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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 January 31, 1998
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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
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
Three Limited Parkway, P.O. Box 16000, Columbus, Ohio 43216
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (614) 415-8000
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Securities registered pursuant to Section 12 (b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
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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 proceeding 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 the Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. X
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Aggregate market value of the registrant's Common Stock held by non-affiliates
of the registrant as of April 17, 1998: $1,193,085,970
Number of shares outstanding of the registrant's Common Stock as of April 17,
1998: 42,326,775 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 January 31, 1998 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 18, 1998 are incorporated by reference into
Part III.
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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 a catalogue division.
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 January 31, 1998, the Company operated a retail lingerie business, a
catalogue lingerie and women's apparel business (Victoria's Secret Catalogue),
and a personal care business. The following chart reflects the number of stores
in operation at January 31, 1998 and February 1, 1997.
<TABLE>
<CAPTION>
Retail Business Number of Stores
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January 31, February 1,
1998 1997
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<S> <C> <C>
Victoria's Secret Stores 789 736
Bath & Body Works 921 750
Cacique * - 119
Penhaligon's * - 4
--------------- ---------------
Total 1,710 1,609
=============== ===============
<FN>
* Penhaligon's was sold in March 1997 and Cacique was
closed on January 31, 1998.
</TABLE>
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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 Year Beginning of
Year Opened Closed End of Year
-------------- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
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
1997 1,609 233 132 1,710
</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 1997, the Company purchased merchandise from approximately
1,400 suppliers and factories located throughout the world. The Company sourced
approximately 20% 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 retail 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 consistent with 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 1997, the highest
inventory level approximated $614 million at the November 1997 month-end and the
lowest inventory level approximated $406 million at the December 1997 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 Systems ("ADS"). ADS was 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 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.
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The following is a brief description 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.
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.
1997 Annual Report to Shareholders, and is incorporated herein by reference.
Portions of the 1997 Annual Report are annexed hereto as Exhibit 13.
COMPETITION.
The sale of 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,
lingerie and personal care products. However, the Company estimates its total
share of the domestic lingerie market at approximately 10% and its share of the
domestic personal care market at 6%.
ASSOCIATE RELATIONS.
On January 31, 1998, the Company employed approximately 50,000 associates,
42,000 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, Rio Rancho, New Mexico,
London, England, Tokyo, Japan and Paris, France.
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 1998 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 fund all or a portion of the
cost of improvements. The cost of improvements varies widely, depending on the
size and location of the store.
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Rental terms for 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 a variety of lawsuits arising in the ordinary
course of business.
On November 13, 1997, the United States District Court for the Southern District
of Ohio, Eastern Division, dismissed with prejudice an amended complaint that
had been filed against the Company, The Limited and certain of The Limited's
other subsidiaries by the American Textile Manufacturers Institute ("ATMI"), a
textile industry trade association. The amended complaint alleged that the
defendants violated the federal False Claims Act by submitting false country of
origin records to the US Customs Service. On November 26, 1997, ATMI served a
motion to alter or amend judgement and a motion to disqualify the presiding
judge and to vacate the order of dismissal. The motion to disqualify was denied
on December 22, 1997, but as a matter of his personal discretion, the presiding
judge elected to recuse himself from further proceedings and this matter has
been transferred to another judge of the United States District Court for the
Southern District of Ohio. On January 8, 1998, ATMI filed a second motion to
vacate and a motion for leave to file a second amended complaint. The Company
has vigorously opposed all of the pending motions.
Although it is not possible to predict with certainty the eventual outcome of
any litigation, in the opinion of management, the foregoing proceedings are not
expected to have a material adverse effect on the Company's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of the
Company as of January 31, 1998.
Leslie H. Wexner, 60, 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, 51, has been Executive Vice Chairman and Chief Administrative
Officer of The Limited since June 25, 1997. Mr. Gilman was Executive Vice
Chairman and Chief Financial Officer of the Limited from June 1993 to June 1997
and was Executive Vice President and Chief Financial Officer of The Limited for
more than five years prior thereto.
Cynthia A. Fields, 48, 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, 51, 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, 51, 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, 40, 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. 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.
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 1997 and 1996, approximate number of holders of common stock,
and quarterly cash dividend per share information of the Company's common stock
for the fiscal year 1997 and 1996 is set forth under the caption "Market Price
and Dividend Information" on page 52 of the 1997 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 36 of the 1997 Annual Report and is incorporated herein by reference.
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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 37 through 42 of the 1997 Annual Report and is incorporated herein by
reference.
In March 1997, the Financial Accounting Standards Board issued a 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.
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 1997 Annual Report and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of the Company is set forth under the captions
"ELECTIONS 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 on May 18, 1998 (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 the 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 15 of the Proxy Statement
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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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 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.
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 January
31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Balance Sheets as of January 31, 1998 and February 1,
1997.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 31, 1998, February 1, 1997 and February 3, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended
January 31, 1998, February 1, 1997 and February 3, 1996.
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.
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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.
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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. 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.
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10.9. Reserved for future use.
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.
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. Reserved for future use.
10.18. Reserved for future use.
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.
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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. Reserved for future use.
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.
13. Excerpts from the 1997 Annual Report to Shareholders, including
"Financial Summary", "Management's Discussion and Analysis" and
"Financial Statements and Notes" on pages 36 - 52.
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.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the fourth quarter of
fiscal year 1997.
(c) Exhibits.
---------
The exhibits to this report are listed in section (a)(3) of Item
14 above.
(d) Financial Statement Schedules.
-----------------------------
Not applicable.
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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 28, 1998
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 A. FIELDS* Director
- ------------------------------
Cynthia A. Fields
/s/ E. GORDON GEE* Director
- ------------------------------
E. Gordon Gee
/s/ GRACE A. NICHOLS* Director
- ------------------------------
Grace A. Nichols
/s/ BETH M. PRITCHARD* Director
- ------------------------------
Beth M. Pritchard
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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/ KENNETH B. GILMAN
-----------------------
Kenneth B. Gilman
Attorney-in-fact
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Coopers COOPERS & LYBRAND L.L.P.
& Lybrand a professional services firm
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 January 31, 1998 and February 1, 1997, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three fiscal years in the period ended January 31, 1998. 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 January 31, 1998 and February 1, 1997 and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
February 20, 1998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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INTIMATE BRANDS, INC.
(exact name of Registrant as specified in its charter)
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EXHIBITS
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<PAGE> 16
EXHIBIT INDEX
Exhibit No. Document
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13 Excerpts from the 1997 Annual Report to Shareholders,
including "Financial Summary", "Management's Discussion
and Analysis" and "Financial Statements and Notes" on
pages 36 - 52.
