<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-13814
-------
INTIMATE BRANDS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1436998
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 415-6900
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at August 29, 1997
-------------------- ------------------------------
$.01 Par Value 42,560,925 Shares
Class B Common Stock Outstanding at August 29, 1997
-------------------- ------------------------------
$.01 Par Value 210,000,000 Shares
<PAGE>
INTIMATE BRANDS, INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen and Twenty-six Weeks Ended
August 2, 1997 and August 3, 1996 ............... 3
Consolidated Balance Sheets
August 2, 1997 and February 1, 1997 ............. 4
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended
August 2, 1997 and August 3, 1996 ............... 5
Notes to Consolidated Financial Statements .................. 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition ... 10
Part II. Other Information
Item 1. Legal Proceedings ........................................ 16
Item 5. Other Information ........................................ 16
Item 6. Exhibits and Reports on Form 8-K ......................... 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
--------------------------------- -------------------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $826,574 $653,291 $1,530,615 $1,239,499
Cost of Goods Sold, Occupancy and Buying Costs 544,003 436,329 1,019,962 847,760
-------------- -------------- ------------- -------------
GROSS INCOME 282,571 216,962 510,653 391,739
General, Administrative and Store Operating
Expenses 175,086 130,130 342,886 256,024
-------------- -------------- ------------- -------------
OPERATING INCOME 107,485 86,832 167,767 135,715
Interest Expense (7,562) (7,563) (15,126) (15,126)
Other Income 1,775 891 3,855 1,606
-------------- -------------- ------------- -------------
INCOME BEFORE INCOME TAXES 101,698 80,160 156,496 122,195
Provision for Income Taxes 40,700 32,100 62,600 48,900
-------------- -------------- ------------- -------------
NET INCOME $60,998 $48,060 $93,896 $73,295
============== ============== ============= =============
NET INCOME PER SHARE $.24 $.19 $.37 $.29
============== ============== ============= =============
DIVIDENDS PER SHARE $.13 $.12 $.26 $.24
============== ============== ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 253,271 253,114 253,181 252,936
============== ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $17,585 $135,111
Accounts Receivable 18,653 18,750
Inventories 419,722 434,800
Intercompany Receivables 32,961 60
Other 90,473 68,255
--------------- ---------------
TOTAL CURRENT ASSETS 579,394 656,976
PROPERTY AND EQUIPMENT, NET 414,324 395,647
OTHER ASSETS 84,334 82,539
--------------- ---------------
TOTAL ASSETS $1,078,052 $1,135,162
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $73,053 $88,896
Accrued Expenses 130,480 136,598
Income Taxes Payable 33,472 98,187
--------------- ---------------
TOTAL CURRENT LIABILITIES 237,005 323,681
LONG-TERM DEBT 350,000 350,000
DEFERRED INCOME TAXES 50,936 50,935
OTHER LONG-TERM LIABILITIES 9,459 8,493
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-in Capital 674,885 675,240
Retained Deficit (243,835) (272,071)
--------------- ---------------
433,577 405,696
Less Treasury Stock, at Average Cost (2,925) (3,643)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 430,652 402,053
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,078,052 $1,135,162
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
---------------------------------------
August 2, August 3,
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $93,896 $73,295
Net Income
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 47,173 40,740
Changes in Assets and Liabilities:
Inventories 15,078 1,600
Accounts Payable and Accrued Expenses (21,961) (6,295)
Income Taxes (64,714) (49,435)
Other Assets and Liabilities (26,430) 2,078
----------------- ----------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 43,042 61,983
----------------- ----------------
CASH USED FOR INVESTING ACTIVITIES:
Capital Expenditures (62,370) (48,660)
----------------- ----------------
FINANCING ACTIVITIES:
Dividends Paid (65,660) (60,648)
Change in Intercompany Payable/Receivable (32,901) 48,816
Stock Options and Other 363 (668)
----------------- ----------------
NET CASH USED FOR FINANCING ACTIVITIES (98,198) (12,500)
----------------- ----------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (117,526) 823
Cash and Equivalents, Beginning of Year 135,111 12,095
----------------- ----------------
CASH AND EQUIVALENTS, END OF PERIOD $17,585 $12,918
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
INTIMATE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Intimate Brands, Inc. (the "Company") includes specialty retail and
catalogue operations which offer women's intimate and other apparel,
personal care products and accessories. They consist of Victoria's Secret
Stores, Victoria's Secret Catalogue, Bath & Body Works, Cacique, and
Gryphon Development. An initial public offering of 42.7 million shares of
the Company's Class A common stock was consummated in 1995 and as a result,
approximately 83% of the outstanding common stock of the Company is owned
by The Limited, Inc. ("The Limited").
