<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 2, 1998
-----------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 1-13814
-------
INTIMATE BRANDS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1436998
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Limited Parkway, P.O. Box 16000, Columbus, OH 43216
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 415-6900
-------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at May 29, 1998
-------------------- ---------------------------
$.01 Par Value 42,365,700 Shares
Class B Common Stock Outstanding at May 29, 1998
-------------------- ---------------------------
$.01 Par Value 210,000,000 Shares
<PAGE> 2
INTIMATE BRANDS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen Weeks Ended
May 2, 1998 and May 3, 1997............................................................. 3
Consolidated Balance Sheets
May 2, 1998 and January 31, 1998........................................................ 4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 2, 1998 and May 3, 1997............................................................. 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition........................................... 10
Part II. Other Information
Item 1. Legal Proceedings........................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......................................... 16
Item 5. Other Information........................................................................... 17
Item 6. Exhibits and Reports on Form 8-K............................................................ 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------------
May 2, May 3,
1998 1997
-------- --------
<S> <C> <C>
NET SALES $770,868 $704,041
Cost of Goods Sold, Occupancy and Buying Costs 498,996 475,959
-------- --------
GROSS INCOME 271,872 228,082
General, Administrative and Store Operating Expenses (200,454) (167,800)
-------- --------
OPERATING INCOME 71,418 60,282
Interest Expense (7,563) (7,564)
Other Income 4,372 2,080
-------- --------
INCOME BEFORE INCOME TAXES 68,227 54,798
Provision for Income Taxes 27,200 21,900
-------- --------
NET INCOME $ 41,027 $ 32,898
======== ========
NET INCOME PER BASIC AND DILUTED SHARE $.16 $.13
======== ========
DIVIDENDS PER SHARE $.14 $.13
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
---------- ----------
(Unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and Equivalents $22,850 $308,720
Accounts Receivable 18,375 34,639
Inventories 439,886 417,703
Intercompany Receivable 180,821 12,457
Other 97,151 102,540
---------- ----------
TOTAL CURRENT ASSETS 759,083 876,059
PROPERTY AND EQUIPMENT, NET 388,059 392,504
OTHER ASSETS 77,397 79,137
---------- ----------
TOTAL ASSETS $1,224,539 $1,347,700
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $67,053 $94,498
Accrued Expenses 175,312 224,380
Income Taxes Payable 40,569 94,058
---------- ----------
TOTAL CURRENT LIABILITIES 282,934 412,936
LONG-TERM DEBT 350,000 350,000
DEFERRED INCOME TAXES 11,630 13,068
OTHER LONG-TERM LIABILITIES 12,405 10,901
SHAREHOLDERS' EQUITY:
Common Stock 2,527 2,527
Paid-in Capital 674,488 674,620
Retained Deficit (108,812) (114,465)
---------- ----------
568,203 562,682
Less Treasury Stock, at Average Cost (633) (1,887)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 567,570 560,795
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,224,539 $1,347,700
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
INTIMATE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------
May 2, May 3,
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $41,027 $32,898
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 24,345 24,375
Changes in Assets and Liabilities:
Inventories (22,183) (10,401)
Accounts Payable and Accrued Expenses (76,514) (35,552)
Income Taxes (54,926) (70,414)
Other Assets and Liabilities 25,445 (9,693)
------------- ------------
NET CASH USED FOR OPERATING ACTIVITIES (62,806) (68,787)
------------- ------------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (20,448) (15,062)
------------- ------------
FINANCING ACTIVITIES:
Dividends Paid (35,374) (32,827)
(Increase) Decrease in Intercompany Receivable (168,364) 79
Stock Options and Other 1,122 218
------------- ------------
NET CASH USED FOR FINANCING ACTIVITIES (202,616) (32,530)
------------- ------------
NET DECREASE IN CASH AND EQUIVALENTS (285,870) (116,379)
Cash and Equivalents, Beginning of Year 308,720 135,111
------------- ------------
CASH AND EQUIVALENTS, END OF PERIOD $22,850 $18,732
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
INTIMATE BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Intimate Brands, Inc. (the "Company") includes specialty retail and
catalogue operations which offer women's intimate and other apparel,
personal care products and accessories. They consist of Victoria's
Secret Stores, Victoria's Secret Catalogue, Bath & Body Works, 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 consolidated financial statements include the accounts of the
Company and all significant subsidiaries which are more than 50 percent
owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
The consolidated financial statements as of and for the periods ended
May 2, 1998 and May 3, 1997 are unaudited and are presented pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Company's 1997 Annual Report on Form 10-K. In
the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (which are of a normal recurring
nature) necessary to present fairly the financial position and results
of operations and cash flows for the interim periods, but are not
necessarily indicative of the results of operations for a full fiscal
year.
