, 1995.
10.10. Sublease Agreement by Victoria's Secret Stores, Inc. and Henri
Bendel, Inc., dated June 1, 1995 incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q
for the quarter ended October 28, 1995.
10.11. Sublease Agreement by Victoria's Secret Stores, Inc. and
Abercrombie & Fitch Co., Inc., dated June 1, 1995 incorporated
by reference to Exhibit 10.11 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 28, 1995.
9
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10.12. Shared Facilities Agreement by The Limited London-Paris-New
York, Inc. and Bath & Body Works, Inc., dated October 25, 1995
incorporated by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
28, 1995.
10.13. Shared Facilities Agreement by Structure, Inc. and Bath & Body
Works, Inc., dated October 25, 1995 incorporated by reference
to Exhibit 10.13 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 28, 1995.
10.14. Shared Facilities Agreement by The Limited London-Paris-New
York, Inc. and Victoria's Secret Stores, Inc., dated October
25, 1995 incorporated by reference to Exhibit 10.14 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 28, 1995.
10.15. Shared Facilities Agreement by Express, Inc. and Bath & Body
Works, Inc., dated October 25, 1995 incorporated by reference
to Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 28, 1995.
10.16. Shared Facilities Agreement by The Limited London-Paris-New
York, Inc. and Victoria's Secret Stores, Inc., dated October
25, 1995 incorporated by reference to Exhibit 10.16 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 28, 1995.
10.17. Shared Facilities Agreement by The Limited London-Paris-New
York, Inc. and Cacique, Inc., dated October 25, 1995
incorporated by reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October
28, 1995.
10.18. Shared Facilities Agreement by Cacique, Inc. and Bath & Body
Works, Inc., dated October 25, 1995 incorporated by reference
to Exhibit 10.18 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 28, 1995.
10.19. Shared Facilities Agreement by Express, Inc. and Victoria's
Secret Stores, Inc., dated October 25, 1995 incorporated by
reference to Exhibit 10.20 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995.
10.20. Shared Facilities Agreement by Lerner New York, Inc. and Bath
& Body Works, Inc., dated October 25, 1995 incorporated by
reference to Exhibit 10.21 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995.
10.21. Shared Facilities Agreement by Lerner New York, Inc. and
Cacique, Inc., dated October 25, 1995 incorporated by
reference to Exhibit 10.22 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995.
10
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10.22. Shared Facilities Agreement by Express, Inc. and Victoria's
Secret Stores, Inc., dated October 25, 1995 incorporated by
reference to Exhibit 10.23 to the Company's Quarterly Report
on Form 10-Q for the quarter ended October 28, 1995.
10.23. Intimate Brands, Inc. 1995 Stock Option and Performance
Incentive Plan incorporated by reference to Exhibit B to the
Company's Proxy Statement dated April 14, 1997.
10.24. Intimate Brands, Inc. Incentive Compensation Performance Plan
incorporated by reference to Exhibit A to the Company's Proxy
Statement dated April 14, 1997.
10.25. Intimate Brands, Inc. 1995 Stock Plan for Non-Associate
Directors incorporated by reference to Exhibit 10.26 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
October 28, 1995.
10.26. Form of Indemnification Agreement between the Company and the
directors and officers of the Company incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended February 3, 1996.
11. Statement re Computation of Per Share Earnings.
13. Excerpts from the 1996 Annual Report to Shareholders, including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 30 - 46.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
99. Annual Report of The Limited, Inc. Savings and Retirement Plan.
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the fourth quarter of fiscal
year 1996.
(c) Exhibits.
--------
The exhibits to this report are listed in section (a)(3) of Item 14
above.
(d) Financial Statement Schedules.
-----------------------------
Not applicable.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 29, 1997
INTIMATE BRANDS, INC.
(registrant)
By /s/ PHILIP E. MALLOTT
---------------------
Philip E. Mallott,
Vice President Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 30, 1997:
Signature Title
--------- -----
/s/ LESLIE H. WEXNER* Chairman of the Board of Directors,
- ----------------------------- President and Chief Executive Officer
Leslie H. Wexner
/s/ KENNETH B. GILMAN* Director and Vice Chairman
- -----------------------------
Kenneth B. Gilman
/s/ ROGER D. BLACKWELL* Director
- -----------------------------
Roger D. Blackwell
/s/ CYNTHIA D. FEDUS* Director
- -----------------------------
Cynthia D. Fedus
/s/ E. GORDON GEE* Director
- -----------------------------
E. Gordon Gee
/s/ GRACE A. NICHOLS* Director
- -----------------------------
Grace A. Nichols
/s/ BETH M. PRITCHARD* Director
- -----------------------------
Beth M. Pritchard
12
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/s/ DONALD B. SHACKELFORD* Director
- -----------------------------
Donald B. Shackelford
/s/ ALEX SHUMATE* Director
- -----------------------------
Alex Shumate
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-indicated directors of the registrant pursuant to
powers of attorney executed by such directors.
By /s/ PHILIP E. MALLOTT
---------------------
Philip E. Mallott
Attorney-in-fact
13
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[LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Intimate Brands, Inc.
We have audited the accompanying consolidated balance sheets of Intimate Brands,
Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three fiscal years in the period ended February 1, 1997, which
financial statements are included on pages 37 through 46 of the 1996 Annual
Report to Shareholders of Intimate Brands, Inc. and incorporated by reference
herein. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intimate Brands,
Inc. and Subsidiaries as of February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 24, 1997
<PAGE>
EXHIBIT INDEX
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Exhibit No. Document
- ----------- ----------------------------------------
11 Statement re Computation of Per Share Earnings.
13 Excerpts from the 1996 Annual Report to Shareholders, including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 30 - 46.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Annual Report of The Limited, Inc. Savings and Retirement Plan.
<PAGE>
EXHIBIT 11
----------
INTIMATE BRANDS, INC.
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
February 1, February 3,
1997 1996
---------------- ---------------
<S> <C> <C>
Net income $157,720 $131,916
================ ===============
Common shares outstanding:
Weighted average 252,700 252,121
Dilutive effect of stock options 297 -
Weighted average treasury shares (149) -
---------------- ---------------
Weighted average used to calculate
net income per share 252,848 252,121
================ ===============
Net income per share $ 0.62 $ 0.52
================ ===============
<CAPTION>
Year Ended
------------------------------------
February 1, February 3,
1997 1996
---------------- ---------------
Net income $258,210 $204,059
================ ===============
Common shares outstanding:
Weighted average 252,700 221,300
Dilutive effect of stock options 397 -
Weighted average treasury shares (42) -
---------------- ---------------
Weighted average used to calculate
net income per share 253,055 221,300
================ ===============
Net income per share $ 1.02 $ 0.92
================ ===============
</TABLE>
<PAGE>
FINANCIAL SUMMARY EXHIBIT 13
----------
<TABLE>
<CAPTION>
(Thousands except per share amounts, ratios and store and associate data)
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1996 1995/./ 1994 1993 1992 1991*
................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales $2,997,340 $2,516,555 $2,108,310 $1,630,828 $1,325,326 $1,199,496
Gross Income $1,055,045 $ 820,928 $ 702,287 $ 496,500 $ 397,936 $ 366,938
Operating Income $ 458,142 $ 386,296 $ 337,988 $ 218,462 $ 167,287 $ 177,837
Operating Income as a Percentage of Sales 15.3% 15.4% 16.0% 13.4% 12.6% 14.8%
Income Before Income Taxes $ 430,210 $ 340,059 $ 337,988 $ 218,462 $ 167,287 $ 177,837
Net Income $ 258,210 $ 204,059 $ 202,988 $ 132,462 $ 102,287 $ 106,404
Net Income as a Percentage of Sales 8.6% 8.1% 9.6% 8.1% 7.7% 8.9%
................................................................................................................................
OTHER FINANCIAL INFORMATION
Total Assets $1,135,162 $ 943,353 $ 768,551 $ 655,061 $ 611,429 $ 487,388
Return on Average Assets 25% 24% 29% 21% 19% 26%
Working Capital $ 333,295 $ 241,177 $ 220,757 $ 157,464 $ 151,870 $ 169,703
Current Ratio 2.0 2.0 2.6 2.3 2.6 3.1
Capital Expenditures $ 123,630 $ 128,229 $ 107,037 $ 81,145 $ 78,792 $ 76,975
Long-Term Debt $ 350,000 $ 350,000 - - - -
Debt-to-Equity Ratio 87% 130% - - - -
Shareholders' Equity $ 402,053 $ 268,937 $ 573,195 $ 469,136 $ 455,180 $ 371,188
Return on Average Shareholders' Equity 77% 48% 39% 29% 25% 36%
Comparable Store Sales Increase 7% 1% 13% 9% 1% 8%
................................................................................................................................
PER SHARE RESULTS
Net Income $ 1.02 $ 0.92 $ 0.97 $ 0.63 $ 0.49 $ 0.51
Book Value $ 1.59 $ 1.06 $ 2.73 $ 2.23 $ 2.17 $ 1.77
Weighted Average Shares Outstanding 252,942 221,300 210,000 210,000 210,000 210,000
................................................................................................................................
STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 1,609 1,293 1,037 879 743 662
Selling Square Feet 5,047,000 4,230,000 3,419,000 2,915,000 2,349,000 1,895,000
Number of Associates 43,900 39,300 30,100 22,500 15,900 14,200
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/./ Fifty-three week fiscal year.
* Includes the results of companies acquired subsequent to the date of
acquisition.
<TABLE>
<CAPTION>
NUMBER OF STORES
<S> <C>
1992 ---------------- 743
1993 ------------------- 879
1994 ---------------------- 1,037
1995 ------------------------- 1,293
1996 ---------------------------- 1,609
</TABLE>
Intimate Brands, Inc. 30 1996 Annual Report
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the 1996 thirteen-week fourth quarter were $1.161 billion, an
increase of 19% from $977 million for the fourteen-week fourth quarter a year
ago. Operating income before special and nonrecurring items was $281 million, up
23% compared to $228 million last year. Earnings per share before special and
nonrecurring items were up 25% to $0.65 compared to $0.52 in 1995. The Company
recognized a $12 million special and nonrecurring charge in the fourth quarter
of 1996 reflecting the early 1997 sale of Penhaligon's, a wholly-owned, U.K.-
based subsidiary. The 1996 operating results for Penhaligon's, representing
sales of $5.5 million and a pre-tax loss of $3.1 million, are included in the
Company's consolidated results. After reflecting the Penhaligon's charge,
earnings per share were $0.62 for the quarter, up 19% over last year.