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> 1
<TABLE>
<CAPTION>
FINANCIAL SUMMARY
(Thousands except per share amounts, ratios and store and associate data)
Fiscal Year 1997 1996 1995*
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SUMMARY OF OPERATIONS
<S> <C> <C> <C>
Net Sales $ 3,617,856 $ 2,997,340 $ 2,516,555
Gross Income $ 1,360,032 $ 1,055,045 $ 820,928
Operating Income $ 504,652 $ 458,142 $ 386,296
Operating Income as a Percentage of Sales 13.9 % 15.3 % 15.4 %
Adjusted Operating Income(A) $ 572,252 (A) $ 470,142 (A) $ 386,296
Adjusted Operating Income as a Percentage of Sales(A) 15.8 %(A) 15.7 %(A) 15.4 %
Income Before Income Taxes $ 482,936 $ 430,210 $ 340,059
Net Income $ 288,936 $ 258,210 $ 204,059
Net Income as a Percentage of Sales 8.0 % 8.6 % 8.1 %
Adjusted Net Income(A) $ 329,536 (A) $ 265,410 (A) $ 204,059
Adjusted Net Income as a Percentage of Sales(A) 9.1 %(A) 8.9 %(A) 8.1 %
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OTHER FINANCIAL INFORMATION
Total Assets $ 1,347,700 $ 1,135,162 $ 943,353
Return on Average Assets 23 % 25 % 24 %
Adjusted Return on Average Assets(A) 27 %(A) 26 %(A) 24 %
Working Capital $ 463,123 $ 333,295 $ 241,177
Current Ratio 2.1 2.0 2.0
Capital Expenditures $ 124,275 $ 123,630 $ 128,229
Long-Term Debt $ 350,000 $ 350,000 $ 350,000
Debt-to-Equity Ratio 62 % 87 % 130 %
Shareholders' Equity $ 560,795 $ 402,053 $ 268,937
Return on Average Shareholders' Equity 60 % 77 % 48 %
Adjusted Return on Average Shareholders' Equity(A) 68 %(A) 79 %(A) 48 %
Comparable Store Sales Increase 11 % 7 % 1 %
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PER SHARE RESULTS
Diluted and Basic Net Income $ 1.14 $ 1.02 $ 0.92
Adjusted Diluted and Basic Net Income(A) $ 1.30 (A) $ 1.05 (A) $ 0.92
Dividends $ 0.52 $ 0.48 $ 0.12 (B)
Book Value $ 2.22 $ 1.59 $ 1.06
Diluted Weighted Average Shares Outstanding 253,536 253,055 221,300
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STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 1,710 1,609 1,293
Selling Square Feet 5,328,000 5,047,000 4,230,000
Number of Associates 50,000 43,900 39,300
<CAPTION>
1994 1993 1992 1991
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<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net Sales $ 2,108,310 $ 1,630,828 $ 1,325,326 $ 1,199,496
Gross Income $ 702,287 $ 496,500 $ 397,936 $ 366,938
Operating Income $ 337,988 $ 218,462 $ 167,287 $ 177,837
Operating Income as a Percentage of Sales 16.0 % 13.4 % 12.6 % 14.8 %
Adjusted Operating Income(A) $ 337,988 $ 218,462 $ 167,287 $ 177,837
Adjusted Operating Income as a Percentage of Sales(A) 16.0 % 13.4 % 12.6 % 14.8 %
Income Before Income Taxes $ 337,988 $ 218,462 $ 167,287 $ 177,837
Net Income $ 202,988 $ 132,462 $ 102,287 $ 106,404
Net Income as a Percentage of Sales 9.6 % 8.1 % 7.7 % 8.9 %
Adjusted Net Income(A) $ 202,988 $ 132,462 $ 102,287 $ 106,404
Adjusted Net Income as a Percentage of Sales(A) 9.6 % 8.1 % 7.7 % 8.9 %
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OTHER FINANCIAL INFORMATION
Total Assets $ 768,551 $ 655,061 $ 611,429 $ 487,388
Return on Average Assets 29 % 21 % 19 % 26 %
Adjusted Return on Average Assets(A) 29 % 21 % 19 % 26 %
Working Capital $ 220,757 $ 157,464 $ 151,870 $ 169,703
Current Ratio 2.6 2.3 2.6 3.1
Capital Expenditures $ 107,037 $ 81,145 $ 78,792 $ 76,975
Long-Term Debt $ - $ - $ - $ -
Debt-to-Equity Ratio - - - -
Shareholders' Equity $ 573,195 $ 469,136 $ 455,180 $ 371,188
Return on Average Shareholders' Equity 39 % 29 % 25 % 36 %
Adjusted Return on Average Shareholders' Equity(A) 39 % 29 % 25 % 36 %
Comparable Store Sales Increase 13 % 9 % 1 % 8 %
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PER SHARE RESULTS
Diluted and Basic Net Income $ 0.97 $ 0.63 $ 0.49 $ 0.51
Adjusted Diluted and Basic Net Income(A) $ 0.97 $ 0.63 $ 0.49 $ 0.51
Dividends - - - -
Book Value $ 2.73 $ 2.23 $ 2.17 $ 1.77
Diluted Weighted Average Shares Outstanding 210,000 210,000 210,000 210,000
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STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 1,037 879 743 662
Selling Square Feet 3,419,000 2,915,000 2,349,000 1,895,000
Number of Associates 30,100 22,500 15,900 14,200
</TABLE>
*Fifty-three week fiscal year
(A) Excluding special and nonrecurring charges of $67.6 million in 1997 and
$12.0 million in 1996
(B) Represents one quarter's dividend subsequent to the Company's October
1995 initial public offering
36
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Net sales for the 1997 fourth quarter were $1.397 billion, an increase of 20%
from $1.161 billion for the fourth quarter a year ago. Diluted earnings per
share were $0.65 versus $0.62 in 1996. The Company recognized a $68 million
special and nonrecurring charge in the fourth quarter of 1997 reflecting the
closing of Cacique, a 118-store lingerie business, and a $12 million charge in
1996 in connection with the sale of Penhaligon's. The 1997 operating results for
Cacique, representing sales of $95 million and a pre-tax loss of $17 million,
are included in the Company's consolidated results. Before reflecting the
Cacique charge, diluted earnings per share were $0.79 for the quarter, up 22%
over last year's $0.65, which excludes the Penhaligon's charge.
Net sales for the fiscal year ended January 31, 1998 increased 21% to $3.618
billion from $2.997 billion for last year. Net income for the year was $1.14 per
diluted share, compared to $1.02 per diluted share last year. Excluding the
impact of the fourth quarter special and nonrecurring charges, the Company would
have earned $1.30 per diluted share, an increase of 24% over last year's
adjusted $1.05.
Divisional highlights include the following:
- - The Victoria's Secret brand grew to $2.4 billion in 1997, a 14% sales
increase. The Victoria's Secret brand teams continue to build strong brand
equity through fashion-right, high-quality products, major product
introductions and national television advertising. The catalogue business
also escalated its international focus, opening a phone center in Japan and
almost doubling sales in that country.
- - Victoria's Secret Stores sales increased 17% to $1.7 billion, while operating
profits grew 24%. At Catalogue, operating earnings increased 12% on a sales
increase of 7%.
- - Bath & Body Works, Intimate Brands' fastest growing and highest profit margin
business, grew 1997 sales by 40% to $1.1 billion. Operating profits grew by
31%. Another 171 stores were added, bringing the store total to 921, further
securing Bath & Body Works' position in the specialty retail personal care
industry.
37
<PAGE> 3
FINANCIAL SUMMARY
The following summarized financial data compares 1997 to the comparable periods
for 1996 and 1995:
<TABLE>
<CAPTION>
% Change
-----------------------
Net Sales (millions): 1997 1996 1995 * 1997-1996 1996-1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Victoria's Secret Stores $1,702 $1,450 $1,286 17% 13%
Bath & Body Works 1,057 753 475 40% 59%
Victoria's Secret Catalogue 734 684 661 7% 3%
Cacique 95 88 80 8% 10%
Other 30 22 15 - -
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Total $3,618 $2,997 $2,517 21% 19%
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Increase (decrease) in comparable store sales:
Victoria's Secret Stores 11% 5% (1%)
Bath & Body Works 11% 11% 21%
Cacique 10% 8% (20%)
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Total 11% 7% 1%
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Retail sales increase attributable to
new and remodeled stores 14% 19% 17%
Retail sales per average selling square foot $ 532 $ 495 $ 483 7% 2%
Retail sales per average store (thousands) $1,661 $1,583 $1,585 5% 0%
Average store size at the end of year
(selling square feet) 3,116 3,137 3,271 (1%) (4%)
Retail selling square feet at the end of year (thousands) 5,328 5,047 4,230 6% 19%
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Number of stores:
Beginning of period 1,609 1,293 1,037
Opened 233 325 260
Closed (132) (9) (4)
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End of period 1,710 1,609 1,293 6% 24%
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* Represents fifty-three week fiscal year
</TABLE>
NET SALES
Net sales for the fourth quarter of 1997 increased 20% to $1.397
billion from $1.161 billion for 1996. The sales increase was primarily
attributable to two factors: first, the 13% increase in comparable store sales,
which accounted for 49% of the total net sales increase; and second, new and
remodeled stores, which accounted for 48% of the total net sales increase. The
balance of the increase was due to catalogue and other sales. Sales for the
thirteen-week fourth quarter 1996 increased by 19% to $1.161 billion from $977
million for the fourteen-week fourth quarter of 1995. The sales increase was
primarily attributable to new and remodeled stores, which accounted for 83% of
the total net sales increase. The balance of the increase was due to the 8%
increase in comparable store sales (30% of the increase) and an $18 million
increase in catalogue and other sales, offset by the sales impact of the extra
week in 1995.
Sales for 1997 increased 21% to $3.618 billion from $2.997 billion for
1996. The sales increase was primarily attributable to new and remodeled stores,
which accounted for 52% of the total net sales increase. The balance of the
increase was due to the 11% increase in comparable store sales (39% of the
increase) and a $58 million increase in catalogue and other sales. Sales for
1996 of $2.997 billion increased by 19% over 1995. The sales increase was
attributable to new and remodeled stores (73% of the total increase), 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 sales impact of
the extra week in 1995.
In 1997, Victoria's Secret Stores sales increased 17% to $1.702
billion over 1996. The sales increase was primarily attributable to an 11%
increase in comparable store sales, which represented 61% of the total increase.
The remaining increase came from the net addition of 53 new stores and 229,000
selling square feet. 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
sales increase). The remaining increase came from a 5% increase in comparable
store sales, slightly offset by the sales impact of the extra week in 1995.
38
<PAGE> 4
In 1997, Bath & Body Works sales increased by 40% to $1.057 billion over
1996. The increase was attributable to the net increase of 171 new stores and
419,000 selling square feet (representing 74% of the total sales increase). The
remaining increase came from an 11% increase 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 represents 84% of the total increase in net sales.