The consolidated financial statements as of May 2, 1998 and for the
thirteen week periods ended May 2, 1998 and May 3, 1997 included herein
have been reviewed by the independent public accounting firm of Coopers
& Lybrand L.L.P. and the report of such firm follows the notes to
consolidated financial statements.
2. EARNINGS PER SHARE
Weighted average common shares outstanding (thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Common shares issued 252,700 252,700
Treasury shares (185) (169)
------- -------
Basic shares 252,515 252,531
Dilutive effect of stock options and restricted shares 2,061 560
------- -------
Diluted shares 254,576 253,091
======= =======
</TABLE>
Options to purchase 200 thousand shares of common stock were
outstanding at quarter-end for 1997, but were not included in the
computation of earnings per share because the options' exercise price
was greater than the average market price of the common shares during
the period.
6
<PAGE> 7
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and
Fall (the third and fourth quarters). Valuation of finished goods
inventories is based principally upon the lower of average cost or
market determined on a first-in, first-out basis utilizing the retail
method. Inventory valuation at the end of the first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates
for the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
-------- ---------
<S> <C> <C>
Property and equipment, at cost $758,957 $743,786
Accumulated depreciation
and amortization (370,898) (351,282)
-------- --------
Property and equipment, net $388,059 $392,504
======== ========
</TABLE>
5. INCOME TAXES
The Company is included in The Limited's consolidated federal and
certain state income tax groups for income tax purposes and is
responsible for its proportionate share of income taxes calculated upon
its federal taxable income at a current estimate of the annual
consolidated effective tax rate. Income taxes paid during the thirteen
weeks ended May 2, 1998 and May 3, 1997 approximated $80.7 million and
$92.3 million.
6. LONG-TERM DEBT
Long-term debt consists of notes which represent the Company's
proportionate share of certain long-term debt of The Limited. The
interest rates and maturities of the notes parallel those of the
corresponding debt of The Limited. The 7 1/2% debentures are subject to
early redemption beginning in 2003 concurrent with any prepayment of
the corresponding debt by The Limited.
7
<PAGE> 8
Unsecured long-term debt consisted of (thousands):
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
--------- ---------
<S> <C> <C>
7 1/2% Debentures due March 2023 $100,000 $100,000
9 1/8% Notes due February 2001 150,000 150,000
8 7/8% Notes due August 1999 100,000 100,000
--------- ---------
$350,000 $350,000
========= =========
</TABLE>
Interest paid during the thirteen weeks ended May 2, 1998 and May 3,
1997, including interest on the intercompany cash management account
(see Note 7), approximated $15.1 million in both years.
7. INTERCOMPANY RELATIONSHIP WITH PARENT
The Limited provides various services to the Company including, but not
limited to, store design and construction supervision, real estate
management, travel and flight support and merchandise sourcing. To the
extent expenditures are specifically identifiable they are charged to
the Company. All other services-related costs not specifically
attributable to an operating business have been allocated to the
Company based upon various allocation methods.
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. The intercompany cash management account is an interest-earning
asset or interest-bearing liability of the Company. Interest on the
intercompany cash management account is calculated based on the Federal
Reserve AA Composite 30-day rate.
The Company's proprietary credit card processing is performed by
Alliance Data Systems which is approximately 40%-owned by The Limited.
The Company and The Limited are parties to a corporate agreement under
which the Company granted to The Limited a continuing option to
purchase, under certain circumstances, additional shares of Class B
Common Stock or shares of nonvoting capital stock of the Company. The
Corporate Agreement further provides that, upon request of The Limited,
the Company will use its best efforts to effect the registration of any
of the shares of Class B Common Stock and nonvoting capital stock held
by The Limited for sale.
8. SPECIAL AND NONRECURRING CHARGES
During 1997, the Company recorded pretax special and nonrecurring
charges of $68 million related to closing the Cacique lingerie
business. Write-downs related to the $30 million noncash component of
the charge were recognized in 1997. Outlays for the cash component of
the charge are expected to approximate $34 to $36 million during 1998.
Cash outlays of $14 million during the first quarter of 1998 were
principally for store closings.
8
<PAGE> 9
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
Intimate Brands, Inc.
We have reviewed the condensed consolidated balance sheet of Intimate Brands,
Inc. and Subsidiaries (the Company) at May 2, 1998, and the related condensed
consolidated statements of income and cash flows for the thirteen-week periods
ended May 2, 1998 and May 3, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
20, 1998 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of January 31, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
May 13, 1998
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the first quarter of 1998 increased 10% to $771 million from $704
million in the first quarter of 1997. Operating income for the 1998 quarter of
$71.4 million increased 18% from $60.3 million in 1997. Earnings per share grew
23% to $.16 per share, compared to $.13 per share in 1997.