Net sales for the fifty-two week fiscal year ended February 1, 1997 increased
19% to $2.997 billion from $2.517 billion for the fifty-three week last year.
Operating income for the year before special and nonrecurring charges increased
22% to $470 million from 1995's $386 million. Earnings per share before the
Penhaligon's charge were $1.05 in 1996 compared to $0.85 on a pro-forma basis a
year ago, an increase of 24%. After reflecting the Penhaligon's charge, the
Company earned $1.02 per share, an increase of 20% over last year's pro-forma
results.
The table below includes pro-forma 1995 results reflecting 1) approximately
250 million shares outstanding subsequent to the initial public offering
("IPO"), 2) interest expense on only the Company's outstanding long-term debt
subsequent to the IPO for the entire year and 3) the elimination of interest
earned on temporary excess cash related to the IPO of the Company.
Divisional highlights include the following:
. Victoria's Secret is now a $2 billion brand. Victoria's Secret Stores achieved
an annual sales increase of 13% to $1.45 billion while operating income
increased 14%, bolstered by strong fourth quarter margins. Building strong
brand equity throughout the year with new products like the Perfect Silhouette
bra and the growing Victoria's Secret Bath & Fragrance business has put
Victoria's Secret Stores in an excellent position as we begin 1997.
. Victoria's Secret Catalogue experienced a year that started out more slowly
than expected, but regained momentum in the last half of the year. Sales for
the year were $684 million, up 3%. Although fourth quarter sales were
basically flat, operating profits grew by 27%.
. Bath & Body Works, Intimate Brands' fastest growing and highest profit margin
business, grew 1996 sales by 59% to $753 million and operating profits by 55%.
Two hundred and fifty-two stores were added, solidifying Bath and Body Works'
position in the personal care retail industry. In the fourth quarter, sales
increased 58% and profits were up 60%, driven by a successful Holiday selling
season. Bath and Body Works anticipates opening approximately 200 stores in
1997, including an additional 35 Bath & Body Works at Home test stores.
<TABLE>
<CAPTION>
Year-to-Date
..............................................................................
As Pro-forma As
Reported Adjustments Pro-forma Reported
February 3, February 3, February 3, February 1,
1996 1996 1996 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating income $386,296 -- $386,296 $458,142
Interest expense (49,536) $17,364 (32,172) (32,544)
Other income, net 3,299 (1,430) 1,869 4,612
- ------------------------------------------------------------------------------
Income before income taxes 340,059 15,934 355,993 430,210
Provision for income taxes 136,000 6,400 142,400 172,000
..............................................................................
Net income $204,059 $ 9,534 $213,593 $258,210
- ------------------------------------------------------------------------------
Net income per share $.92 $.85 $1.02
- ------------------------------------------------------------------------------
Weighted average shares
outstanding 221,300 29,260 250,560 252,942
- ------------------------------------------------------------------------------
</TABLE>
Intimate Brands, Inc. 31 1996 Annual Report
<PAGE>
FINANCIAL SUMMARY
The following summarized financial data compares fiscal 1996 to the comparable
periods for 1995 and 1994:
<TABLE>
<CAPTION>
% Change
......................
Net Sales (millions): 1996 1995* 1994 1996-1995 1995-1994
...................................................................................................................
<S> <C> <C> <C> <C> <C>
Victoria's Secret Stores $1,450 $1,286 $1,181 13% 9%
Victoria's Secret Catalogue 684 661 569 3% 16%
Bath & Body Works 753 475 260 59% 83%
Cacique 88 80 92 10% (13%)
Other 22 15 6
...................................................................................................................
Total $2,997 $2,517 $2,108 19% 19%
...................................................................................................................
Increase (Decrease) in Comparable Store Sales:
Victoria's Secret Stores 5% (1%) 12%
Bath & Body Works 11% 21% 39%
Cacique 8% (20%) (12%)
...................................................................................................................
Total 7% 1% 13%
...................................................................................................................
Retail sales increase attributable to
new and remodeled stores 19% 17% 16%
Retail sales per average selling square foot $ 495 $ 483 $ 486 2% (1%)
Retail sales per average store (thousands) $1,583 $1,585 $1,606 0% (1%)
Average store size at the end of year (selling square feet) 3,137 3,271 3,297 (4%) (1%)
Retail selling square feet (thousands) 5,047 4,230 3,419 19% 24%
...................................................................................................................
Number of stores:
Beginning of year 1,293 1,037 879
Opened 325 260 166
Closed (9) (4) (8)
...................................................................................................................
End of year 1,609 1,293 1,037 24% 25%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents fifty-three week fiscal year
Net Sales
Net sales for the thirteen-week fourth quarter of 1996 increased by 19% to
$1.161 billion over the fourteen-week fourth quarter of 1995. Excluding the
extra fifty-third week last year, net sales increased 24%. This increase was
primarily attributable to the net addition of 316 new stores and 64
remodel/expansions, which accounted for 83% of the total net sales increase. The
balance of the increase was due principally to the 8% increase in comparable
store sales and an $18 million increase in catalogue and other sales, offset by
the extra week in 1995. In 1995, fourth quarter sales increased 22% to $977
million over 1994. The sales increase was primarily attributable to 256 net new
and 60 remodeled stores, which accounted for 69% of the increase. The balance of
the increase came from the extra week (22% of the total increase), a 3% increase
in catalogue sales and a 1% increase in comparable store sales.
Sales for 1996, a fifty-two week fiscal year, increased by 19% to $2.997
billion over the fifty-three week 1995 fiscal year. Excluding the fifty-third
week in 1995, net sales increased 21% for the year. The sales increase was
attributable to new and remodeled stores (accounting for 73% of the total net
sales increase), and a 7% increase in comparable store sales (25% of the total
increase), and a $41 million increase in catalogue and other sales, offset by
the extra week in 1995. In 1995, sales increased by 19% to $2.517 billion from
1994. The sales increase was attributable to new and remodeled stores, which
accounted for 65% of the total net sales increase. In addition, a 14% increase
in catalogue sales accounted for 19% of the total increase, 10% from the extra
week in 1995 and a 1% increase in comparable store sales comprised the balance.
In 1996, Victoria's Secret Stores sales increased 13% to $1.450 billion over
1995. The sales increase was primarily attributable to the net addition of 65
new stores and 312,000 selling square feet (70% of the total increase). The
remaining increase came from a 5% increase in comparable store sales, slightly
offset by the impact of the extra week in 1995. In 1995, Victoria's Secret
Stores sales increased 9% to $1.286 billion over the fifty-two week fiscal year
1994. The increase was primarily attributable to the net addition of 70 stores
and 428,000 selling square feet, as the increase attributable to the extra week
in 1995 was offset by the 1% decrease in comparable store sales.
In 1996, Bath & Body Works sales increased 59% to $753 million over 1995. The
increase was primarily attributable to a net increase of 252 new stores and
506,000 selling square feet, which repre-
Intimate Brands, Inc. 32 1996 Annual Report
<PAGE>
sents 84% of the total increase in net sales. The remaining increase came from
the 11% increase in comparable store sales, partially offset by the extra week
in 1995. In 1995, Bath & Body Works sales increased by 83% to $475 million over
the fifty-two week period in 1994. The increase was attributable to a net
increase of 180 stores and 359,000 selling square feet (73% of the total
increase). The remainder of the increase was due to a 21% increase in comparable
store sales and the extra week in 1995.
In 1996, Victoria's Secret Catalogue net sales increased 3% to $684 million
over 1995. A 7% increase in net sales attributable to the 11% increase in
catalogue circulation for the year was partially offset by the impact of the
extra week in 1995. In 1995, Victoria's Secret Catalogue sales increased 16% to
$661 million over the fifty-two week period in 1994. Catalogue circulation
increased 25% for the year, which accounted for 84% of the net sales increase.
The remaining increase was due to the extra week in 1995.
Gross Income
Gross income increased as a percentage of net sales to 40.4% for the fourth
quarter 1996 from 37.4% for the same period in 1995. The rate increase is
primarily due to a 1.8% increase in merchandise margins (representing gross
income before the deduction of buying and occupancy costs) as well as a 1.2%
rate reduction in buying and occupancy costs. The increase in gross income rate
is primarily the result of the growth of Bath & Body Works in the overall mix of
net sales for the Company. Bath & Body Works 1996 fourth quarter sales were
approximately 32% of the total Company compared to 24% in 1995. Bath & Body
Works has historically recorded significantly higher merchandise margins on
personal care products (higher initial markups) and lower buying and occupancy
costs (due to smaller store size and higher sales productivity), as compared
with the balance of the Company. The Company believes that the continued strong
growth of Bath & Body Works will have a positive ongoing impact on gross income
as a percent of total Company sales. The increase in merchandise margins was
also impacted by increased rates at both Bath & Body Works (primarily from lower
promotional activity), and Victoria's Secret Stores (primarily from higher
initial markup). Buying and occupancy costs were also favorably impacted by
Victoria's Secret Catalogue, which experienced a decrease in catalogue and
related costs, due to lower paper prices.
In fourth quarter 1995, gross income decreased as a percent of net sales to
37.4% from 38.3% for the same period in 1994. The decrease was primarily due to
a 0.7% decrease in merchandise margins, as well as a 0.2% increase in buying and
occupancy costs expressed as a percentage of sales. The decrease in merchandise
margins was primarily the result of Victoria's Secret Stores' decline from
1994's outstanding performance. This was offset to some extent by the growth of
Bath & Body Works from 17% to 24% of total Company sales. The increase in buying
and occupancy costs was primarily a result of higher catalogue and related
costs. Significant paper and postage cost increases pushed catalogue and related
expense up by 32% over 1994, on a 25% increase in catalogues mailed.
Gross income for 1996, expressed as a percent of net sales, increased 2.6% to
35.2% from 32.6% in 1995. The increase is attributed to a 1.5% increase in
merchandise margins and a 1.0% decrease in buying and occupancy costs. The
primary factor resulting in the increase is the change in the mix in sales of
the Company, as Bath & Body Works increased from 19% of total sales in 1995 to
25% in 1996. Victoria's Secret Stores contributed to the increase in gross
income as a percent of net sales by improving merchandise margins through
increased initial markup. In 1995, gross income, expressed as a percentage of
net sales, was 32.6%, which was 0.7% below the rate for 1994. The decrease was
primarily due to a 0.4% increase in buying and occupancy costs as a percent of
sales and a 0.3% decrease in merchandise margins. The increase in buying and
occupancy costs was primarily a result of higher catalogue and related costs.