The remaining increase came from the 11% increase in comparable store sales,
partially offset by the sales impact of the extra week in 1995.
In 1997, Victoria's Secret Catalogue net sales increased 7% to $734 million
over 1996. The sales increase was attributable to a circulation increase of 18%
for the year. In 1996, Victoria's Secret Catalogue net sales increased 3% to
$684 million over 1995. A 7% increase in net sales, driven by the 11% increase
in catalogue circulation for the year, was partially offset by the sales impact
of the extra week in 1995.
GROSS INCOME
Gross income increased, expressed as a percentage of net sales, to 43.0% for the
fourth quarter 1997 from 40.4% for the same period in 1996. The rate increase
was primarily due to a 3.5% increase in merchandise margins (representing gross
income before the deduction of buying and occupancy costs) partially offset by a
.9% increase in buying and occupancy costs. The increase in the gross income
rate was primarily attributable to higher initial markups across all businesses,
but especially at Victoria's Secret Stores. Merchandise margins have also been
positively impacted by the growth of Bath & Body Works to 35% of the total
Company's net sales from 32% in 1996. 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 percentage of
total Company net sales. In spite of the leverage from the growth of Bath & Body
Works and from the 13% increase in comparable store sales, buying and occupancy
increased as a percentage of net sales for the Company. The increase was
primarily due to accelerated depreciation expense to regularly remodel and
refresh stores at Victoria's Secret. The balance of the increase was from lower
catalogue productivity, as measured by response rates, due to more aggressive
circulation strategies in 1997.
In fourth quarter 1996, gross income increased, expressed as a percentage
of net sales, to 40.4% from 37.4% for the same period in 1995. The increase was
primarily due to a 1.8% increase in merchandise margins, as well as a 1.2% rate
reduction in buying and occupancy costs, expressed as a percentage of net sales.
The increase in gross income rate was primarily the result of the growth of Bath
& Body Works in the overall mix of net sales for the Company. 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 actual markups). 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.
Gross income for 1997, expressed as a percentage of net sales, increased
2.4% to 37.6% from 35.2% in 1996. The increase was attributable to a 2.1%
increase in merchandise margins and a .3% decrease in buying and occupancy
costs. The increase in gross income rate was primarily attributable to higher
initial markups across all businesses, but especially at Victoria's Secret
Stores. The balance of the merchandise margin increase was due to Bath & Body
Works' growth to 29% of the total Company net sales from 25% in 1996. The buying
and occupancy decreases, expressed as a percentage of net sales, were primarily
related to the growth of Bath & Body Works as a percentage of total Company net
sales (Bath & Body Works records lower buying and occupancy costs due to smaller
store size and higher sales productivity), as well as the leverage from the 11%
increase in comparable store sales. This reduction was partially offset by the
fourth quarter increases at Victoria's Secret Stores and Victoria's Secret
Catalogue mentioned above.
In 1996, gross income, expressed as a percentage of net sales, was 35.2%,
which was 2.6% above the rate for 1995. The increase was attributable 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 was the change in the mix in
sales of the Company as Bath & Body Works increased from 19% of total Company
net sales in 1995 to 25% in 1996. Victoria's Secret Stores contributed to the
increase in gross income, expressed as a percentage of net sales, by improving
merchandise margins through increased initial markups.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
General, administrative and store operating expenses increased, expressed as a
percentage of net sales, to 18.7% in the fourth quarter of 1997 from 16.2% and
14.1% for the same periods in 1996 and 1995. The most significant item making up
the 2.5% increase in the Company's 1997 expense rate, expressed as a percentage
of net sales, was the investment in national advertising for Victoria's Secret.
The balance of the increase was influenced by the growth of Bath & Body Works to
35% of total Company net sales from 32% in 1996. Bath & Body Works, which
operates in significantly smaller stores, has historically recorded higher than
Company average general,
39
<PAGE> 5
administrative and store operating expenses, expressed as a percentage of net
sales, 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 percentage
of the total Company net sales will continue to cause these costs for the total
Company, expressed as a percentage of net sales, to increase.
In fourth quarter 1996, general, administrative and store operating
expenses increased 2.1% due to the growth of Bath & Body Works as a percentage
of total Company net sales and the investments made in store staffing,
management and point-of-sale marketing for the personal care business of
Victoria's Secret Stores.
General, administrative and store operating expenses, expressed as a
percentage of net sales, were 21.8% for fiscal year 1997 compared to 19.5% for
1996. The increase in the Company's expense rate, expressed as a percentage of
net sales, is primarily due to investments in national advertising for
Victoria's Secret, the growth of Bath & Body Works in the overall mix of net
sales and the investments made in store management and staffing for the personal
care portion of Victoria's Secret Stores.
The 1996 general, administrative and store operating expenses increased
2.2% for the fiscal year over 1995, expressed as a percentage of net sales,
primarily from the growth of Bath & Body Works' percentage of the total Company
net sales and investments made in store staffing, management and point-of-sale
marketing for the personal care business of Victoria's Secret Stores.
SPECIAL AND NONRECURRING CHARGES
The Company recognized a $67.6 million charge in the fourth quarter of 1997
representing the estimated loss on the closing of the Cacique business, which
had $95.2 million in sales for 1997 and a $17.0 million pre-tax operating loss.
The business closed on January 31, 1998 (see Note 3 to the Consolidated
Financial Statements).
In 1996, a $12.0 million charge was taken in the fourth quarter,
representing the estimated loss on the April 1997 sale of Penhaligon's (a
U.K.-based subsidiary) which had 1996 sales of $5.5 million and a $3.1 million
pre-tax operating loss.
OPERATING INCOME
Fourth quarter operating income, expressed as a percentage of sales, was 19.4%
in 1997, compared to 23.2% in 1996. Excluding special and nonrecurring charges
in both years, fourth quarter operating income, expressed as a percentage of
sales, would have been 24.2% in both 1997 and 1996. Adjusted operating income
was flat as a result of an increase in the gross income rate offsetting the
general, administrative and store operating expense rate increase. In 1996, the
adjusted fourth quarter operating income rate increased by .9% over the 23.3% in
1995. The changing sales mix of the Company, as mentioned above, was primarily
responsible for the increase.
Fiscal year operating income, expressed as a percentage of sales, was
13.9%, 15.3% and 15.4% in 1997, 1996 and 1995. Excluding special and
nonrecurring charges in 1997 and 1996, operating income, expressed as a
percentage of sales, would have been 15.8% in 1997 and 15.7% in 1996. Improved
gross income and the changing sales mix of the Company, as mentioned above, were
responsible for the increases in the adjusted 1997 and 1996 results.
INTEREST EXPENSE AND OTHER INCOME
In 1997, the Company incurred $7.6 million and $30.3 million in interest for the
fourth quarter and year, compared to $8.1 million and $32.5 million in 1996 for
the same periods. Interest expense for 1997 and 1996 resulted primarily from the
$350 million of long-term debt.
In 1997, the Company earned $3.7 million and $8.6 million in other income
for the fourth quarter and year, compared to $1.6 million and $4.6 million in
1996 for the same periods. Other income was primarily interest income earned
(based upon the Federal Reserve AA composite 30-day rate) from excess cash from
operations managed through The Limited, Inc.'s ("The Limited") centralized cash
management system (see Note 10 to the Consolidated Financial Statements).
FINANCIAL CONDITION
The Company's consolidated balance sheet as of January 31, 1998 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 available from The Limited's
centralized cash management system provide the resources to support current
operations, including projected growth, seasonal requirements and capital
expenditures.
A summary of the Company's working capital position and capitalization follows
(thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------
Cash Provided by Operating
<S> <C> <C> <C>
Activities $440,475 $337,664 $323,908
Working Capital $463,123 $333,295 $241,177
Capitalization:
Long-Term Debt $350,000 $350,000 $350,000
Shareholders' Equity 560,795 402,053 268,937
- ----------------------------------------------------------------------------------------
Total Capitalization $910,795 $752,053 $618,937
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</TABLE>
The Company considers the following to be measures of liquidity and capital
resources:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt-to-Capitalization Ratio
(Long-Term Debt Divided by
Total Capitalization) 38% 47% 57%
Cash Flow to Capital Investment
(Net Cash Provided by
Operating Activities Divided
by Capital Expenditures) 354% 273% 253%
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</TABLE>
40
<PAGE> 6
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 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 $440.5 million, $337.7
million and $323.9 million for 1997, 1996 and 1995. The $7.1 million of cash
provided from inventories in 1997 was a departure from the $76.0 million and
$63.4 million of cash used to fund increases in inventories in 1996 and 1995.