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries which are more than 50 percent owned and
controlled. All significant intercompany balances and transactions have
been eliminated in consolidation.
The consolidated financial statements as of August 2, 1997 and for the
thirteen and twenty-six week periods ended August 2, 1997 and August 3,
1996 are unaudited and are presented pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's 1996
Annual Report on Form 10-K. In the opinion of management, the accompanying
consolidated financial statements reflect all adjustments (which are of a
normal recurring nature) necessary to present fairly the financial position
and results of operations and cash flows for the interim periods, but are
not necessarily indicative of the results of operations for a full fiscal
year.
The consolidated financial statements as of August 2, 1997 and for the
thirteen and twenty-six week periods ended August 2, 1997 and August 3,
1996 included herein have been reviewed by the independent public
accounting firm of Coopers & Lybrand L.L.P. and the report of such firm
follows the notes to consolidated financial statements.
2. ADOPTION OF ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." The
------------------
Company will adopt the computation, presentation and disclosure
requirements for earnings per share in the fourth quarter of 1997, the
effect of which will not be material to the Company's consolidated
financial statements.
6
<PAGE>
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and Fall
(the third and fourth quarters). Valuation of finished goods inventories is
based principally upon the lower of average cost or market determined on a
first-in, first-out basis utilizing the retail method. Inventory valuation
at the end of the first and third quarters reflects adjustments for
inventory markdowns and shrinkage estimates for the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
-------------- --------------
<S> <C> <C>
Property and equipment, at cost $754,086 $701,599
Accumulated depreciation and
amortization (339,762) (305,952)
-------------- --------------
Property and equipment, net $414,324 $395,647
============== ==============
</TABLE>
5. INCOME TAXES
The Company is included in The Limited's consolidated federal and certain
state income tax groups for income tax reporting purposes and is
responsible for its proportionate share of income taxes calculated upon its
federal taxable income at a current estimate of the Company's annual
effective tax rate. Income taxes paid during the twenty-six weeks ended
August 2, 1997 and August 3, 1996 approximated $127.3 million and $95.3
million.
6. 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. The 7 1/2% debentures are subject to early redemption
beginning in 2003 concurrent with any prepayment of the corresponding debt
by The Limited. Unsecured long-term debt consisted of (thousands):
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
-------------- --------------
<S> <C> <C>
7 1/2% Debentures due March 2023 $100,000 $100,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
-------------- --------------
$350,000 $350,000
============== ==============
</TABLE>
7
<PAGE>
Interest paid during the twenty-six weeks ended August 2, 1997 and August
3, 1996, including interest on the intercompany cash management account
(see Note 7), approximated $22.0 million and $27.3 million.
7. INTERCOMPANY RELATIONSHIP WITH PARENT
The Limited provides various services to the Company including, but not
limited to, store design and construction supervision, real estate
management, travel and flight support and merchandise sourcing. To the
extent expenditures are specifically identifiable they are charged to the
Company. All other related support expenses are charged to the Company and
other divisions at The Limited based upon various allocation methods.
The Company participates in The Limited's centralized cash management
system whereby cash received from operations is transferred to The
Limited's centralized cash accounts and cash disbursements are funded from
the centralized cash accounts on a daily basis. Interest on the
intercompany cash management account is calculated based on 30-day
commercial paper rates for "AA" rated companies as reported in the Federal
Reserve's H.15 statistical release.
8
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
Intimate Brands, Inc.
We have reviewed the condensed consolidated balance sheet of Intimate Brands,
Inc. and Subsidiaries (the Company) at August 2, 1997, and the related condensed
consolidated statements of income and cash flows for the thirteen-week and
twenty-six-week periods ended August 2, 1997 and August 3, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of February 1, 1997, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated
February 24, 1997 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of February 1, 1997, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND, L.L.P.