The decrease in merchandise margin was primarily from Victoria's Secret Stores'
decline from 1994's outstanding performance. This was partially offset by the
growth of Bath & Body Works, from 12% to 19% of total sales, with its higher
merchandise margins than Company average.
General, Administrative and Store
Operating Expenses
General, administrative and store operating expenses increased as a percent of
net sales to 16.2% in the fourth quarter of 1996 from 14.1% and 13.5% for the
same periods in 1995 and 1994. This increase is primarily the result of the
growth of Bath & Body Works net sales in the fourth quarter from 17% of total
Company sales in 1994, to 24% in 1995 and 32% in 1996. Bath & Body Works, which
operates in significantly smaller stores, has historically recorded higher than
Company average general, administrative and store operating expenses as a
percent of sales
Intimate Brands, Inc. 33 1996 Annual Report
<PAGE>
due to its emphasis on point of sale marketing and sales floor coverage.
Expectations are that the continued growth of Bath & Body Works, as a percent of
the total Company net sales, will continue to cause these costs for the total
Company, expressed as a percent of net sales, to increase. In addition to the
shift in the sales mix, the increase in rate is somewhat exacerbated due to the
investments made in store staffing and management and point of sale marketing
for the Victoria's Secret Bath & Fragrance business.
General, administrative and store operating expenses, expressed as a percent
of sales, were 19.5% for fiscal year 1996 compared to 17.3% for 1995. The 1996
expenses increased primarily from the growth of Bath & Body Works percentage of
the total Company sales mix and investments made in store staffing and the
marketing for Victoria's Secret Bath & Fragrance business. The 1995 expenses
were held flat with 1994 as a percent of sales, as expenses grew at a slower
rate than sales at Victoria's Secret Stores, Victoria's Secret Catalogue and
Bath & Body Works, despite the growth of Bath & Body Works, which has
historically incurred an expense rate higher than the Company average.
Special and Nonrecurring Item
The Company recognized a $12 million charge in the fourth quarter of 1996
representing the estimated loss on the early 1997 sale of Penhaligon's, which
had 1996 sales of $5.5 million and a $3.1 million pre-tax operating loss (see
Note 3).
Operating Income
Operating income, as a percent of sales, was 15.3%, 15.4% and 16.0% for fiscal
years 1996, 1995 and 1994. The decrease in operating income as a percent of net
sales in 1996 was primarily due to the $12 million Penhaligon's charge. Without
that charge, operating income as a percent of sales would have been
15.7%, a 0.3% increase. Improved gross income and the changing sales mix of the
Company, as mentioned above, were responsible for the increase.
The 1995 operating income rate decrease of 0.6% came primarily from the
decline of Victoria's Secret Stores merchandise margins and the increased paper
and postage expenses at Victoria's Secret Catalogue. These reductions were
partially offset by higher margins at Bath & Body Works and the growth of Bath &
Body Works to 19% of total Company sales from 12% in 1994.
Interest Expense and Other Income
In 1996, the Company incurred $8.1 million and $32.5 million in interest for the
fourth quarter and year, compared to $9.6 million and $49.5 million in 1995 for
the same periods. Interest expense for 1996 resulted primarily from the $350
million of long-term debt, whereas 1995 is comprised of $21.7 million of
interest on $350 million of long-term debt which was outstanding for
approximately nine months of the year. The balance primarily resulted from $800
million of short-term debt. All of the short-term debt was repaid in 1995 with
cash made available by the initial public offering and cash flow from
operations.
In 1996, the Company earned $1.6 million and $4.6 million in other income for
the fourth quarter and year, compared to $1.9 million and $3.3 million in 1995
for the same periods. This other income is primarily interest income (based upon
the Federal Reserve AA composite 30-day rate) earned from excess cash from
operations managed through The Limited, Inc.'s centralized cash management
system (see Note 10).
FINANCIAL CONDITION
The Company's consolidated balance sheet as of February 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 by 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 capitalization follows
(thousands):
<TABLE>
<CAPTION>
1996 1995 1994
..............................................................................
<S> <C> <C> <C>
Cash Provided by Operating
Activities $337,664 $323,908 $205,593
Working Capital $333,295 $241,177 $220,757
Capitalization:
Long-Term Debt $350,000 $350,000 --
Deferred Income Taxes 50,935 71,475 $ 52,957
Shareholders' Equity 402,053 268,937 573,195
..............................................................................
Total Capitalization $802,988 $690,412 $626,152
- ------------------------------------------------------------------------------
</TABLE>
The Company considers the following to be useful measures of liquidity and
capital resources:
<TABLE>
<CAPTION>
1996 1995 1994
...............................................................................
<S> <C> <C> <C>
Debt-to-Capitalization Ratio 44% 51% N/M*
(Long-Term Debt Divided by
Total Capitalization)
Cash Flow to Capital Investment 273% 253% 192%
(Net Cash Provided by Operating
Activities Divided by
Capital Expenditures)
- -------------------------------------------------------------------------------
</TABLE>
*N/M = Not Meaningful
Intimate Brands, Inc. 34 1996 Annual Report
<PAGE>
The Company's operations are seasonal in nature and are comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall (the
third and fourth quarters). The fourth quarter, including the Holiday season,
has accounted for approximately 39% of net sales in each of the last three
years. Accordingly, cash requirements are highest in the third quarter as the
Company's inventory builds in anticipation of the Holiday selling season, which
in turn produces a substantial portion of the Company's operating cash flow for
the year.
Net cash provided by operating activities totaled $337.7 million, $323.9
million and $205.6 million for 1996, 1995 and 1994. In 1996, the net cash used
to fund the increase in inventory approximated $76.0 million versus $63.4
million and $69.9 million in 1995 and 1994. In both 1996 and 1995 inventories
increased by 21%, consistent with the Company's 19% increase in net sales. In
1996, accounts payable and accrued expenses increased principally as a result of
a $32.4 million increase in merchandise/trade payables, $11.1 million in
payroll and related liabilities and accrued rent of $6.3 million. These
increases are all due to the overall growth of the Company. In 1995, accrued
expenses increased principally from $17.2 million of interest and $7.3 million
of rent from store growth. Prior to 1995, the Company had no direct debt and
paid no interest. Beginning in 1995, income tax liabilities were recorded on the
Company's balance sheet. Prior to this, the Company transferred all current
income tax liabilities to The Limited, Inc. as incurred. As a result, income
taxes increased approximately $92.8 million in 1995.
Investing activities were all for capital expenditures, which are primarily
for new and remodeled stores.
Included in financing activities were cash dividends paid of $.48 per share.
Other financing activities in 1996 include the net receipt of $34.1 million from
the intercompany and cash management account activity with The Limited, Inc.
(see Note 10). Prior to the capitalization of the Company, such amounts were
reflected as a component of shareholders' equity. Other changes in shareholders'
equity in 1995 and 1994 represent net intercompany activity such as that
described in Note 10 prior to the incorporation of the Company. The remaining
changes in financing activities in 1995 represent the activities related to the
formation of the Company and the related initial public offering.
Capital Expenditures
Capital expenditures, primarily for new and remodeled stores, amounted to $123.6
million, $128.2 million and $107.0 million for 1996, 1995 and 1994, of which
$91.5 million, $109.1 million and $62.4 million, was for new stores and
remodeling and expanding existing stores. The Company expended $10.4 million in
1994 for leasehold improvements to a new catalogue telemarketing center in
Kettering, Ohio, to expand Victoria's Secret Catalogue's operations.
<TABLE>
<CAPTION>
Change from Prior Year
......................
Goal-1997 1996 1995 1997-1996 1996-1995
......................................................................................
<S> <C> <C> <C> <C> <C>
Victoria's Secret Stores
Stores 801 736 671 65 65
Selling Sq. Ft. 3,615,000 3,326,000 3,014,000 289,000 312,000
Bath &Body Works
Stores 960 750 498 210 252
Selling Sq. Ft. 1,869,000 1,354,000 848,000 515,000 506,000
Cacique
Stores 118 119 120 (1) (1)
Selling Sq. Ft. 363,000 365,000 366,000 (2,000) (1,000)
Penhaligon's*
Stores -- 4 4 (4) --
Selling Sq. Ft. -- 2,000 2,000 (2,000) --
......................................................................................
Total Retail Divisions
Stores 1,879 1,609 1,293 270 316
Selling Sq. Ft. 5,847,000 5,047,000 4,230,000 800,000 817,000
- --------------------------------------------------------------------------------------
</TABLE>
* Reflects sale in early 1997.
Intimate Brands, Inc. 35 1996 Annual Report
<PAGE>
The Company anticipates spending $145-$170 million in 1997 for capital
expenditures, of which $120-$140 million will be for new stores, the relocation
and expansion of existing stores and related improvements for the retail
businesses. Also included in the capital expenditure estimate is about $20
million for equipment and leasehold improvements for the Bath & Body Works new
distribution center and world headquarters, scheduled for completion in the
summer of 1997.
The Company has announced its intention to add approximately 800,000 selling
square feet in 1997, which will represent a 16% increase over year-end 1996. It
is anticipated the increase will result from the addition of approximately 270
net new stores and the expansion of approximately 35 stores. The Company expects
that future capital expenditures will be funded principally by net cash provided
by operating activities.
Impact of Inflation
The Company's results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, the Company
believes that the effects of inflation, if any, on the results of operations and
financial condition have been minor.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Form 10-K or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for 1997 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in consumer
spending patterns, consumer preferences and overall economic conditions, the
impact of competition and pricing, changes in weather patterns, political
stability, currency and exchange risks and changes in existing or potential
duties, tariffs or quotas, postal rate increases and charges, paper and printing
costs, availability of suitable store locations at appropriate terms, ability to
develop new merchandise and ability to hire and train associates.
Intimate Brands, Inc. 36 1996 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Thousands except per share amounts)
- ------------------------------------------------------------------------------------------------
1996 1995 1994
................................................................................................
<S> <C> <C> <C>
NET SALES $ 2,997,340 $ 2,516,555 $ 2,108,310
Cost of Goods Sold, Occupancy and Buying Costs (1,942,295) (1,695,627) (1,406,023)
................................................................................................