The reduction in inventory levels was primarily due to three factors: 1) better
management of manufacturing and component inventory in the personal care
businesses; 2) higher initial markups, primarily at Victoria's Secret Stores,
resulted in lower inventory units needed to generate the same retail sales; and
3) the strong response to the Victoria's Secret Stores semi-annual sale in
January, resulting in year-end inventories under plan. In both 1996 and 1995,
inventories increased by 21%, consistent with the Company's 19% increase in net
sales. The cash used for other assets and liabilities in 1997 includes a $25.0
million increase in paper inventory at Victoria's Secret Catalogue to both
protect against an expected increase in the cost of paper and to provide
flexibility in catalogue production. The $15.0 million decrease in the Company's
income tax liability in 1997 is primarily due to the payment of outstanding
issues related to prior tax periods. Beginning in 1995, income tax liabilities
were recorded on the Company's balance sheet. Prior to 1995, the Company
transferred all current income tax liabilities to The Limited as incurred. As a
result, income taxes increased approximately $92.8 million in 1995.
Investing activities were all for capital expenditures, which were
primarily for new and remodeled stores.
Included in financing activities were 1997 cash dividend payments of $.52
per share. Other financing activities in 1997 include a $12.4 million net
increase in The Limited's intercompany cash management account receivable (see
Note 10 to the Consolidated Financial Statements). Prior to the capitalization
of the Company in 1995, such amounts were reflected as a component of
shareholders' equity. Other changes in shareholders' equity in 1995 represented
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 represented the activities related to the formation of the Company and the
related initial public offering.
CAPITAL EXPENDITURES
Capital expenditures amounted to $124.3 million, $123.6 million and $128.2
million for 1997, 1996 and 1995, of which $72.4 million, $91.5 million and
$109.1 million, were for new stores and remodeling and expanding existing
stores. The Company expended $17.9 million in 1997 for equipment and leasehold
improvements for Bath & Body Works' new distribution center and world
headquarters. An additional $11.7 million of capital expenditures were used to
acquire a catalogue call center located in Rio Rancho, New Mexico which became
operational in the fourth quarter of 1997.
The Company anticipates spending $140 to $160 million in 1998 for capital
expenditures, of which $110 to $120 million will be for new stores, the
remodeling and expansion of existing stores and related improvements for the
retail businesses.
The Company announced its intention to add approximately 620,000 selling
square feet in 1998, which will represent a 12% increase over year-end 1997. It
is anticipated the increase will result from the addition of approximately 250
net new stores and the expansion of approximately 27 stores. The Company expects
that future capital expenditures will be funded principally by net cash provided
by operating activities.
<TABLE>
<CAPTION>
Change from Prior Year
----------------------
Goal-1998 1997 1996 1998-1997 1997-1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Victoria's Secret Stores
Stores 874 789 736 85 53
Selling Sq. Ft. 3,795,000 3,555,000 3,326,000 240,000 229,000
Bath & Body Works
Stores 1,086 921 750 165 171
Selling Sq. Ft. 2,153,000 1,773,000 1,354,000 380,000 419,000
Cacique
Stores - - 119 - (119)
Selling Sq. Ft. - - 365,000 - (365,000)
Penhaligon's
Stores - - 4 - (4)
Selling Sq. Ft. - - 2,000 - (2,000)
- ---------------------------------------------------------------------------------------------------------
Total Retail Businesses
Stores 1,960 1,710 1,609 250 101
Selling Sq. Ft. 5,948,000 5,328,000 5,047,000 620,000 281,000
</TABLE>
41
<PAGE> 7
INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE
The Company recently completed a comprehensive review of its information systems
and is involved in an enterprise-wide program to update computer systems and
applications in preparation for the year 2000. The Company will incur internal
staff costs as well as outside consulting and other expenditures related to this
initiative. Total expenditures related to remediation, testing, conversion,
replacement and upgrading system applications are expected to range from $20 to
$25 million from 1997 through 2000. Of the total, approximately $9 to $11
million will be capital expenditures related to acquisition and implementation
of new package systems. The balance, approximately $11 to $14 million, will be
expenses associated with remediation and testing of existing systems. Total
incremental expenses, including depreciation and amortization of new package
systems, remediation to bring current systems into compliance and writing off
legacy systems, are not expected to have a material impact on the Company's
financial condition during any year during the conversion process from 1997
through 2000.
The Company is attempting to contact vendors and others on whom it relies
to assure that their systems will be converted in a timely fashion. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely also will be converted in a timely fashion, or that any
such failure to convert by another company would not have an adverse effect on
the Company's systems. Furthermore, no assurance can be given that any or all of
the Company's systems are or will be Year 2000 compliant, or that the ultimate
costs required to address the Year 2000 issue or the impact of any failure to
achieve substantial Year 2000 compliance will not have a material adverse effect
on the Company's financial condition.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented based
on 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.
ADOPTION OF NEW ACCOUNTING STANDARDS
During the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which requires the
Company to disclose basic and diluted earnings per share. All prior periods have
been restated.
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." While the standard has no impact in determining earnings and
earnings per share, the Company will adopt the disclosure standards in 1998.
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 Company's 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 1998 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.
42
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 3,617,856 $ 2,997,340 $ 2,516,555
Costs of Goods Sold, Occupancy and Buying Costs (2,257,824) (1,942,295) (1,695,627)
- ----------------------------------------------------------------------------------------------------------------
GROSS INCOME 1,360,032 1,055,045 820,928
General, Administrative and Store Operating Expenses (787,780) (584,903) (434,632)
Special and Nonrecurring Charge (67,600) (12,000) -
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 504,652 458,142 386,296
Interest Expense (30,326) (32,544) (49,536)
Other Income, Net 8,610 4,612 3,299
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 482,936 430,210 340,059
Provision for Income Taxes 194,000 172,000 136,000
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 288,936 $ 258,210 $ 204,059
- ----------------------------------------------------------------------------------------------------------------
DILUTED AND BASIC NET INCOME PER SHARE: $ 1.14 $ 1.02 $ 0.92
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands)
ASSETS JANUARY 31, 1998 February 1, 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and Equivalents $ 308,720 $ 135,111
Accounts Receivable 34,639 18,750
Inventories 417,703 434,800
Intercompany Receivable 12,457 60
Other 102,540 68,255
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 876,059 656,976
- ----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 392,504 395,647
- ----------------------------------------------------------------------------------------------------------------
OTHER ASSETS 79,137 82,539
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,347,700 $ 1,135,162
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 94,498 $ 88,896
Accrued Expenses 224,380 136,598
Income Taxes 94,058 98,187
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 412,936 323,681
- ----------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 350,000 350,000
- ----------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 13,068 50,935
- ----------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 10,901 8,493
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-In Capital 674,620 675,240
Retained Earnings (Deficit) (114,465) (272,071)
- ----------------------------------------------------------------------------------------------------------------
562,682 405,696
- ----------------------------------------------------------------------------------------------------------------
Less: Treasury Stock, at Cost (1,887) (3,643)
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 560,795 402,053
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,347,700 $ 1,135,162
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
43
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(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 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 IPO - - - (250,000) - (250,000)
Sale of Common Stock in IPO 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
Net Income - - - 288,936 - 288,936
Cash Dividends to Shareholders - - - (131,330) - (131,330)
Exercise of Stock Options and Other 99 (620) 1,756 1,136
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1998 252,597 $2,527 $674,620 $(114,465) $(1,887) $ 560,795
The accompanying notes are an integral part of these Consolidated Financial Statements.
</TABLE>
44
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income $ 288,936 $ 258,210 $ 204,059
- ------------------------------------------------------------------------------------------------------------
IMPACT OF OTHER OPERATING ACTIVITIES ON CASH FLOWS
Depreciation and Amortization 106,197 85,573 75,686
Special and Nonrecurring Charge, Net of Income Taxes 40,600 7,200 -
CHANGE IN ASSETS AND LIABILITIES
Inventories 7,097 (75,954) (63,374)
Accounts Payable and Accrued Expenses 55,785 53,510 33,459
Income Taxes (14,996) 3,664 92,808
Other Assets and Liabilities (43,144) 5,461 (18,730)
- ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 440,475 337,664 323,908
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures (124,275) (123,630) (128,229)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from Short-Term Borrowings - - 250,000
Repayment of Short-Term Borrowings - - (800,000)
Proceeds from Sale of Common Stock - - 677,948
Dividends Paid (131,330) (121,270) (280,324)
Purchase of Treasury Stock - (3,986) -
Decrease (Increase) in Intercompany Receivable (12,397) 34,076 (34,136)
Stock Options and Other 1,136 162 (5,941)
- ------------------------------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING ACTIVITIES (142,591) (91,018) (192,453)
- ------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND EQUIVALENTS 173,609 123,016 3,226
Cash and Equivalents, Beginning of Year 135,111 12,095 8,869
- ------------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS, END OF YEAR $ 308,720 $ 135,111 $ 12,095
- ------------------------------------------------------------------------------------------------------------
<FN>
In 1995, noncash financing activities included the transfer of equity to debt
of $550 million of short-term intercompany borrowings and $350 million of
long-term intercompany debt.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
45
<PAGE> 11
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 Limited"). The Company includes 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. The businesses consist of
Victoria's Secret Stores, Victoria's Secret Catalogue, Bath & Body Works and
Gryphon Development. The Limited owns approximately 83% of the outstanding
common stock of the Company, which initiated public ownership on October 24,
1995.