Columbus, Ohio
September 10, 1997
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the second quarter of 1997, net sales increased 27% to $826.6 million
from $653.3 million a year ago. Second quarter operating income of $107.5
million increased 24% from last year's $86.8 million. Earnings per share
increased 26% to $.24 per share compared to $.19 per share in 1996.
Highlights include the following:
Victoria's Secret Stores had a very successful semi-annual sale in June.
Overall for the quarter, the business recorded comparable store sales
increases of 15% and a margin improvement, resulting in an operating income
increase of 29%.
Bath & Body Works achieved a 58% sales gain and a 43% increase in operating
profits. To date, the business has benefited from continued product
introductions, a growing gift business and 241 new stores as compared to
last year.
Victoria's Secret Catalogue steadily gained momentum throughout the first
half of the year, achieving record sales and profits. Year-to-date,
operating income increased 39%, due to a 10% sales increase and a 2.5%
decline in catalogue and related costs, as a percentage of sales, primarily
from lower paper costs.
Sales for the twenty-six weeks ended August 2, 1997 of $1.531 billion increased
24% from sales of $1.239 billion for the same period last year. Operating income
increased 24% to $167.8 million from $135.7 million a year ago, and earnings per
share grew 28% to $.37 per share, compared to $.29 per share in 1996.
10
<PAGE>
Financial Summary
- -----------------
The following summarized financial and statistical data compares the thirteen
and twenty-six week periods ended August 2, 1997 to the comparable 1996 periods:
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
---------------------------------------- ----------------------------------------
Change Change
From From
Prior Prior
1997 1996 Year 1997 1996 Year
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales (millions):
Victoria's Secret Stores $389 $319 22% $714 $605 18%
Victoria's Secret Catalogue 196 176 12% 376 343 10%
Bath & Body Works 212 134 58% 389 245 59%
Cacique 22 21 5% 42 40 5%
Other 8 3 167% 10 6 67%
----------- ----------- ------------ ----------- ------------ -----------
Total Net Sales $827 $653 27% $1,531 $1,239 24%
=========== =========== ============ =========== ============ ===========
Increase in comparable store sales:
Victoria's Secret Stores 15% 3% 11% 5%
Bath & Body Works 16% 11% 15% 12%
Cacique 11% 11% 8% 15%
----------- ----------- ----------- ------------
Total Intimate Brands, Inc. 15% 5% 12% 7%
=========== =========== =========== ============
Retail Sales Excluding Catalogue and Other:
Retail sales increase
attributable to new and
remodeled stores 16% 19% 17% 19%
Retail sales per average
selling square foot $118 $106 11% $220 $202 9%
Retail sales per average
store (thousands) $370 $343 8% $688 $655 5%
Average store size at end of
quarter (selling square feet) 3,118 3,222 (3%)
Retail selling square feet at end of
quarter (thousands) 5,360 4,607 16%
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Second Quarter Year - to - Date
----------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
Number of stores:
<S> <C> <C> <C> <C>
Beginning of period 1,656 1,336 1,609 1,293
Opened 65 98 120 142
Closed (2) (4) (10)* (5)
------------ ------------ ------------ -----------
End of period 1,719 1,430 1,719 1,430
============ ============ ============ ===========
</TABLE>
* Includes sale of four Penhaligon's stores in April 1997.
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
---------------------------------------------- -------------------------------------------
Change Change
August 2, August 3, From Prior August 2, August 3, From Prior
1997 1996 Year 1997 1996 Year
------------ ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 757 703 54 3,433 3,195 238
Bath & Body Works 844 603 241 1,564 1,042 522
Cacique 118 120 (2) 363 368 (5)
Penhaligon's - 4 (4) - 2 (2)
------------ ------------ ------------ ----------- ----------- -----------
Total stores and selling
square feet 1,719 1,430 289 5,360 4,607 753
============ ============ ============ =========== =========== ===========
</TABLE>
Net Sales
- ---------
Net sales for the second quarter of 1997 increased by 27% over the same period
last year. This increase was primarily attributable to the net addition of 289
new stores which accounted for 47% of the increase. The remaining increase came
from a 15% increase in comparable store sales (representing 39% of the total net
sales increase) and a 12% increase in catalogue net sales. Year-to-date sales
increased 24% over same period in 1996, due to the addition of new stores (53%
of total increase), a 12% increase in comparable store sales (35% of total
increase) and a 10% increase in catalogue net sales.