GROSS INCOME 1,055,045 820,928 702,287
General, Administrative and Store Operating Expenses (584,903) (434,632) (364,299)
Special and Nonrecurring Item (12,000) - -
................................................................................................
OPERATING INCOME 458,142 386,296 337,988
Interest Expense (32,544) (49,536) -
Other Income, Net 4,612 3,299 -
................................................................................................
INCOME BEFORE INCOME TAXES 430,210 340,059 337,988
Provision for Income Taxes 172,000 136,000 135,000
................................................................................................
NET INCOME $ 258,210 $ 204,059 $ 202,988
................................................................................................
NET INCOME PER SHARE $ 1.02 $ .92 $ .97
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
NET SALES CAGR 23% NET INCOME CAGR 26%
(IN MILLIONS) (IN MILLIONS)
(Compound Annual Growth
Rate, last four years)
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
Intimate Brands, Inc. 37 1996 Annual Report
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands)
- ------------------------------------------------------------------------------
ASSETS Feb. 1, 1997 Feb. 3, 1996
..............................................................................
<S> <C> <C>
CURRENT ASSETS
Cash and Equivalents $ 135,111 $ 12,095
Accounts Receivable 18,750 16,928
Inventories 434,800 358,846
Intercompany Receivable 60 34,136
Other 68,255 66,430
..............................................................................
TOTAL CURRENT ASSETS 656,976 488,435
..............................................................................
PROPERTY AND EQUIPMENT, NET 395,647 358,032
..............................................................................
OTHER ASSETS 82,539 96,886
..............................................................................
TOTAL ASSETS $1,135,162 $ 943,353
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
..............................................................................
CURRENT LIABILITIES
Accounts Payable $ 88,896 $ 64,452
Accrued Expenses 136,598 104,023
Income Taxes 98,187 78,783
..............................................................................
TOTAL CURRENT LIABILITIES 323,681 247,258
..............................................................................
LONG-TERM DEBT 350,000 350,000
..............................................................................
DEFERRED INCOME TAXES 50,935 71,475
..............................................................................
OTHER LONG-TERM LIABILITIES 8,493 5,683
..............................................................................
SHAREHOLDERS' EQUITY
Common Stock 2,527 2,527
Paid-In Capital 675,240 675,421
Retained Earnings (Deficit) (272,071) (409,011)
..............................................................................
405,696 268,937
..............................................................................
Less: Treasury Stock, at Cost (3,643) -
..............................................................................
TOTAL SHAREHOLDERS' EQUITY 402,053 268,937
..............................................................................
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,135,162 $ 943,353
- ------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Intimate Brands, Inc. 38 1996 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
....................
Retained Treasury Total
Shares Par Paid-In Earnings Stock, Shareholders'
Outstanding Value Capital (Deficit) at Cost Equity
....................................................................................................................................
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 29, 1994 210,000 - - $ 469,136 - $ 469,136
Intercompany Activity - - - (98,929) - (98,929)
Net Income - - - 202,988 - 202,988
....................................................................................................................................
BALANCE, JANUARY 28, 1995 210,000 - - $ 573,195 - $ 573,195
Intercompany Activity - - - (5,941) - (5,941)
Transfer of Equity to Debt ($350,000 Long-Term
Debt and $550,000 Short-Term Borrowings) - - - (900,000) - (900,000)
Cash Dividend to Parent Prior to Initial
Public Offering - - - (250,000) - (250,000)
Sale of Common Stock in Initial Public Offering 42,700 $2,527 $675,421 - - 677,948
Net Income - - - 204,059 - 204,059
Cash Dividends to Shareholders - - - (30,324) - (30,324)
....................................................................................................................................
BALANCE, FEBRUARY 3, 1996 252,700 $2,527 $675,421 $(409,011) - $ 268,937
Net Income - - - 258,210 - 258,210
Cash Dividends to Shareholders - - - (121,270) - (121,270)
Purchase of Treasury Stock (235) - - - $(3,986) (3,986)
Exercise of Stock Options and Other 33 - (181) - 343 162
....................................................................................................................................
BALANCE, FEBRUARY 1, 1997 252,498 $2,527 $675,240 $(272,071) $(3,643) $ 402,053
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Intimate Brands, Inc. 39 1996 Annual Report
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Thousands)
- ---------------------------------------------------------------------------------
1996 1995 1994
.................................................................................
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 258,210 $ 204,059 $ 202,988
.................................................................................
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH
FLOWS
Depreciation and Amortization 85,573 75,686 69,331
Special and Nonrecurring Item 12,000 - -
.................................................................................
CHANGE IN ASSETS AND LIABILITIES
Accounts Receivable (1,822) (4,888) (3,315)
Inventories (75,954) (63,374) (69,923)
Accounts Payable and Accrued Expenses 53,510 33,459 13,149
Income Taxes (1,136) 92,808 (4,549)
Other Assets and Liabilities 7,283 (13,842) (2,088)
.................................................................................
NET CASH PROVIDED BY OPERATING ACTIVITIES 337,664 323,908 205,593
.................................................................................
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (123,630) (128,229) (107,037)
.................................................................................
FINANCING ACTIVITIES
Proceeds from Short-Term Borrowings - 250,000 -
Repayments of Short-Term Borrowings - (800,000) -
Proceeds from Sale of Common Stock - 677,948 -
Dividends Paid (121,270) (280,324) -
Purchase of Treasury Stock (3,986) - -
Decrease (Increase) in Intercompany Receivable 34,076 (34,136) -
Other Changes in Shareholders' Equity 162 (5,941) (98,929)
.................................................................................
NET CASH USED FOR FINANCING ACTIVITIES (91,018) (192,453) (98,929)
.................................................................................
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 123,016 3,226 (373)
Cash and Equivalents, Beginning of Year 12,095 8,869 9,242
.................................................................................
CASH AND EQUIVALENTS, END OF YEAR $ 135,111 $ 12,095 $ 8,869
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
WORKING CAPITAL
(IN MILLIONS)
[GRAPH APPEARS HERE]
CAPITAL EXPENDITURES
(IN MILLIONS)
[GRAPH APPEARS HERE]
Intimate Brands, Inc. 40 1996 Annual Report
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and indirect subsidiaries of The Limited, Inc. They consisted of
Victoria's Secret Stores, Victoria's Secret Catalogue, Bath & Body Works,
Cacique, Penhaligon's and Gryphon Development. An initial public offering (the
"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 Offering price per share to cover over-
allotments. After these transactions, approximately 83% of the outstanding
common stock of the Company was owned by The Limited, Inc.
The net proceeds received by the Company from the sale of the common stock
in the above transactions approximated $678 million and were used to repay
borrowings under a $250 million bank credit agreement and approximately $428
million of short-term intercompany debt.
An additional $122 million of short-term intercompany debt was paid from cash
flow generated from operations during the fourth quarter of 1995. All short-term
intercompany debt was fully repaid as of February 3, 1996.
The accompanying consolidated financial statements include the historical
financial statements of, and transactions applicable to, the Intimate Brands
Businesses and reflect the assets, liabilities, results of operations and cash
flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all significant subsidiaries which are more than 50% owned and controlled. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31. Fiscal
years are designated in the financial statements and notes by the calendar year
in which the fiscal year commences. The results for fiscal year 1996 represent
the 52-week period ended February 1, 1997 and results for fiscal years 1995 and
1994 represent the 53-week period ended February 3, 1996 and the 52-week period
ended January 28, 1995.
Cash and Equivalents
Cash and equivalents include amounts on deposit with financial institutions and
money market investments with maturities of less than 90 days.
Inventory
Inventories are principally valued at the lower of average cost or market, on a
first-in first-out basis, utilizing the retail method.
Catalogue Costs and Advertising
Catalogue costs, primarily consisting of catalogue production and mailing costs,
are amortized over the expected future revenue stream, which is principally from
three to six months from the date catalogues are mailed. All other advertising
costs are expensed at the time the promotion first appears in media or in the
store. Catalogue and advertising costs amounted to $229 million, $213 million
and $169 million in 1996, 1995 and 1994.
Property and Equipment
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives
ranging principally from 10-15 years for building and leasehold improvements,
and 3-10 years for other property and equipment. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Major
Intimate Brands, Inc. 41 1996 Annual Report
<PAGE>
renewals and betterments that extend service lives are capitalized. Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that full recoverability is questionable. Factors used in the valuation
include, but are not limited to, management's plans for future operations,
recent operating results and projected cash flows.
Goodwill Amortization
Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired companies and is amortized on a straight-line basis
principally over 30 years.
Shareholders' Equity
At February 1, 1997, there were 550 million of $.01 par value Class A shares and
550 million of $.01 par value Class B shares authorized, of which 42.5 million
shares (net of .2 million shares held in treasury) and 210 million shares,
respectively, were issued and outstanding. At February 3, 1996, there were 42.7
million Class A shares and 210 million Class B shares issued and outstanding. In
addition there were 55 million of $.01 par value preferred shares authorized,
none of which have been issued.
Holders of Class A common stock generally have identical rights to holders of
Class B common stock, except that holders of Class A common stock are entitled
to one vote per share while holders of Class B common stock are entitled to
three votes per share on all matters submitted to a vote of shareholders. Each
share of Class B common stock is convertible while held by The Limited, Inc. or
any of its subsidiaries into one share of Class A common stock.
Revenue Recognition
Sales are recorded upon purchase by customers. A reserve is provided equal to
the gross profit on projected catalogue merchandise returns, based on prior
experience.
Income Taxes
Income taxes are calculated in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which requires the
use of the liability method. Deferred tax assets and liabilities are recognized
based on the difference between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect in the years in which those temporary differences are expected to
reverse. Under SFAS 109, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
The Company is included in The Limited, Inc.'s consolidated Federal and
certain state income tax groups for income tax reporting purposes and is
responsible for its proportionate share of income taxes calculated upon its
Federal taxable income at a current estimate of the annual effective tax rate.
Net Income Per Share
Net income per share is computed based upon the weighted average number of
outstanding common shares, including the effect of stock options. The common
stock issued to The Limited, Inc. (210 million Class B shares) in connection
with the incorporation of the Company is assumed to have been outstanding for
all periods presented. There were 253.1 million, 221.3 million and 210 million
weighted average shares considered outstanding for 1996, 1995 and 1994.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Since actual results may differ from those estimates, the
Company revises its estimates and assumptions as new information becomes
available.