The net proceeds received by the Company from the sale of the common stock
(the "Offering") in 1995 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 Company 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 years 1997 and 1996
represent the 52-week periods ended January 31, 1998 and February 1, 1997 and
results for fiscal year 1995 represent the 53-week period ended February 3,
1996.
CASH AND EQUIVALENTS
Cash and equivalents include amounts on deposit with financial institutions and
money market investments with maturities of less than 90 days.
INVENTORIES
Inventories are principally valued at the lower of average cost or market, on a
first-in first-out basis, utilizing the retail method.
CATALOGUE AND ADVERTISING COSTS
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 $255 million,
$229 million and $213 million in 1997, 1996 and 1995.
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 to 15 years for building and leasehold improvements,
and 3 to 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 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, brand
initiatives, 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.
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. Under this 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 No. 109, the effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
46
<PAGE> 12
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 annual effective tax rate.
SHAREHOLDERS' EQUITY
At January 31, 1998, there were 550 million of $.01 par value Class A shares and
550 million of $.01 par value Class B shares authorized, of which 42.6 million
shares and 210 million shares, respectively, were issued and outstanding net of
treasury shares. At February 1, 1997, there were 42.5 million Class A shares and
210 million Class B shares issued and outstanding net of treasury shares. 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 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.
EARNINGS PER SHARE
Net income per share is computed in accordance with SFAS No. 128, "Earnings Per
Share," which the Company adopted in the fourth quarter of 1997. Basic earnings
per share is computed based upon the weighted average number of outstanding
common shares. Diluted earnings per share include the weighted average effect of
dilutive options and restricted stock. The common stock issued to The Limited
(210 million Class B shares) in connection with the incorporation of the Company
is assumed to have been outstanding for all periods.
Weighted Average Common Shares Outstanding (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares Issued 252,700 252,700 221,300
Treasury Shares (130) (42) -
- ---------------------------------------------------------------------
Basic Shares 252,570 252,658 221,300
Dilutive Effect of Options
and Restricted Shares 966 397 -
- ---------------------------------------------------------------------
Diluted Shares 253,536 253,055 221,300
</TABLE>
Options to purchase 66,000, 751,000 and 682,000 shares of common stock were
outstanding at year-end 1997, 1996 and 1995 but were not included in the
computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares.
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 financial statement captions have been
reclassified to conform with current year presentation.
3. SPECIAL AND NONRECURRING CHARGES
During the fourth quarter of 1997, the Company recognized a $67.6 million charge
in conjunction with closing Cacique, a 118-store lingerie business, effective
January 31, 1998. The amount includes noncash charges of $30 million, comprised
principally of write-offs and liquidations of store assets and accruals of $38
million related to cancellations of merchandise on order and other exit costs
such as severance, service contract termination fees and lease termination
costs. Other than contractual obligations of $5 million, the accrued costs are
expected to be paid in fiscal year 1998. During the fourth quarter of 1996, the
Company recognized a $12.0 million charge representing the estimated loss on the
sale of Penhaligon's, a U.K.-based subsidiary. The transaction closed in April
1997.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures
and equipment $613,983 $577,024
Land, building improvements
and leaseholds 127,918 122,748
Construction in progress 1,885 1,827
- ---------------------------------------------------------------------
743,786 701,599
Less: accumulated depreciation
and amortization 351,282 305,952
- ---------------------------------------------------------------------
Property and equipment, net $392,504 $395,647
</TABLE>
47
<PAGE> 13
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 1997, 1996 and 1995 follows (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
Store rent:
<S> <C> <C> <C>
Fixed minimum $161,859 $135,439 $109,238
Contingent 12,941 10,874 9,039
- ------------------------------------------------------------
Total store rent 174,800 146,313 118,277
Buildings, equipment
and other 17,196 15,633 10,183
- ------------------------------------------------------------
Total rent expense $191,996 $161,946 $128,460
</TABLE>
Rent expense includes charges from The Limited, Inc. and its
subsidiaries for store, office and distribution center space under
formal agreements which approximate market rates. At January 31, 1998, the
Company was committed to noncancelable leases with remaining terms of 1 to 20
years. These commitments include store leases with initial terms which primarily
range from 10 to 20 years and offices and distribution centers leased from The
Limited with initial terms of 15 years.
A summary of minimum rent commitments under noncancelable leases follows
(thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $187,411
1999 185,868
2000 182,471
2001 177,140
2002 168,516
Thereafter 632,958
</TABLE>
6. OTHER ASSETS
Other assets consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Goodwill, net of accumulated amortization
of $29,034 and $25,924 $73,421 $76,531
Other 5,716 6,008
- ----------------------------------------------------------------------
Total other assets $79,137 $82,539
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Compensation, payroll taxes
and benefits $ 53,529 $ 33,099
Rent 27,214 23,347
Taxes, other than income 14,806 12,768
Estimated returns for
catalogue merchandise 11,913 13,276
Interest 13,948 14,029
Cacique closing 28,403 -
Other 74,567 40,079
- ---------------------------------------------------------------
Total accrued expenses $224,380 $136,598
</TABLE>
8. INCOME TAXES
The provision for income taxes consisted of (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
Currently payable:
<S> <C> <C> <C>
Federal $180,500 $146,700 $108,800
State 29,900 28,300 15,600
- ---------------------------------------------------------------
210,400 175,000 124,400
- ---------------------------------------------------------------
Deferred:
Federal (19,600) (4,700) 2,200
State 3,200 1,700 9,400
- ---------------------------------------------------------------
(16,400) (3,000) 11,600
- ---------------------------------------------------------------
Total provision $194,000 $172,000 $136,000
- ---------------------------------------------------------------
</TABLE>
A reconciliation between the statutory Federal income tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<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 4.5 4.8
Other items, net 0.7 0.5 0.2
- ----------------------------------------------------------------
Total 40.2 % 40.0 % 40.0 %
</TABLE>
Income taxes payable included current deferred tax assets of $41.3 million and
$458 thousand at January 31, 1998 and February 1, 1997. 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 $236 million in 1997 and $167 million in 1996.
48
<PAGE> 14
A summary of the effect of temporary differences which give rise to deferred
income tax balances follows (thousands):
<TABLE>
<CAPTION>
1997 Assets Liabilities Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess of tax over
book depreciation - $(34,100) $(34,100)
Special and nonrecurring charge $15,100 - 15,100
State income taxes 12,700 - 12,700
Other, net 50,700 (16,200) 34,500
- ------------------------------------------------------------------------------------
Total deferred income taxes $78,500 $(50,300) $ 28,200
- ------------------------------------------------------------------------------------
1996 Assets Liabilities Total
- ------------------------------------------------------------------------------------
Excess of tax over
book depreciation - $(64,400) $(64,400)
Special and nonrecurring charge $ 4,800 - 4,800
State income taxes 11,300 - 11,300
Other, net 29,800 (32,000) (2,200)
- ------------------------------------------------------------------------------------
Total deferred income taxes $45,900 $(96,400) $(50,500)
- ------------------------------------------------------------------------------------
</TABLE>
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 January 31, 1998 and February 1, 1997
follows (thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
8 7/8% Notes Due August 1999 $ 100,000 $ 100,000
9 1/8% Notes Due February 2001 150,000 150,000
7 1/2% Debentures Due March 2023 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 and its wholly-owned
subsidiaries commonly occur in the normal course of business and principally
consist of the following:
- Merchandise purchases
- Capital expenditures
- 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. Mast is a contract manufacturer and apparel importer. Prices are
negotiated on a competitive basis by merchants of the Company with Mast.
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. Inbound freight is charged to the
Company based on actual receipts while outbound freight is charged based on a
percentage of cartons shipped.
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
49
<PAGE> 15
became an interest-earning asset or interest-bearing liability. Interest on the
intercompany account is calculated based on the Federal Reserve AA Composite
30-day rate. The amount of the intercompany receivable from The Limited under
these agreements at January 31, 1998 is approximately $12.5 million.
The Company is charged rent expense, common area maintenance charges and
utilities for stores shared with other consolidated subsidiaries of The Limited.
The charges are based on square footage and represent the proportionate share of
the underlying leases with third parties.