Victoria's Secret Stores net sales for the second quarter of 1997 increased 22%
to $389 million from $319 million a year ago. The sales increase was due to a
15% increase in comparable store sales for the quarter (representing 66% of the
sales increase) and the net addition of 54 new stores and 238,000 selling square
feet (a 7% increase in selling square feet over 1996).
Bath & Body Works net sales for the second quarter of 1997 increased 58% to $212
million from $134 million a year ago. The sales increase was primarily
attributable to a net addition of 241 stores and 522,000 selling square feet, a
50% increase in selling square feet over 1996. The balance of the increase was
from a 16% increase in comparable store sales for the quarter.
Victoria's Secret Catalogue net sales for the second quarter of 1997 increased
12% to $196 million from $176 million a year ago. This increase was primarily
attributable to an increase in catalogue circulation in the second quarter of
1997.
12
<PAGE>
Gross Income
- ------------
Gross income increased as a percentage of net sales to 34.2% for the second
quarter of 1997 from 33.2% for the same period in 1996. The increase was
primarily due to a 0.9% reduction in buying and occupancy costs. The reduction
in buying and occupancy costs, expressed as a percentage of net sales, was
primarily due to shifts in the mix of Company sales. Bath & Body Works, which
experiences a lower buying and occupancy rate, due to higher sales productivity
(expressed in sales per selling square foot) and a smaller store size, grew from
21% of total company net sales in 1996 to 26% in 1997.
The 1997 year-to-date gross income percentage increased 1.8% to 33.4% in 1997
from 31.6% for the same period in 1996. The year-to-date increase was primarily
attributable to a 1.3% rate reduction in buying and occupancy costs. The
reduction in buying and occupancy expressed as a percentage of sales, was
primarily due to the growth of Bath & Body Works net sales as a percentage of
the total Company to 25% compared to 20% in 1996, coupled with Victoria's Secret
Catalogue's lower catalogue and related costs, primarily in paper. The remaining
increase in gross income was also due to the growth of Bath & Body Works in the
mix, total Company sales, including its effect on merchandise margins. Bath &
Body Works has historically recorded significantly higher merchandise margins
and lower buying and occupancy, as compared with the rest of the Company as a
result of its relatively higher margins for its personal care products and
higher merchandise productivity, expressed in sales per selling square feet. The
Company believes that strong sales growth of Bath & Body Works will continue to
have a positive impact on gross income as a percentage of total company sales.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses increased as a percentage
of net sales to 21.2% in the second quarter of 1997 from 19.9% for the same
period in 1996. Year-to-date, the rate increased as a percentage of sales to
22.4% for 1997 from 20.7% in 1996. The increase in the Company's expense rate
was primarily due to two factors: the growth of Bath & Body Works net sales as a
percentage of the total Company and the investments made in store staffing and
management for the personal care portion of the business at Victoria's Secret
Stores. Bath & Body Works has higher than company average general,
administrative and store operating expenses due to their emphasis on
point-of-sale marketing and in-store staffing. The Company believes that
continued strong growth of Bath & Body Works as a percentage of total Company
sales may cause these costs to continue to increase, expressed as a percentage
of total Company sales, without significant expense rate improvement by other
Company businesses.
Operating Income
- ----------------
Second quarter and year-to-date operating income, as a percentage of net sales,
was 13.0% and 11.0% in 1997 compared to 13.3% and 10.9% in 1996, respectively.
The increase in general, administrative and store operating expenses, expressed
as a percentage of sales, outpaced the gross income rate increase in the second
quarter of 1997.
13
<PAGE>
Interest Expense and Other Income
- ---------------------------------
The Company incurred $7.6 million in interest expense for both second quarter
1997 and 1996 and $15.1 million for both year-to-date 1997 and 1996. The
interest expense arose primarily from the Company's $350 million long-term debt.
In the second quarter of 1997, the Company earned $1.8 million in other income
as compared to $0.9 million for the same period in 1996. Year-to-date, the
Company earned $3.9 million compared to $1.6 million in 1996. Other income is
primarily interest earned from excess net cash from operations managed through
The Limited's centralized cash management system. (See Note 7 of the Company's
Consolidated Financial Statements).