Reclassifications
Certain amounts in previously reported balance sheet captions have been
reclassified to conform with current year presentation.
3. SPECIAL AND NONRECURRING ITEM
During the fourth quarter of 1996, the Company recognized a $12 million charge
representing the estimated loss on the sale of Penhaligon's, a U.K.-based
subsidiary. The transaction closed subsequent to the end of fiscal 1996, in
early 1997.
Intimate Brands, Inc. 42 1996 Annual Report
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
..............................................................
Furniture, fixtures and equipment $577,024 $497,228
Building improvements and leaseholds 122,748 105,680
Construction in progress 1,827 2,457
..............................................................
701,599 605,365
Less: accumulated depreciation
and amortization 305,952 247,333
..............................................................
Property and equipment, net $395,647 $358,032
- --------------------------------------------------------------
</TABLE>
5. LEASED FACILITIES AND COMMITMENTS
Annual store rent is comprised of a fixed minimum amount, plus contingent rent
based upon a percentage of sales exceeding a stipulated amount. Store lease
terms generally require additional payments covering taxes, common area costs
and certain other expenses.
A summary of rent expense for 1996, 1995 and 1994 follows (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
..............................................................
Store rent:
Fixed minimum $135,439 $109,238 $ 89,506
Contingent 10,874 9,039 7,294
..............................................................
Total store rent 146,313 118,277 96,800
Buildings, equipment and other 15,633 10,183 10,880
..............................................................
Total rent expense $161,946 $128,460 $107,680
- --------------------------------------------------------------
</TABLE>
Rent expense includes charges from The Limited, Inc. and its subsidiaries for
office and distribution center space under formal agreements which approximate
market rates. At February 1, 1997, the Company was committed to noncancelable
leases with remaining terms of one to twenty years. These commitments include
store leases with initial terms ranging from ten to twenty years and offices and
distribution centers leased from The Limited with initial terms of 15 years. A
majority of the Company's store leases are guaranteed by The Limited. A summary
of minimum rent commitments under noncancelable leases follows (thousands):
<TABLE>
<S> <C>
1997 $158,857
1998 159,186
1999 155,459
2000 152,001
2001 146,828
Thereafter 624,324
</TABLE>
6. OTHER ASSETS
Other assets consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
...........................................................
Goodwill, net of accumulated
amortization of $25,924 and $22,480 $ 76,531 $87,872
Other 6,008 9,014
...........................................................
Total other assets $ 82,539 $96,886
- -----------------------------------------------------------
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
...................................................................
Accrued compensation,
payroll taxes and benefits $ 33,099 $ 21,982
Accrued rent 23,347 17,022
Accrued taxes, other than income 12,768 15,580
Estimated returns for catalogue
merchandise 13,276 10,051
Accrued interest 14,029 17,186
Other 40,079 22,202
...................................................................
Total accrued expenses $136,598 $104,023
- -------------------------------------------------------------------
</TABLE>
8. INCOME TAXES
The provision for income taxes consisted of (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
..............................................................................
Currently payable:
Federal $146,700 $108,800 $122,800
State 28,300 15,600 16,800
..............................................................................
175,000 124,400 139,600
..............................................................................
Deferred:
Federal (4,700) 2,200 (5,100)
State 1,700 9,400 500
..............................................................................
(3,000) 11,600 (4,600)
..............................................................................
Total provision $172,000 $136,000 $135,000
- ------------------------------------------------------------------------------
</TABLE>
A reconciliation between the statutory Federal income tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
..............................................................................
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal
income tax effect 4.5 4.8 4.2
Other items, net 0.5 0.2 0.7
..............................................................................
40.0% 40.0% 39.9%
- ------------------------------------------------------------------------------
</TABLE>
Income taxes payable included current deferred tax assets of $458 thousand and
$9.7 million at February 1, 1997 and February 3, 1996. Current income tax
obligations are treated as having been settled through the intercompany accounts
as if the Company were filing its income tax returns on a separate company
basis. Such amounts were $167 million in 1996. A
Intimate Brands, Inc. 43 1996 Annual Report
<PAGE>
summary of the effect of temporary differences which give rise to deferred
income tax balances follows (thousands):
<TABLE>
<CAPTION>
1996 Assets Liabilities Total
........................................................
<S> <C> <C> <C>
Excess of tax over
book depreciation - $(64,448) $(64,448)
State income taxes $11,262 - 11,262
Other, net 34,670 (31,961) 2,709
........................................................
Total deferred income
taxes $45,932 $(96,409) $(50,477)
- --------------------------------------------------------
<CAPTION>
1995 Assets Liabilities Total
........................................................
<S> <C> <C> <C>
Excess of tax over
book depreciation - $(68,071) $(68,071)
State income taxes $10,392 - 10,392
Other, net 20,596 (24,697) (4,101)
........................................................
Total deferred income
taxes $30,988 $(92,768) $(61,780)
- --------------------------------------------------------
</TABLE>
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. The Limited has made
deposits to mitigate further interest being assessed and management believes
these deposits are sufficient to limit any further exposure. The Limited has
allocated a portion of the deposit to the Company which is included in deferred
taxes.
9. LONG-TERM DEBT
Long-term debt consists of 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.
A summary of unsecured long-term debt at February 1, 1997 and February 3, 1996
follows (thousands):
<TABLE>
<CAPTION>
1996 1995
.......................................................
<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>
Each of the notes is to be automatically prepaid concurrently with any
prepayment of the corresponding debt of The Limited. The debt of The Limited
corresponding to the 7 1/2% debentures maturing in 2023 is subject to early
redemption by The Limited at its option beginning in 2003 at specified declining
premiums. The other notes are not subject to early redemption by The Limited.
10. RELATED PARTY TRANSACTIONS
Transactions between the Company and The Limited, Inc. and its wholly-owned
subsidiaries commonly occur in the normal course of business and principally
consist of the following:
Merchandise purchases
Capital expenditures for new and remodeled stores
Real estate management and leasing
Inbound and outbound transportation
Corporate services
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly-owned subsidiary of The
Limited, Inc. Mast is a contract manufacturer and apparel importer. Prices are
negotiated on a competitive basis by merchants of the Company with Mast and the
manufacturers.
The Company's real estate operations, including all aspects of lease
negotiations and ongoing dealings with landlords and developers, are handled
centrally by the Real Estate Division of The Limited ("Real Estate Division").
Real Estate Division expenses are allocated to the Company based on new and
remodeled store construction projects and open selling square feet in relation
to the totals for The Limited.
The Company's store design and construction operations are coordinated
centrally by the Store Planning Division of The Limited ("Store Planning
Division"). The Store Planning Division facilitates the design and construction
of new stores and remodels and, upon completion, transfers the stores to the
Company at actual cost. Store Planning Division expenses are charged to the
Company based on new and remodeled store construction projects and open selling
square feet in relation to the totals for The Limited.
The Company's inbound and outbound transportation expenses, exclusive of
Victoria's Secret Catalogue (which maintains its own order fulfillment
operation), are managed centrally by Limited Distribution Services ("LDS"), a
wholly-owned subsidiary of The Limited, Inc. Inbound freight is charged to the
Company based on actual receipts while outbound freight is charged based on a
percentage of cartons shipped.
Intimate Brands, Inc. 44 1996 Annual Report
<PAGE>
The Limited provides certain services to the Company including, among other
things, aircraft, certain tax, treasury, legal, accounting and audit, corporate
development, risk management, associate benefit plan administration, human
resources and compensation, and government affairs services. Specifically
identifiable costs are charged directly to the Company. All other services-
related costs not specifically attributable to an operating business have been
allocated to the Company based upon a percentage of sales.
The Company participates in The Limited's centralized cash management system.
Under this system, cash received from the Company's operations is transferred to
The Limited's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts on a daily basis. For all periods through May 18,
1995, intercompany accounts have been characterized as a component of
shareholders' equity in the accompanying consolidated balance sheets and
intercompany transactions have been reported as financing activities in the
accompanying consolidated statements of cash flows. Effective May 19, 1995, the
intercompany accounts became an interest earning asset (interest bearing
liability). The amount of the intercompany receivable from The Limited under
these agreements at February 1, 1997 is approximately $60 thousand.
The Company is charged rent expense, common area maintenance charges and
utilities for stores shared with other consolidated subsidiaries of The Limited,
Inc. The charges are based on square footage and represent the proportionate
share of the under-lying leases with third parties.
The Company is also charged rent expense at market rates for the distribution
center and home office space that it occupies according to formal 15-year lease
agreements, which contain options to renew.
The Company and The Limited have entered into intercompany agreements which
establish the provision of services in accordance with the terms described
above. The prices charged to the Company for services provided under these
agreements may be higher or lower than prices that may be charged by third
parties. It is not practicable therefore, to estimate what these costs would be
if The Limited were not providing these services and the Company was required to
purchase these services from outsiders or develop internal expertise. Management
believes the charges and allocations described above are fair and reasonable.
The following table summarizes the related party transactions between the
Company and The Limited, Inc. and its wholly-owned subsidiaries for the years
indicated (thousands):
<TABLE>
<CAPTION>
1996 1995 1994
............................................................
<S> <C> <C> <C>
Mast purchases $367,240 $286,335 $247,989
Capital expenditures 88,740 113,383 75,740
Inbound and outbound
transportation 31,816 22,336 13,378
Corporate charges 35,130 31,860 26,560
Store leases and other
occupancy 35,510 27,730 20,407
Distribution center, MIS and
home office expenses 11,253 7,413 9,345
Centrally managed benefits 32,713 28,025 19,879
Interest charges 32,544 40,579 -
Interest income 4,612 3,299 -
............................................................
Total $639,558 $560,960 $413,298
- ------------------------------------------------------------
</TABLE>
Proprietary credit cards accepted by the Company are offered to customers
through Alliance Data Systems/World Financial Network National Bank ("ADS"), a
40% owned venture of The Limited, Inc. (The Limited, Inc. sold a 60% interest in
ADS effective January 1996; prior to that time it was a wholly-owned
subsidiary). ADS charges each business a separately negotiated fee for
transactions processed under this arrangement.
11. STOCK OPTIONS AND RESTRICTED STOCK
Prior to the Company's Offering, officers and key associates were granted
options in The Limited's stock plans. Concurrent with the Offering the Company
has established a stock plan for officers and key associates, providing for
awards of up to 17.5 million shares.