The Company is also charged rent expense and utilities 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 and its wholly-owned subsidiaries for the years
indicated (thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mast purchases $ 360,192 $ 367,240 $ 286,335
Capital expenditures 75,474 88,740 113,383
Inbound and outbound freight 45,308 31,816 22,336
Corporate charges 51,376 35,130 31,860
Store leases and other occupancy 38,700 35,510 27,730
Distribution center, MIS and home
office expenses 17,302 11,253 7,413
Centrally managed benefits 40,736 32,713 28,025
Interest charges 30,326 32,544 40,579
Interest income 8,610 4,612 3,299
- --------------------------------------------------------------------------------------
Total $ 668,024 $ 639,558 $ 560,960
</TABLE>
The Company has no arrangements with The Limited that result in the Company's
guarantee, pledge of assets or stock to provide collateral for The Limited's
debt obligations.
Proprietary credit cards accepted by the Company are offered to
customers through Alliance Data Systems, a 40% owned venture of The Limited.
11. STOCK OPTIONS AND RESTRICTED STOCK
Under the Company's stock plan associates may be granted up to 17.5 million
restricted shares or options to purchase the Company's common stock at the
market price on the date of grant. In 1997, the Company granted approximately
2.3 million options with a graduated vesting schedule over six years. The
remaining options generally vest 25% per year over the first four years of the
grant. Options have a maximum term of ten years.
In connection with the Offering in 1995, 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 and an additional 216,000 options were granted
during 1995 at a weighted average option price per share of $16.93.
The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," effective with the 1996 financial
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
all options granted since 1995, consistent with the methodology in SFAS No. 123,
the pro forma effects on the Company's net income and diluted earnings per share
would have been a reduction of approximately $2.8 million or $.01 per share in
1997 and $1.0 million or $.00 per share in 1996. The weighted average fair value
of options granted of $5.50, $3.80 and $4.66 during 1997, 1996 and 1995 was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997, 1996 and 1995: dividend yields of 3.1%,
3.7% and 3.1%, volatility of 27%, 31% and 31%, risk-free interest rates of 6%,
5.25% and 7%, assumed forfeiture rates of 15%, 15% and 20% and expected lives of
6.5 years, 5 years and 5 years.
Approximately 1,442,000, 169,000 and 163,000 restricted shares were granted
in 1997, 1996 and 1995, with market values at date of grant of $30.2 million,
$3.0 million and $2.5 million. Included in the 1997 grants were 1,100,000
restricted shares, of which 850,000 had performance requirements, with graduated
vesting schedules over six years. The remaining restricted stock grants
generally vest either on a graduated scale over four years or 100% at the end of
a fixed vesting period, principally five years.
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. The market value of
shares, subject to adjustment at the measurement date for the performance
awards, is being amortized as
50
<PAGE> 16
compensation expense over the vesting period, generally four to six years.
Compensation expense related to restricted stock awards amounted to $10.0
million, $3.0 million and $2.7 million in 1997, 1996 and 1995.
A summary of option activity for 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------
SHARES WEIGHTED SHARES WEIGHTED
AVERAGE AVERAGE
OPTION PRICE OPTION PRICE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,530,000 $ 15.89 682,000 $ 16.98
Granted 3,074,000 19.89 931,000 15.13
Exercised (66,000) 16.05 (15,000) 17.00
Canceled (235,000) 17.62 (68,000) 16.12
- ----------------------------------------------------------------------------------------------------------
Outstanding at
end of year 4,303,000 $ 18.69 1,530,000 $ 15.89
- ----------------------------------------------------------------------------------------------------------
Options exercisable
at year-end 418,000 $ 16.40 126,000 $ 16.90
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 700,000 options outstanding at year-end are at $14 per share,
1,000,000 are at $17 per share and 2,500,000 are at $20 to $22 per share. The
remaining options outstanding are at prices between $16 and $23 per share.
Approximately 380,000 of the options exercisable are at prices between $14
and $17 per share. The remaining shares exercisable are at prices from $18 to
$23 per share.
12. RETIREMENT BENEFITS
The Company participates in a qualified defined contribution retirement plan and
a nonqualified supplemental retirement plan sponsored by The Limited.
Participation in the qualified 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. Participation in the nonqualified
plan is subject to service and compensation requirements. The Company's
contributions to these plans are based on a percentage of the associates'
eligible annual compensation. The cost of these plans was $12.7 million, $11.7
million and $8.9 million in 1997, 1996 and 1995.
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 cash equivalents, 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 January 31, 1998 and February 1, 1997 was
$364.1 million and $354.7 million compared to the carrying value of $350.0
million for each year.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 1997 and 1996 follow (thousands
except per share amounts):
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
- ------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C>
Net sales $ 704,041 $ 826,574 $ 689,978 $1,397,263
Gross income 228,082 282,571 249,227 600,152
Net income 32,898 60,998 35,434 159,606
Diluted and basic
net income
per share $ 0.13 $ 0.24 $ 0.14 $ 0.63*
- ------------------------------------------------------------------------------------
1996
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
Diluted and basic
net income
per share $ 0.10 $ 0.19 $ 0.11 $ 0.62*
</FN>
- ------------------------------------------------------------------------------------
*
*Including special and nonrecurring charges of $67.6 million ($0.16 per diluted
share) in the fourth quarter of 1997 in conjunction with the closing of
Cacique, and $12.0 million ($0.03 per diluted share) in the fourth quarter of
1996 representing the estimated loss on the sale of Penhaligon's (see Note 3).
</TABLE>
51
<PAGE> 17
MARKET PRICE AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
Market Price
----------------------------------------------
Cash
Dividend
High Low Per Share
- --------------------------------------------------------------------------------
Fiscal Year End 1997
- --------------------------------------------------------------------------------
4th Quarter $25 3/8 $21 3/16 $.13
3rd Quarter 25 20 5/16 .13
2nd Quarter 23 1/16 19 .13
1st Quarter 20 5/8 17 1/8 .13
- --------------------------------------------------------------------------------
Fiscal Year End 1996
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange ("IBI"). On
January 31, 1998, there were approximately 1,200 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 42,000.
<PAGE> 1
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction
Subsidiaries (a) of Incorporation
---------------- ----------------
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
(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> 1
Exhibit 23
----------
Coopers COOPERS & LYBRAND L.L.P.
& Lybrand a professional services firm
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 20, 1998, on our audits of
the consolidated financial statements of Intimate Brands, Inc. and subsidiaries
as of January 31, 1998, and February 1, 1997, and for the fiscal years ended
January 31, 1998, February 1, 1997, and February 3, 1996, 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 28, 1998
<PAGE> 1
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 1997 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 30th day of January, 1998.
/s/ LESLIE H. WEXNER
------------------------
Leslie H. Wexner
<PAGE> 2
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 1997 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 30th day of January, 1998.
/s/ KENNETH B. GILMAN
----------------------------
Kenneth B. Gilman
<PAGE> 3
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 1997 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 30th day of January, 1998.
/s/ ROGER D. BLACKWELL
----------------------------
Roger D. Blackwell
<PAGE> 4
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 1997 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 30th day of January, 1998.
/s/ CYNTHIA A. FIELDS
---------------------------
Cynthia A. Fields
<PAGE> 5
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 1997 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 30th day of January, 1998.
/s/ E. GORDON GEE
-------------------------
E. Gordon Gee
<PAGE> 6
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 1997 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 30th day of January, 1998.
/s/ GRACE A. NICHOLS
-----------------------------
Grace A. Nichols
<PAGE> 7
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 1997 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 30th day of January, 1998.
/s/ BETH M. PRITCHARD
-----------------------------
Beth M. Pritchard
<PAGE> 8
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 1997 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 30th day of January, 1998.
/s/ ALEX SHUMATE
----------------------------
Alex Shumate
<PAGE> 9
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 1997 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 30th day of January, 1998.
/s/ DONALD B. SHACKELFORD
--------------------------
Donald B. Shackelford
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLDATED 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> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 308,720
<SECURITIES> 0
<RECEIVABLES> 34,639
<ALLOWANCES> 0
<INVENTORY> 417,703
<CURRENT-ASSETS> 876,059
<PP&E> 743,786
<DEPRECIATION> 351,282
<TOTAL-ASSETS> 1,347,700
<CURRENT-LIABILITIES> 412,936
<BONDS> 350,000
0
0
<COMMON> 2,527
<OTHER-SE> 560,155
<TOTAL-LIABILITY-AND-EQUITY> 1,347,700
<SALES> 3,617,856
<TOTAL-REVENUES> 3,617,856
<CGS> 2,257,824
<TOTAL-COSTS> 2,257,824
<OTHER-EXPENSES> 855,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,326
<INCOME-PRETAX> 482,936
<INCOME-TAX> 194,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,936
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
<FN>
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
----------
Ary, Earman and Roepcke
Certified Public Accountants
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, 1997 and 1996, and the related statements of changes in net assets
available for benefits for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the changes in net assets available for
benefits for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ary, Earman and Roepcke
Columbus, Ohio,
March 24, 1998.