FINANCIAL CONDITION
The Company's consolidated balance sheet as of August 2, 1997 provides evidence
of financial strength and flexibility. A more detailed discussion of liquidity,
capital resources and capital requirements follows.
Liquidity and Capital Resources
- -------------------------------
Cash provided from operating activities and cash funding from The Limited's
centralized cash management system provide the resources to support operations,
including projected growth, seasonal working capital requirements and capital
expenditures. A summary of the Company's working capital position and long-term
on-going capitalization follows (thousands):
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
-------------- --------------
<S> <C> <C>
Working Capital $342,389 $333,295
============== ==============
Capitalization:
Long-term debt $350,000 $350,000
Deferred income taxes 50,936 50,935
Shareholders' equity 430,652 402,053
-------------- --------------
Total Capitalization $831,588 $802,988
============== ==============
</TABLE>
14
<PAGE>
Net cash provided from operating activities totaled $43.7 million for the
twenty-six weeks ended August 2, 1997 versus $62.0 million for the same period
in 1996. The reduction in net cash provided from operating activities for the
Company from last year is primarily due to the timing of higher income tax
payments associated with the higher taxable income last year and for the first
quarter of this year. Also contributing to the reduction of cash from operating
activities was the net impact of a decrease in merchandise payables, due to the
timing of payments and inventory receipts in 1997.
Investing activities were all for capital expenditures, of which $36.2 million
was for new and remodeled stores and $17.9 million was for equipment and
leasehold improvements for Bath & Body Works' new distribution center and world
headquarters.
Financing activities included the payment of $65.7 million of dividends for the
first half of 1997 and $32.9 million of net cash invested through The Limited's
centralized cash management system (see Note 7).
Capital Expenditures
- --------------------
Capital expenditures, including Bath & Body Works' new distribution center and
world headquarters totaled $62.4 million for the twenty-six weeks ended August
2, 1997 compared to $48.7 million for the comparable period of 1996. The Company
anticipates spending $120 - $140 million in 1997 for capital expenditures, of
which $90 - $110 million will be for new stores, the relocation and expansion of
existing stores and related improvements for the retail business.
The Company intends to add approximately 680,000 selling square feet in 1997,
which will represent a 13% increase over year-end 1996. It is anticipated that
the increase will result from the addition of approximately 236 new stores and
the remodeling/expansion of approximately 43 stores. The Company expects that
future capital expenditures will be funded principally by net cash provided by
operating activities.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
All forward-looking statements made by the Company involve material risks and
uncertainties and are subject to change based on various important factors which
may be beyond the Company's control. Accordingly, the Company's future
performance and financial results may differ materially from those expressed or
implied in any such forward-looking statements. Such factors include, but are
not limited to, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, postal rate increases and
charges, paper and printing costs, availability of suitable store locations on
appropriate terms, ability to develop new merchandise, ability to hire and train
associates, and other factors that may be described in the Company's filings
with the Securities and Exchange Commission. The Company does not undertake to
publicly update or revise its forward-looking statements even if experience or
future changes make it clear that any projected results expressed or implied
therein will not be realized.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business. On April 8, 1997, the United States
District Court, Central District of California, unsealed and permitted
to be served an amended complaint previously filed in that court against
the Company, The Limited and certain of The Limited's other subsidiaries
by the American Textiles Manufacturers Institute, a textile industry
trade association. The amended complaint alleges that the defendants
violated the federal False Claims Act by submitting false country of
origin records to the US Customs Service. The amended complaint seeks
recovery on behalf of the United States in an unspecified amount. On
June 2, 1997, the defendants filed a motion to dismiss the complaint and
a motion to transfer the case to the United States District Court for
the Southern District of Ohio, Eastern Division. On June 30, 1997, the
motion to transfer was granted. The motion to dismiss the amended
complaint remains pending. The Company believes the allegations made are
without merit and intends to defend the lawsuit vigorously.
Although it is not possible to predict with certainty the eventual
outcome of any litigation, in the opinion of management, the foregoing
proceedings are not expected to have a material adverse effect on the
Company's financial position or results of operations.