Stock options are granted based upon fair market value at the date of grant.
In connection with the Offering, certain options to purchase stock of The
Limited held by Company associates were canceled in exchange for approximately
466,000 options to purchase the Company's common stock at the Offering price of
$17 per share.
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," effective with the 1996 financial
Intimate Brands, Inc. 45 1996 Annual Report
<PAGE>
statements, but elected to continue to measure compensation expense in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense for stock options has been
recognized. If compensation expense had been determined based on the estimated
fair value of options granted in 1995 and 1996, consistent with the methodology
in SFAS 123, the pro-forma effects on the Company's net income and net income
per share would have been immaterial.
Also in connection with the Offering, 193,500 restricted shares of the
Company's common stock were granted at the Offering price of $17 per share in
exchange for canceling restricted shares of The Limited. Additionally,
approximately 169,000 and 163,000 restricted shares were granted in 1996 and
1995, with market values at date of grant of $3.0 million in 1996 and $2.5
million in 1995. The market value is being amortized as compensation expense
over the vesting period, generally four or five years. Compensation expenses
related to these awards amounted to $3.0 million, $2.7 million and $1.3 million
in 1996, 1995 and 1994.
A summary of option activity for 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
.................. .................
Weighted Weighted
Average Average
Option Option
Shares Price Shares Price
..............................................................
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 682,000 $17 - -
Granted 931,000 $15 682,000 $17
Exercised (15,000) $17 - -
Canceled (68,000) $16 - -
..............................................................
Outstanding at end
of year 1,530,000 $16 682,000 $17
- --------------------------------------------------------------
Options exercisable
at year-end 126,000 $17 - -
- --------------------------------------------------------------
</TABLE>
Approximately 90% of the options outstanding and exercisable at year-end are at
prices between $14 and $17 per share. The remaining options are at prices
between $17 and $23 per share.
12. RETIREMENT BENEFITS
The Company participates in a defined contribution retirement plan sponsored by
The Limited. Participation in this plan is available to all associates who have
completed 1,000 or more hours of service with the Company during certain 12-
month periods and attained the age of 21. The Company's contributions to this
plan are based on a percentage of the associates' annual compensation. The cost
of this plan was $10.9 million, $8.1 million and $5.5 million in 1996, 1995 and
1994.
13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Current Assets and Current Liabilities
The carrying value of accounts receivable, accounts payable and accrued expenses
approximates fair value because of their short maturity.
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair value
of the Company's long-term debt at February 1, 1997 and February 3, 1996 was
$354.7 million and $360.2 million.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 1996 and 1995 follow (thousands
except per share amounts):
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
................................................................................
1996
<S> <C> <C> <C> <C>
Net sales $586,208 $653,291 $596,985 $1,160,856
Gross income 174,777 216,962 194,031 469,275
Net income 25,235 48,060 27,195 157,720
Net income
per share $ .10 $ .19 $ .11 $ .62
- --------------------------------------------------------------------------------
1995
Net sales $479,835 $553,511 $506,092 $ 977,117
Gross income 137,793 170,387 147,546 365,202
Net income 24,402 33,724 14,017 131,916
Net income
per share $ .12 $ .16 $ .07 $ .52
- --------------------------------------------------------------------------------
</TABLE>
Intimate Brands, Inc. 46 1996 Annual Report
<PAGE>
Market Price and Dividend Information
The following is a summary of market price and dividend activity since the
Company was originally listed on the New York Stock Exchange ("IBI") on
October 24, 1995:
<TABLE>
<CAPTION>
Market Price
....................................................................
Cash
Dividend
High Low Per Share
....................................................................
Fiscal Year End 1996
....................................................................
<S> <C> <C> <C>
4th Quarter $20 $15 5/8 $.12
3rd Quarter 21 3/4 17 1/8 .12
2nd Quarter 24 3/8 18 3/4 .12
1st Quarter $21 1/2 $14 1/8 $.12
....................................................................
Fiscal Year End 1995
....................................................................
4th Quarter $18 1/8 $13 3/8 $.12
3rd Quarter $18 1/2 $16 3/4 -
- --------------------------------------------------------------------
</TABLE>
On February 1, 1997, there were approximately 1,000 shareholders of record.
However, when including active associates who participate in the Company's stock
purchase plan, associates who own shares through Company sponsored retirement
plans and others holding shares in broker accounts under street name, the
Company estimates the shareholder base at approximately 36,000.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Intimate Brands, Inc.
We have audited the accompanying consolidated balance sheets of Intimate Brands,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three fiscal years in the period ended February 1, 1997 (on
pages 37-46). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Intimate Brands,
Inc. and subsidiaries as of February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
Coopers &Lybrand L.L.P.
Columbus, Ohio
February 24, 1997
Intimate Brands, Inc. 47 1996 Annual Report
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction
Subsidiaries (a) of Incorporation
------------ ----------------
<S> <C>
Victoria's Secret Stores, Inc. (b) Delaware
Cacique, Inc. (c) Delaware
Victoria's Secret Catalogue, Inc. (d) Delaware
Bath & Body Works, Inc. (e) Delaware
Gryphon Development, Inc. (f) Delaware
Intimate Brands Service Corporation (g) Delaware
</TABLE>
(a) The names of certain subsidiaries are omitted since such unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary as of February 1, 1997.
(b) Victoria's Secret Stores, Inc. is a wholly-owned subsidiary of Victoria's
Secret Stores Holding Corporation, a Delaware corporation and a wholly-
owned subsidiary of the registrant.
(c) Cacique, Inc. is a wholly-owned subsidiary of Cacique Holding Corporation,
a Delaware corporation and a wholly-owned subsidiary of the registrant.
(d) Victoria's Secret Catalogue, Inc. is a wholly-owned subsidiary of
Victoria's Secret Catalogue Holding Corporation, a Delaware corporation
and a wholly-owned subsidiary of the registrant.
(e) Bath & Body Works, Inc. is a wholly-owned subsidiary of Bath and Body Works
Holding Corporation, Inc., a Delaware corporation and a wholly-owned
subsidiary of the registrant.
(f) Gryphon Development, Inc. is a wholly-owned subsidiary of the Gryphon
Holding Corporation, a Delaware corporation and a wholly-owned subsidiary
of the registrant.
(g) Intimate Brands Service Corporation is a wholly-owned subsidiary of the
registrant.
<PAGE>
EXHIBIT 23
----------
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Intimate Brands, Inc. on Form S-8, Registration Nos. 333-1960, 333-04921, 333-
04923 and 333-10215 of our report dated February 24, 1997, on our audits of the
consolidated financial statements of Intimate Brands, Inc. and Subsidiaries as
of February 1, 1997, and February 3, 1996, and for the fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995, which report is
included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
April 25, 1997
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ LESLIE H. WEXNER
--------------------
Leslie H. Wexner
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ KENNETH B. GILMAN
---------------------
Kenneth B. Gilman
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ ROGER D. BLACKWELL
----------------------
Roger D. Blackwell
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ CYNTHIA D. FEDUS
--------------------
Cynthia D. Fedus
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ E. GORDON GEE
-----------------
E. Gordon Gee
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ GRACE A. NICHOLS
--------------------
Grace A. Nichols
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ BETH M. PRITCHARD
---------------------
Beth M. Pritchard
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ DONALD B. SHACKELFORD
-------------------------
Donald B. Shackelford
<PAGE>
POWER OF ATTORNEY
OFFICERS AND DIRECTORS OF
INTIMATE BRANDS, INC.
The undersigned officer and/or director of Intimate Brands, Inc., a
Delaware corporation, which anticipates filing an Annual Report on Form 10-K for
its 1996 fiscal year under the provisions of the Securities Exchange Act of 1934
with the Securities and Exchange Commission, Washington, D.C., hereby
constitutes and appoints Leslie H. Wexner and Kenneth B. Gilman, and each of
them, with full powers of substitution and resubstitution, as attorney to sign
for the undersigned in any and all capacities such Annual Report on Form 10-K
and any and all amendments thereto, and any and all applications or other
documents to be filed with the Securities and Exchange Commission pertaining to
such Annual Report on Form 10-K with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
EXECUTED as of the 24th day of January, 1997.
/s/ ALEX SHUMATE
--------------------
Alex Shumate
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INTIMATE BRANDS, INC. AND SUBSIDIARIES FOR
THE YEAR ENDED FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 135,111
<SECURITIES> 0
<RECEIVABLES> 18,750
<ALLOWANCES> 0
<INVENTORY> 434,800
<CURRENT-ASSETS> 656,976
<PP&E> 701,599
<DEPRECIATION> 305,952
<TOTAL-ASSETS> 1,135,162
<CURRENT-LIABILITIES> 323,681
<BONDS> 350,000
0
0
<COMMON> 2,527
<OTHER-SE> 399,526
<TOTAL-LIABILITY-AND-EQUITY> 1,135,162
<SALES> 2,997,340
<TOTAL-REVENUES> 2,997,340
<CGS> 1,942,295
<TOTAL-COSTS> 1,942,295
<OTHER-EXPENSES> 584,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,544
<INCOME-PRETAX> 430,210
<INCOME-TAX> 172,000
<INCOME-CONTINUING> 258,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,210
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
<PAGE>
EXHIBIT 99
----------
[LETTERHEAD OF ARY, EARMAN AND ROEPCKE APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Plan Administrator of The Limited,
Inc. Savings and Retirement Plan:
We have audited the accompanying statements of net assets available for
benefits of The Limited, Inc. Savings and Retirement Plan (the "Plan") as of
December 31, 1996 and 1995, and the related statements of changes in net assets
available for benefits for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan as
of December 31, 1996 and 1995, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 20, 1997.
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1996
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
TOTAL Stock Fund Income Fund Fund
ASSETS -------------- ------------- ----------- ---------------
- ------
<S> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ 60,824,705 $60,824,705 $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) 976,468 - - -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) 82,389,513 - 82,389,513 -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) 53,136,984 - - 53,136,984
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - - -
Vanguard Wellington Fund
(Cost $9,986,245) 10,453,023 - - -
Temporary Investments (Cost
Approximates Fair Value) 30,946 873 18,039 5,684
------------ ----------- ----------- -----------
Total Investments 254,080,299 60,825,578 82,407,552 53,142,668
Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265
Receivable from Employers for Withheld
Participants' Contributions 1,183,352 118,433 391,432 298,971
Due from Brokers 311,530 311,530 - -
Interfund Transfers - 4,686 (12,473) 12,645
Accrued Interest and Dividends 4,553 1,089 1,772 847
------------ ----------- ----------- -----------
Total Assets 276,283,800 63,409,086 89,978,656 58,591,396
------------ ----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers 122,686 - - -
Administrative Fees Payable 278,885 114,176 29,286 15,828
------------ ----------- ----------- -----------
Total Liabilities 401,571 114,176 29,286 15,828
------------ ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
ASSETS ------------ ----------- ---------------
- ------
<S> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $34,108,707) $ - $ - $ -
Intimate Brands, Inc.