2929 Kenny Road, Suite 280, Columbus, Ohio 43221
(614) 459-3868 FAX (614) 459-0219
<PAGE> 2
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1997
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
ASSETS TOTAL Stock Fund Income Fund Fund Fund Fund
- ------ ------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $30,208,630) $ 68,513,782 $68,513,782 $ - $ - $ - $ -
Intimate Brands, Inc.
(Cost $2,541,834) 3,027,342 - - - - -
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $88,164,291) 88,164,291 - 88,164,291 - - -
Vanguard Index Trust - 500
Portfolio (Cost $49,301,042) 75,764,074 - - 75,764,074 - -
Vanguard U.S. Growth Portfolio
(Cost $46,374,763) 62,996,962 - - - 62,996,962 -
Vanguard Wellington Fund
(Cost $17,415,133) 19,115,007 - - - - 19,115,007
Temporary Investments (Cost
Approximates Fair Value) 308 241 - - - -
------------ ----------- ----------- ----------- ----------- -----------
Total Investments 317,581,766 68,514,023 88,164,291 75,764,074 62,996,962 19,115,007
Contribution Receivable from Employers 22,644,974 1,372,671 10,275,136 4,632,422 3,993,277 1,928,218
Receivable from Employers for Withheld
Participants' Contributions 1,395,711 91,947 391,319 391,168 333,773 156,157
Due from Brokers 1,655,464 1,543,543 - - - -
Interfund Transfers - 858,585 (35,679) 3,698 (2,722) (828,447)
Cash 417,865 - 368,110 49,755 - -
Accrued Interest and Dividends 4,297 693 1,410 1,086 769 166
Other 2,470 - 2,470 - - -
------------ ----------- ----------- ----------- ----------- -----------
Total Assets 343,702,547 72,381,462 99,167,057 80,842,203 67,322,059 20,371,101
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
- -----------
Cash Overdraft 418,897 - - - 36,843 382,054
Administrative Fees Payable 218,952 85,121 - - 127,701 5,551
------------ ----------- ----------- ----------- ----------- -----------
Total Liabilities 637,849 85,121 - - 164,544 387,605
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $343,064,698 $72,296,341 $99,167,057 $80,842,203 $67,157,515 $19,983,496
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
ASSETS Stock Fund
- ------ -----------
<S> <C>
Investments, at Fair Value:
Determined by Quoted Market Price:
Common Stock:
The Limited, Inc.
(Cost $30,208,630) $ -
Intimate Brands, Inc.
(Cost $2,541,834) 3,027,342
Shares of Registered Investment
Company:
Vanguard Investment Contract
Trust (Cost $88,164,291) -
Vanguard Index Trust - 500
Portfolio (Cost $49,301,042) -
Vanguard U.S. Growth Portfolio
(Cost $46,374,763) -
Vanguard Wellington Fund
(Cost $17,415,133) -
Temporary Investments (Cost
Approximates Fair Value) 67
-----------
Total Investments 3,027,409
Contribution Receivable from Employers 443,250
Receivable from Employers for Withheld
Participants' Contributions 31,347
Due from Brokers 111,921
Interfund Transfers 4,565
Cash -
Accrued Interest and Dividends 173
Other -
-----------
Total Assets 3,618,665
-----------
LIABILITIES
- -----------
Cash Overdraft -
Administrative Fees Payable 579
-----------
Total Liabilities 579
-----------
NET ASSETS AVAILABLE FOR BENEFITS $ 3,618,086
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-1
<PAGE> 3
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
---------------------------------------------
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
----------------------------------------------
DECEMBER 31, 1996
-----------------
<TABLE>
<CAPTION>
Limited Fixed Index-500 U.S. Growth Wellington
ASSETS TOTAL Stock Fund Income Fund Fund Fund Fund
- ------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <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 - - - 46,268,660 -
Vanguard Wellington Fund
(Cost $9,986,245) 10,453,023 - - - - 10,453,023
Temporary Investments (Cost
Approximates Fair Value) 30,946 873 18,039 5,684 3,824 329
------------ ----------- ----------- ----------- ----------- -----------
Total Investments 254,080,299 60,825,578 82,407,552 53,142,668 46,272,484 10,453,352
Contribution Receivable from Employers 20,704,066 2,147,770 7,190,373 5,136,265 4,396,598 1,667,242
Receivable from Employers for Withheld
Participants' Contributions 1,183,352 118,433 391,432 298,971 255,519 108,647
Due from Brokers 311,530 311,530 - - - -
Interfund Transfers - 4,686 (12,473) 12,645 (4,213) (2,507)
Accrued Interest and Dividends 4,553 1,089 1,772 847 682 131
------------ ----------- ----------- ----------- ----------- -----------
Total Assets 276,283,800 63,409,086 89,978,656 58,591,396 50,921,070 12,226,865
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
- -----------
Due to Brokers 122,686 - - - - -
Administrative Fees Payable 278,885 114,176 29,286 15,828 109,033 10,562
------------ ----------- ----------- ----------- ----------- -----------
Total Liabilities 401,571 114,176 29,286 15,828 109,033 10,562
------------ ----------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $275,882,229 $63,294,910 $89,949,370 $58,575,568 $50,812,037 $12,216,303
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
ASSETS Stock Fund
- ------ -----------
<S> <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) -
Vanguard Wellington Fund
(Cost $9,986,245) -
Temporary Investments (Cost
Approximates Fair Value) 2,197
-----------
Total Investments 978,665
Contribution Receivable from Employers 165,818
Receivable from Employers for Withheld
Participants' Contributions 10,350
Due from Brokers -
Interfund Transfers 1,862
Accrued Interest and Dividends 32
-----------
Total Assets 1,156,727
-----------
LIABILITIES
- -----------
Due to Brokers 122,686
Administrative Fees Payable -
-----------
Total Liabilities 122,686
-----------
NET ASSETS AVAILABLE FOR BENEFITS $ 1,034,041
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE> 4
THE LIMITED, INC. SAVINGS AND RETIREMENT PLAN
----------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
---------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
<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 in Net Unrealized
Appreciation $ 32,720,107 $11,589,154 $ - $12,275,975 $ 7,075,741 $ 1,233,096
Realized Gain on Sale of Securities 17,867,974 8,862,376 - 5,135,799 3,381,580 398,590
Interest 5,334,197 10,449 5,286,565 18,262 14,531 2,544
Dividends 1,474,398 1,422,393 - - - -
Mutual Funds' Earnings 5,548,382 - - 1,569,334 2,443,033 1,536,015
------------ ----------- ----------- ----------- ----------- -----------
Total Investment Income 62,945,058 21,884,372 5,286,565 18,999,370 12,914,885 3,170,245
------------ ----------- ----------- ----------- ----------- -----------
Contributions:
Employers 32,697,039 1,963,696 15,507,190 6,371,651 5,370,568 2,879,631
Participants 18,024,880 1,322,245 5,226,156 4,897,686 4,290,800 1,963,375
------------ ----------- ----------- ----------- ----------- -----------
Total Contributions 50,721,919 3,285,941 20,733,346 11,269,337 9,661,368 4,843,006
------------ ----------- ----------- ----------- ----------- -----------
Interfund Transfers - (6,914,328) (1,840,989) 3,344,531 2,288,479 1,827,162
------------ ----------- ----------- ----------- ----------- -----------
Administrative Expense (892,874) (204,971) (261,763) (203,185) (174,289) (42,505)
------------ ----------- ----------- ----------- ----------- -----------
Benefits to Participants (45,591,634) (9,049,583) (14,699,472) (11,143,418) (8,344,965) (2,030,715)
------------ ----------- ----------- ----------- ----------- -----------
Increase in Net Assets Available
for Benefits 67,182,469 9,001,431 9,217,687 22,266,635 16,345,478 7,767,193
Beginning Net Assets Available
for Benefits 275,882,229 63,294,910 89,949,370 58,575,568 50,812,037 12,216,303
------------ ----------- ----------- ----------- ----------- -----------
Ending Net Assets Available
for Benefits $343,064,698 $72,296,341 $99,167,057 $80,842,203 $67,157,515 $19,983,496
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
Stock Fund
------------
<S> <C>
Investment Income:
Increase in Net Unrealized
Appreciation $ 546,141
Realized Gain on Sale of Securities 89,629
Interest 1,846
Dividends 52,005
Mutual Funds' Earnings -
-----------
Total Investment Income 689,621
-----------
Contributions:
Employers 604,303
Participants 324,618
-----------
Total Contributions 928,921
-----------
Interfund Transfers 1,295,145
-----------
Administrative Expense (6,161)
-----------
Benefits to Participants (323,481)
-----------
Increase in Net Assets Available
for Benefits 2,584,045
Beginning Net Assets Available
for Benefits 1,034,041
-----------
Ending Net Assets Available
for Benefits $ 3,618,086
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 5
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 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 $ 2,868,839 $(6,465,140) $ - $ 5,621,065 $ 3,428,551 $ 344,996
Realized Gain (Loss) on Sale
of Securities 17,166,139 12,343,083 - 2,732,990 2,001,323 90,165
Interest 4,977,925 17,980 4,888,501 6,109 4,933 60,295
Dividends 1,400,891 1,395,032 - - - -
Mutual Funds' Earnings 5,229,593 - - 1,139,142 3,420,290 670,161
------------ ----------- ----------- --------- --------- -----------