Item 5. OTHER INFORMATION
The Company's Certificate of Incorporation includes provisions relating
to potential conflicts of interest that may arise between the Company
and The Limited. Such provisions were adopted in light of the fact that
the Company and The Limited and its subsidiaries are engaged in retail
businesses and may pursue similar opportunities in the ordinary course
of business. Among other things, these provisions generally eliminate
the liability of directors and officers of the Company with respect to
certain matters involving The Limited and its subsidiaries, including
matters that may constitute corporate opportunities of The Limited, its
subsidiaries or the Company. Any person purchasing or acquiring an
interest in shares of capital stock of the Company will be deemed to
have consented to such provisions relating to conflicts of interest and
corporate opportunities, and such consent may restrict such person's
ability to challenge transactions carried out in compliance with such
provisions. Investors should review the Company's Certificate of
Incorporation before making any investment in shares of the Company's
capital stock.
16
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3. Articles of Incorporation and Bylaws
3.1 Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended October 28, 1995.
3.2 Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-
Q for the quarter ended October 28, 1995.
4. Instruments Defining the Rights of Security Holders
4.1 Specimen Certificate of Class A Common Stock of the
Company incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No.
33-92568) (the "Form S-1").
4.2 Certificate of Incorporation of The Limited, Inc.
incorporated by reference to Exhibit 4.2 to the Company's
Form S-1.
4.3 Bylaws of The Limited, Inc. incorporated by reference to
Exhibit 4.3 to the Company's Form S-1.
10. Material Contracts
10.1 Intimate Brands, Inc. 1996 Stock Option and Performance
Incentive Plan incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (File
No. 333-04923).
10.2 Intimate Brands, Inc. Incentive Compensation Plan
incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-04921).
11. Statements re: Computation of Per Share Earnings
15. Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Incorporation of Independent
Accountants' Report
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
None.
17
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTIMATE BRANDS, INC.
(Registrant)
By /s/ Philip E. Mallott
----------------------------
Philip E. Mallott,
Chief Financial Officer*
Date: September 12, 1997
- ---------------------------------
* Mr. Mallott is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
18
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- ---------------------------------------
11 Statement re: Computation of Per Share Earnings.
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of
Independent Accountants' Report.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 11
----------
INTIMATE BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------
August 2, August 3,
1997 1996
--------------- ----------------
<S> <C> <C>
Net income $60,998 $48,060
=============== ================
Common shares outstanding:
Weighted average 252,700 252,700
Dilutive effect of stock options 724 423
Weighted average treasury shares (153) (9)
--------------- ----------------
Weighted average used to calculate
net income per share 253,271 253,114
=============== ================
Net income per share $.24 $.19
=============== ================
<CAPTION>
Twenty-six Weeks Ended
------------------------------------
August 2, August 3,
1997 1996
--------------- ----------------
<S> <C> <C>
Net income $93,896 $73,295
=============== ================
Common shares outstanding:
Weighted average 252,700 252,700
Dilutive effect of stock options 642 241
Weighted average treasury shares (161) (5)
--------------- ----------------
Weighted average used to calculate
net income per share 253,181 252,936
=============== ================
Net income per share $.37 $.29
=============== ================
</TABLE>
<PAGE>
EXHIBIT 15
----------
[LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated September 10, 1997, on our review of the
interim consolidated financial information of Intimate Brands, Inc. and
Subsidiaries for the thirteen-week and twenty-six-week periods ended August 2,
1997 and included in this Form 10-Q is incorporated by reference in the
Company's registration statements on Form S-8, Registration Nos. 333-04921 and
333-04923. Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements (unaudited) of Intimate Brands, Inc. and
Subsidiaries for the quarter ended August 2, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 17,585
<SECURITIES> 0
<RECEIVABLES> 18,653
<ALLOWANCES> 0
<INVENTORY> 419,722
<CURRENT-ASSETS> 579,394
<PP&E> 754,086
<DEPRECIATION> 339,762
<TOTAL-ASSETS> 1,078,052
<CURRENT-LIABILITIES> 237,005
<BONDS> 350,000
0
0
<COMMON> 2,527
<OTHER-SE> 430,652
<TOTAL-LIABILITY-AND-EQUITY> 1,078,052
<SALES> 1,530,615
<TOTAL-REVENUES> 1,530,615
<CGS> 1,019,962
<TOTAL-COSTS> 1,019,962
<OTHER-EXPENSES> 342,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,126
<INCOME-PRETAX> 156,496
<INCOME-TAX> 62,600
<INCOME-CONTINUING> 93,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,896
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