(Cost $1,037,101) - - 976,468
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $82,389,513) - - -
Vanguard Index Trust - 500
Portfolio (Cost $38,949,927) - - -
Vanguard U.S. Growth Portfolio
(Cost $36,722,202) 46,268,660 - -
Vanguard Wellington Fund
(Cost $9,986,245) - 10,453,023 -
Temporary Investments (Cost
Approximates Fair Value) 3,824 329 2,197
----------- ----------- -----------
Total Investments 46,272,484 10,453,352 978,665
Contribution Receivable from Employers 4,396,598 1,667,242 165,818
Receivable from Employers for Withheld
Participants' Contributions 255,519 108,647 10,350
Due from Brokers - - -
Interfund Transfers (4,213) (2,507) 1,862
Accrued Interest and Dividends 682 131 32
----------- ----------- -----------
Total Assets 50,921,070 12,226,865 1,156,727
----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers - - 122,686
Administrative Fees Payable 109,033 10,562 -
----------- ----------- -----------
Total Liabilities 109,033 10,562 122,686
----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-1
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1995
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
TOTAL Stock Fund Income Fund Fund Fund Fund
ASSETS ------------ ------------- ------------- ------------- ----------- ------------
- ------
<S> <C> <C> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $36,237,327) $ 69,418,465 $ 69,418,465 $ - $ - $ - $ -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $70,972,869) 70,972,869 - 70,972,869 - - -
Vanguard Index - 500
Portfolio (Cost $28,215,245) 36,781,237 - - 36,781,237 - -
Vanguard U.S. Growth
Portfolio (Cost $22,450,170) 28,568,077 - - - 28,568,077 -
Vanguard Wellington Fund
(Cost $2,688,763) 2,810,545 - - - - 2,810,545
Determined By Contract Value:
Guaranteed Investment Contracts:
Metropolitan Life Insurance 7,064,772 - 7,064,772 - - -
Temporary Investments (Cost
Approximates Fair Value) 29,917 209 29,708 - - -
------------ ------------ ------------ ------------ ------------ ------------
Total Investments 215,645,882 69,418,674 78,067,349 36,781,237 28,568,077 2,810,545
Contribution Receivable from Employers 21,814,605 3,121,459 10,109,934 4,317,439 3,491,987 773,786
Receivable from Employers for Withheld
Participants' Contributions 1,417,497 227,262 522,163 331,820 263,791 72,461
Due from Brokers 46,096 46,096 - - - -
Interfund Transfers - (122,205) (6,207) (50,186) 33,824 144,774
Accrued Interest and Dividends 3,174 541 1,760 421 418 34
Other Assets 976 - - 424 483 69
------------ ------------ ------------ ------------ ------------ ------------
Total Assets 238,928,230 72,691,827 88,694,999 41,381,155 32,358,580 3,801,669
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES
- -----------
Other Liabilities 26,894 - 26,894 - - -
Administrative Fees Payable 392,065 129,381 141,144 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 418,959 129,381 168,038 66,651 50,968 3,921
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500
Total Stock Fund Income Fund Fund
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 5,826,139 $(3,507,840) $ - $ 5,621,065
Realized Gain on Sale of Securities 14,208,839 9,385,783 - 2,732,990
Interest 4,977,925 17,980 4,888,501 6,109
Dividends 1,400,891 1,395,032 - -
Mutual Funds' Earnings 5,229,593 - - 1,139,142
------------ ----------- ----------- -----------
Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306
------------ ----------- ----------- -----------
Contributions:
Employers 30,145,525 3,087,453 10,664,673 7,443,415
Participants 16,172,183 1,802,993 5,382,468 4,063,595
------------ ----------- ----------- -----------
Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010
------------ ----------- ----------- -----------
Interfund Transfers - (13,040,074) (3,485,681) 5,016,481
------------ ----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351)
------------ ----------- ----------- -----------
Administrative Expense (935,202) (258,452) (320,918) (125,949)
------------ ----------- ----------- -----------
Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433)
------------ ----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064
Beginning Net Assets Available for
Benefits 238,509,271 72,562,446 88,526,961 41,314,504
------------ ----------- ----------- -----------
Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Intimate
U.S. Growth Wellington Brands
Fund Fund Stock Fund
----------- ------------ ------------
<S> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 3,428,551 $ 344,996 $ (60,633)
Realized Gain on Sale of Securities 2,001,323 90,165 (1,422)
Interest 4,933 60,295 107
Dividends - - 5,859
Mutual Funds' Earnings 3,420,290 670,161 -
----------- ----------- -----------
Total Investment Income (Loss) 8,855,097 1,165,617 (56,089)
----------- ----------- -----------
Contributions:
Employers 6,287,166 2,489,055 173,763
Participants 3,449,162 1,412,169 61,796
----------- ----------- -----------
Total Contributions 9,736,328 3,901,224 235,559
----------- ----------- -----------
Interfund Transfers 6,476,961 4,164,295 868,018
----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (2,040,825) (204,747) -
----------- ----------- -----------
Administrative Expense (207,292) (22,591) -
----------- ----------- -----------
Benefits to Participants (4,315,844) (585,243) (13,447)
----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 18,504,425 8,418,555 1,034,041
Beginning Net Assets Available for
Benefits 32,307,612 3,797,748 -
----------- ----------- -----------
Ending Net Assets Available for Benefits $50,812,037 $12,216,303 $ 1,034,041
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
Total Stock Fund Income Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 7,426,953 $ (5,714,880) $ - $ 7,535,683 $ 5,484,368 $ 121,782
Realized Gain on Sale of Securities 3,567,665 1,581,946 - 1,096,390 877,023 12,306
Interest 4,771,693 10,190 4,752,866 4,761 3,726 150
Dividends 1,632,728 1,632,728 - - - -
Mutual Funds' Earnings 2,054,249 - - 832,487 1,151,646 70,116
------------ ------------ ------------ ------------ ------------ ------------
Total Investment Income (Loss) 19,453,288 (2,490,016) 4,752,866 9,469,321 7,516,763 204,354
------------ ------------ ------------ ------------ ------------ ------------
Contributions:
Employers 29,943,002 4,142,615 13,472,869 6,246,002 4,928,087 1,153,429
Participants 13,909,162 2,380,938 4,899,509 3,466,763 2,694,626 467,326
------------ ------------ ------------ ------------ ------------ ------------
Total Contributions 43,852,164 6,523,553 18,372,378 9,712,765 7,622,713 1,620,755
------------ ------------ ------------ ------------ ------------ ------------
Interfund Transfers - (775,658) (1,604,380) (28,051) 378,900 2,029,189
------------ ------------ ------------ ------------ ------------ ------------
Administrative Expense (1,017,651) (384,338) (357,753) (153,254) (117,880) (4,426)
------------ ------------ ------------ ------------ ------------ ------------
Benefits to Participants (24,679,806) (7,721,019) (9,758,147) (3,959,696) (3,188,820) (52,124)
------------ ------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 37,607,995 (4,847,478) 11,404,964 15,041,085 12,211,676 3,797,748
Beginning Net Assets Available for
Benefits 200,901,276 77,409,924 77,121,997 26,273,419 20,095,936 -
------------ ------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $238,509,271 $ 72,562,446 $ 88,526,961 $ 41,314,504 $ 32,307,612 $ 3,797,748
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth
Total Stock Fund Income Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ 1,716,786 $ 1,918,510 $ - $ (568,121) $ 366,397
Realized Gain on Sale of Securities 3,033,768 2,781,458 - 206,695 45,615
Interest 4,123,855 9,181 4,110,632 2,223 1,819
Dividends 1,575,897 1,575,897 - - -
Mutual Funds' Earnings 864,642 - - 661,477 203,165
------------ ------------ ------------ ------------ ------------
Total Investment Income 11,314,948 6,285,046 4,110,632 302,274 616,996
------------ ------------ ------------ ------------ ------------
Contributions:
Employers 23,236,673 4,220,346 11,221,074 4,509,396 3,285,857
Participants 10,745,605 2,466,228 3,919,556 2,532,832 1,826,989
------------ ------------ ------------ ------------ ------------
Total Contributions 33,982,278 6,686,574 15,140,630 7,042,228 5,112,846
------------ ------------ ------------ ------------ ------------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (37,482) (14) (37,468) - -
------------ ------------ ------------ ------------ ------------
Interfund Transfers - (1,149,559) 231,825 879,225 38,509
------------ ------------ ------------ ------------ ------------
Administrative Expense (755,565) (335,032) (270,359) (84,273) (65,901)
------------ ------------ ------------ ------------ ------------
Benefits to Participants (29,091,678) (13,430,138) (11,480,188) (2,305,551) (1,875,801)
------------ ------------ ------------ ------------ ------------
Increase (Decrease) in Net Assets
Available for Benefits 15,412,501 (1,943,123) 7,695,072 5,833,903 3,826,649
Beginning Net Assets Available for
Benefits 185,488,775 79,353,047 69,426,925 20,439,516 16,269,287
------------ ------------ ------------ ------------ ------------
Ending Net Assets Available for Benefits $200,901,276 $ 77,409,924 $ 77,121,997 $ 26,273,419 $ 20,095,936
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) DESCRIPTION OF THE PLAN
-----------------------
General
-------
The Limited, Inc. Savings and Retirement Plan (the "Plan") is a defined
contribu tion plan covering certain employees of The Limited, Inc. and
its affiliates (the "Employers") who are at least 21 years of age and
have completed 1,000 or more hours of service during their first
consecutive twelve months of employ ment or any calendar year beginning
in or after their first consecutive twelve months of employment. Certain
employees of the Employers, who are covered by a collective bargaining
agreement, are not eligible to participate in the Plan. At December 31,
1996, there were 25,392 participants in the Plan.