Total Investment Income (Loss) 31,643,387 7,290,955 4,888,501 9,499,306 8,855,097 1,165,617
------------ ----------- ----------- ----------- ----------- -----------
Contributions:
Employers 30,145,525 3,087,453 10,664,673 7,443,415 6,287,166 2,489,055
Participants 16,172,183 1,802,993 5,382,468 4,063,595 3,449,162 1,412,169
------------ ----------- ----------- ----------- ----------- -----------
Total Contributions 46,317,708 4,890,446 16,047,141 11,507,010 9,736,328 3,901,224
------------ ----------- ----------- ----------- ----------- -----------
Interfund Transfers - (13,040,074) (3,485,681) 5,016,481 6,476,961 4,164,295
------------ ----------- ----------- ----------- ----------- -----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan (10,235,572) (2,073,801) (2,722,848) (3,193,351) (2,040,825) (204,747)
------------ ----------- ----------- ----------- ----------- -----------
Administrative Expense (935,202) (258,452) (320,918) (125,949) (207,292) (22,591)
------------ ----------- ----------- ----------- ----------- -----------
Benefits to Participants (29,417,363) (6,076,610) (12,983,786) (5,442,433) (4,315,844) (585,243)
------------ ----------- ----------- ----------- ----------- -----------
Increase (Decrease) in Net Assets
Available for Benefits 37,372,958 (9,267,536) 1,422,409 17,261,064 18,504,425 8,418,555
Beginning Net Assets Available for
Benefits 238,509,271 72,562,446 88,526,961 41,314,504 32,307,612 3,797,748
------------ ----------- ----------- ----------- ----------- -----------
Ending Net Assets Available for Benefits $275,882,229 $63,294,910 $89,949,370 $58,575,568 $50,812,037 $12,216,303
============ =========== =========== =========== =========== ===========
<CAPTION>
Intimate
Brands
Stock Fund
------------
<S> <C>
Investment Income:
Increase (Decrease) in Net
Unrealized Appreciation $ (60,633)
Realized Gain (Loss) on Sale
of Securities (1,422)
Interest 107
Dividends 5,859
Mutual Funds' Earnings -
-----------
Total Investment Income (Loss) (56,089)
-----------
Contributions:
Employers 173,763
Participants 61,796
-----------
Total Contributions 235,559
-----------
Interfund Transfers 868,018
-----------
Transfer of Participants' Account
Balances to Former Affiliate's Plan -
-----------
Administrative Expense -
-----------
Benefits to Participants (13,447)
-----------
Increase (Decrease) in Net Assets
Available for Benefits 1,034,041
Beginning Net Assets Available for
Benefits -
-----------
Ending Net Assets Available for Benefits $ 1,034,041
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE> 6
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 $ 3,582,066 $ (9,559,767) $ - $ 7,535,683 $ 5,484,368 $ 121,782
Realized Gain on Sale of Securities 7,412,552 5,426,833 - 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-5
<PAGE> 7
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
contribution 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 employment 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, 1997, there were 31,412 participants in the
Plan.
Effective January 1, 1997, the Plan allows for the associates of Galyans
Trading Company, Inc. who have met the eligibility requirements of the
Plan to participate in the Plan for purposes of electing voluntary
tax-deferred contributions only and will not be eligible to receive
allocations of Employers' contributions as noted below.
Effective October 1, 1997, the Plan's enrollment dates were changed from
quarterly to monthly.
On January 31, 1996, The Limited, Inc. sold 60% of its interest in World
Financial Network National Bank and transferred the assets and
liabilities allocated 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.
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, 1997, was
$160,000.
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.
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, 1997). This voluntary tax-deferred
contribution may be limited by Section 401(k) of the Internal Revenue
Code.
F-6
<PAGE> 8
Vesting
-------
A participant is fully and immediately vested for voluntary and rollover
contributions and is credited with a year of vesting service in the
Employers' contributions for each Plan year that they are credited
with at least 500 hours of service. 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 participants with vested account balances greater than $5,000
($3,500 prior to January 1, 1997) 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 shares of
Employer Securities will have the option of receiving such amounts in
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 seven 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 to 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, 1997 and 1996,
is set forth below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Limited Stock Fund $ 377,704 $ 914,636
Fixed Income Fund 645,142 1,171,143
Index-500 Fund 489,489 371,539
U.S. Growth Fund 409,316 338,708
Wellington Fund 128,102 77,814
Intimate Brands Stock Fund 12,002 165
---------- ----------
$2,061,755 $2,874,005
========== ==========
</TABLE>
Forfeitures
-----------
Forfeitures are used to reduce the Employers' required contributions.
Utilized forfeitures for 1997, 1996 and 1995, are set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Limited Stock Fund $ 345,937 $ 309,429 $ 268,411
Fixed Income Fund 2,715,821 3,178,025 1,691,327
Index-500 Fund 1,240,275 743,916 352,056
U.S. Growth Fund 1,028,955 692,299 295,948
Wellington Fund 269,006 36,468 -
Intimate Brands Stock Fund 9,983 - -
---------- ---------- ----------
$5,609,977 $4,960,137 $2,607,742
========== ========== ==========
</TABLE>
F-7
<PAGE> 9
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 participants' 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. The Plan has been amended
since receiving the determination letter. However, the Plan
administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated 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, dividends, 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 maturity, quality, and
type as obtained from market makers.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date.
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.
Reclassification of Prior Year Information
------------------------------------------
Certain prior year information has been reclassified to conform with current
year presentation.
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> 10
(3) 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, 1997, 1996 and 1995 is
set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Limited Stock Fund $38,305,152 $26,715,998 $33,181,138
Fixed Income Fund - - -
Index-500 Fund 26,463,032 14,187,057 8,565,992
U.S. Growth Fund 16,622,199 9,546,458 6,117,907
Wellington Fund 1,699,874 466,778 121,782
Intimate Brands Stock Fund 485,508 (60,633) -
----------- ----------- -----------
$83,575,765 $50,855,658 $47,986,819
=========== =========== ===========
</TABLE>
The following is a summary of the net gain (loss) on securities sold or
distributed during the periods ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Realized
Proceeds Cost Gain (Loss)
----------- ----------- ------------
<S> <C> <C> <C>
Period Ended December 31, 1997
Limited Stock Fund $18,999,960 $10,137,584 $ 8,862,376
Fixed Income Fund 26,199,812 26,199,812 -
Index-500 Fund 15,205,435 10,069,636 5,135,799
U.S. Growth Fund 12,450,768 9,069,188 3,381,580
Wellington Fund 3,458,363 3,059,773 398,590
Intimate Brands Stock Fund 792,401 702,772 89,629
----------- ----------- -----------
$77,106,739 $59,238,765 $17,867,974
=========== =========== ===========
Period Ended December 31, 1996
Limited Stock Fund $24,864,301 $12,521,218 $12,343,083
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)
----------- ----------- -----------
$78,903,288 $61,737,149 $17,166,139
=========== =========== ===========
Period Ended December 31, 1995
Limited Stock Fund $ 9,577,761 $ 4,150,928 $ 5,426,833
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
----------- ----------- -----------
$42,601,951 $35,189,399 $ 7,412,552
=========== =========== ===========
</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 contracts 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, 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 July 1, 1995 the Wellington Fund was not an investment option
and prior to October 1, 1996 the Intimate Brands Stock Fund was not an
investment option.
F-9
<PAGE> 11
Participants' voluntary and Employers' contributions may be invested in any
one or more of the funds, at the election of the participant. There
are 5,216 participants in the Limited Stock Fund, 19,220 in the
Fixed Income Fund, 10,330 in the Index-500 Fund, 8,625 in the U.S.
Growth Fund, 5,854 in the Wellington Fund, and 1,602 in the Intimate
Brands Stock Fund at December 31, 1997.
Participants may make or change an investment direction as of the first
day of any month of the Plan year.
(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