On August 31, 1993, The Limited, Inc. sold 60% of its interest in Brylane,
Inc. and transferred the assets and liabilities allocated to the
employees of Brylane, Inc. and its affiliates to the Brylane L.P. Savings
and Retirement Plan.
On January 31, 1996, The Limited, Inc. sold 60% of its interest in World
Finan cial Network National Bank and transferred the assets and
liabilities allo cated to the employees of World Financial Network
National Bank and its affiliates to the World Financial Network National
Bank Savings and Retirement Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA)
as amended.
Amendments
----------
During 1994, the Plan was amended and restated effective as of January 1,
1992 to, among other things, (1) make certain changes in the design of
the Plan to comply with the Internal Revenue code of 1986, as amended,
and the Employee Retirement Income Security Act of 1974, as amended and
(2) incorporate amendments previously made.
Contributions
-------------
Employer Contributions:
The Employers may provide a non-service related retirement contribution of
4% of annual compensation up to the Social Security wage base and 7% of
annual compensation after that and a service related retirement
contribution of 1% of annual compensation for participants who have
completed five or more years of vesting service as of the last day of the
Plan year. Participants who complete 500 hours of service during the Plan
year and are participants on the last day of the Plan year are eligible.
The annual compensation of each participant taken into account under the
Plan is limited to the maximum amount permitted under Section 401(a)(17)
of the Internal Revenue Code. The annual compensation limit for the Plan
year ended December 31, 1996, was $150,000. The limit increases to
$160,000 for 1997.
The Employers may provide a matching contribution of 100% of the
participant's voluntary contributions up to 3% of the participant's total
annual compensation.
F-6
<PAGE>
Participant Voluntary Contributions:
A participant may elect to make a voluntary tax-deferred contribution of 1%
to 6% of his or her annual compensation up to the maximum permitted under
Section 402(g) of the Internal Revenue Code adjusted annually ($9,500 at
December 31, 1996). This voluntary tax-deferred contribution may be
limited by Section 401(k) of the Internal Revenue Code.
A participant earning annually more than $66,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, may be limited to
voluntary contributions to the Plan of less than 6% due to requirements
of Section 401(k) of the Internal Revenue Code based on the current
levels of participant voluntary contributions.
Vesting
-------
A participant is fully and immediately vested for voluntary and rollover
contributions. A summary of vesting percentages in the Employers'
contributions follows:
<TABLE>
<CAPTION>
Years of Vested Service Percentage
----------------------- ----------
<S> <C>
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
</TABLE>
Payment Of Benefits
-------------------
The full value of participants' accounts becomes payable upon retirement,
disability, or death. Upon termination of employment for any other reason
participants' accounts, to the extent vested, become payable. Those
partici pants with vested account balances greater than $3,500 have the
option of leaving their accounts invested in the Plan until age 65. All
benefits will be paid as a lump-sum distribution. Those participants
holding between five and one hundred shares of Employer Securities will
have the option to receive such amount in whole shares of Employer
Securities and cash for any fractional shares. Those participants holding
more than one hundred shares of Employer Securities will receive whole
shares of Employer securities and cash for any fractional shares.
Participants have the option of having their benefit paid directly to an
eligible retirement plan specified by the participant.
A participant who is fully vested in his or her account and who has
participated in the Plan for at least five years may obtain an in-service
withdrawal from their account based on the percentage amounts designated
by the Plan. A participant may also request a hardship distribution due
to an immediate and heavy financial need based on the terms of the Plan.
Amounts Allocated Participants Withdrawn from the Plan
------------------------------------------------------
The vested portion of net assets available for benefits allocated to
participants withdrawn from the plan as of December 31, 1996 and 1995, is
set forth below:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Limited Stock Fund $ 914,636 $ 54,393
Fixed Income Fund 1,171,143 301,337
Index-500 Fund 371,539 128,645
U.S. Growth Fund 338,708 138,247
Wellington Fund 77,814 11,908
Intimate Brands Stock Fund 165 -
---------- --------
$2,874,005 $634,530
========== ========
</TABLE>
F-7
<PAGE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1996, 1995 and 1994, are set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Limited Stock Fund $ 309,429 $ 268,411 $ 536,323
Fixed Income Fund 3,178,025 1,691,327 2,804,818
Index-500 Fund 743,916 352,056 268,212
U.S. Growth Fund 692,299 295,948 241,890
Wellington Fund 36,468 - -
Intimate Brands Stock Fund - - -
---------- ---------- ----------
$4,960,137 $2,607,742 $3,851,243
========== ========== ==========
</TABLE>
Expenses
--------
Brokerage fees, transfer taxes, and other expenses incurred in connection
with the investment of the Plan's assets will be added to the cost of
such investments or deducted from the proceeds thereof, as the case may
be. Administrative expenses of the Plan will be paid from the Plan from
earnings not allocated to partici pants' accounts. The remainder will be
paid by the Employers, unless the Employers elect to pay more or all of
such costs.
Tax Determination
-----------------
The Plan obtained its latest determination letter on January 30, 1995, in
which the Internal Revenue Service stated that the Plan, as amended and
restated January 1, 1992 was in compliance with the applicable
requirements of the Internal Revenue Code. Accordingly, the following
Federal income tax rules will apply to the Plan:
Voluntary tax-deferred contributions made under the Plan by a
participant and contributions made by the Employers to participant
accounts are generally not taxable until such amounts are distributed.
The participants are not subject to Federal income tax on interest,
divi dends, or gains in their particular accounts until distributed.
The foregoing is only a brief summary of certain tax implications and
applies only to Federal tax regulations currently in effect.
(2) SUMMARY OF ACCOUNTING POLICIES
------------------------------
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. If available,
quoted market prices are used to value investments. The amounts for
investments that have no quoted market price are shown at their estimated
fair value, which is determined based on yields equivalent for such
securities or for securities of comparable maturi ty, quality, and type
as obtained from market makers. Guaranteed investment contracts issued by
insurance companies are valued at contract value. Contract value
represents contributions made under the contract, and interest at the
contract rate, less Plan withdrawals and administration expenses charged
by the insurance companies.
Realized gains or losses on the distribution or sale of securities
represent the difference between the average cost of such securities held
and the fair value on the date of distribution or sale.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results may differ from those estimates.
F-8
<PAGE>
INVESTMENTS
-----------
Net unrealized appreciation, equal to the difference between cost and fair
value of all investments held at the applicable valuation dates, is
recognized in determining the value of each fund. The unrealized
appreciation (depreciation) as of December 31, 1996, 1995 and 1994 is set
forth below:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Limited Stock Fund $26,715,998 $33,181,138 $42,740,905
Fixed Income Fund - - -
Index-500 Fund 14,187,057 8,565,992 1,030,309
U.S. Growth Fund 9,546,458 6,117,907 633,539
Wellington Fund 466,778 121,782 -
Intimate Brands Stock Fund (60,633) - -
----------- ----------- -----------
$50,855,658 $47,986,819 $44,404,753
=========== =========== ===========
</TABLE>
The following is a summary of the net gain (loss) on securities sold during
the periods ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Realized
Proceeds Cost Gain (Loss)
----------- ----------- ------------
<S> <C> <C> <C>
Period Ended December 31, 1996
Limited Stock Fund $18,722,433 $ 9,336,650 $ 9,385,783
Fixed Income Fund 31,802,226 31,802,226 -
Index-500 Fund 11,800,336 9,067,346 2,732,990
U.S. Growth Fund 8,582,452 6,581,129 2,001,323
Wellington Fund 1,842,744 1,752,579 90,165
Intimate Brands Stock Fund 11,229 12,651 (1,422)
----------- ----------- -----------
$72,761,420 $58,552,581 $14,208,839
=========== =========== ===========
Period Ended December 31, 1995
Limited Stock Fund $ 2,804,851 $ 1,222,905 $ 1,581,946
Fixed Income Fund 21,155,451 21,155,451 -
Index-500 Fund 6,616,037 5,519,647 1,096,390
U.S. Growth Fund 4,986,144 4,109,121 877,023
Wellington Fund 266,558 254,252 12,306
----------- ----------- -----------
$35,829,041 $32,261,376 $ 3,567,665
=========== =========== ===========
Period Ended December 31, 1994
Limited Stock Fund $ 4,926,530 $ 2,145,072 $ 2,781,458
Fixed Income Fund 14,779,530 14,779,530 -
Index-500 Fund 3,511,736 3,305,041 206,695
U.S. Growth Fund 3,139,753 3,094,138 45,615
----------- ----------- -----------
$26,357,549 $23,323,781 $ 3,033,768
=========== =========== ===========
</TABLE>
Contributions under the Plan are invested in one of six investment funds:
(1) The Limited Stock Fund, consisting of common stock of The Limited,
Inc., a Delaware corporation (the "Issuer") and parent company of the
Employers, (2) the Fixed Income Fund, which is invested in the Vanguard
Investment Contract Trust, and prior to January 1996, was also invested
in other guaranteed investment con tracts issued by insurance companies,
(3) the Index-500 Fund, which is invested in the Vanguard Index - 500
Portfolio, (4) the U.S. Growth Fund, which is invested in the Vanguard
U.S. Growth Portfolio, (5) the Wellington Fund, which is invested in the
Vanguard Wellington Fund. Prior to July 1, 1995 the Wellington Fund was
not an investment option, and (6) the Intimate Brands Stock Fund,
consisting of common stock of Intimate Brands, Inc., a Delaware corpora
tion and an eighty-three percent owned subsidiary of The Limited, Inc.
Prior to October 1, 1996 the Intimate Brands Stock Fund was not an
investment option.
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant. There are
5,584 partic ipants in the Limited Stock Fund, 17,644 in the Fixed Income
Fund, 8,941 in the Index-500 Fund, 8,160 in the U.S. Growth Fund, 5,350
in the Wellington Fund, and 641 in the Intimate Brands Stock Fund at
December 31, 1996.
F-9
<PAGE>
(4) PLAN ADMINISTRATION
-------------------
The Plan is administered by a Committee, the members of which are appointed
by the Board of Directors of the Employers.
(5) PLAN TERMINATION
----------------
Although the Employers have not expressed any intent to do so, the
Employers have the right under the Plan to discontinue their
contributions at any time. The Limited, Inc. has the right at any time,
by action of its Board of Directors, to terminate the Plan subject to
provisions of ERISA. Upon Plan termination or partial termination,
participants will become fully vested in their accounts.
F-10