Divisional highlights include the following:
The quarter was highlighted by the solid results of the Victoria's Secret brand.
Victoria's Secret Stores comparable store sales increased 6%, while operating
profit was up over 30%. The Catalogue business recorded a year-over-year sales
increase of 11%, and an operating income increase of 8%.
Brand performance reflected the successful first quarter introduction of English
Lace, an intimate apparel collection. Supported by national television
advertising and coordinated between Stores and Catalogue, unit sales for the
three-week launch period exceeded those of the highly successful Angels
collection launched in the comparable 1997 period.
Bath & Body Works sales grew 16% in the first quarter on basically flat same
store sales and 164 more stores than 1997.
Financial Summary
- -----------------
The following summarized financial data compares the thirteen week period ended
May 2, 1998 to the comparable 1997 period:
<TABLE>
<CAPTION>
Change
From Prior
1998 1997 Year
------ ------ ----------
NET SALES (MILLIONS):
<S> <C> <C> <C>
Victoria's Secret Stores $362 $325 11%
Victoria's Secret Catalogue 199 180 11%
Bath & Body Works 205 177 16%
Cacique - 19 N/M
Other 5 3 N/M
------ ------ ------
Total Net Sales $771 $704 10%
====== ====== =====
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN COMPARABLE STORE SALES: 1998 1997
----- -----
<S> <C> <C>
Victoria's Secret Stores 6% 7%
Bath & Body Works (1%) 13%
Cacique - 4%
----- -----
Total Intimate Brands 4% 8%
===== =====
RETAIL SALES EXCLUDING CATALOGUE AND OTHER:
Retail sales increase attributable to new and
remodeled stores 6% 17%
Retail sales per average selling square foot $105 $102
Retail sales per average store (thousands) $327 $319
Average store size at end of quarter (selling square feet) 3,101 3,127
Retail selling square feet at end of quarter (thousands) 5,448 5,179
NUMBER OF STORES:
Beginning of year 1,710 1,609
Opened 51 55
Closed (4) (8) *
----- -----
End of Period 1,757 1,656
===== =====
* Includes sale of four Penhaligon's stores in April 1997.
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
Number of Stores Selling Sq. Ft. (thousands)
-------------------------------------------- ------------------------------------------
Change Change
May 2, May 3, From May 2, May 3, From
1998 1997 Prior Year 1998 1997 Prior Year
---------- ---------- --------------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Victoria's Secret Stores 797 742 55 3,580 3,360 220
Bath & Body Works 960 796 164 1,868 1,457 411
Cacique - 118 (118) - 362 (362)
---------- ---------- --------------- --------- ---------- --------------
Total stores and selling
square feet 1,757 1,656 101 5,448 5,179 269
========== ========== =============== ========= ========== ==============
</TABLE>
Net Sales
- ---------
Net sales for the first quarter of 1998 increased 10% over the same period in
1997. This increase was primarily attributable to the net addition of 101 new
stores which accounted for 69% of the increase. The balance came from a 4%
increase in comparable store sales (representing 28% of the total net sales
increase) and an 11% increase in catalogue net sales.
Victoria's Secret Stores net sales for the first quarter of 1998 increased 11%
to $362 million from $325 million a year ago. The sales increase was due to a 6%
increase in comparable store sales for the quarter (representing 55% of the net
sales increase). The balance came from the net addition of 55 new stores and
220,000 selling square feet, a 7% increase in selling square feet over 1997.
Victoria's Secret Catalogue net sales for the first quarter of 1998 increased
11% to $199 million from $180 million a year ago. The increase was primarily
attributable to an increase in catalogue circulation in the first quarter.
Bath & Body Works net sales for the first quarter of 1998 increased 16% to $205
million from $177 million a year ago. The sales increase was attributable to the
net addition of 164 new stores and 411,000 selling square feet, a 28% increase
in selling square feet over 1997. The increase was partially offset by a 1%
decrease in comparable store sales.
Gross Income
- ------------
Gross income increased, expressed as a percentage of net sales, to 35.3% for the
first quarter of 1998 from 32.4% for the same period in 1997. The increase was
primarily due to a 3.5% increase in merchandise margins offset by a .6% increase
in buying and occupancy costs, expressed as a percentage of net sales. The
increase in merchandise margins, expressed as a percentage of net sales, was
experienced across all of the Company's businesses. The increase was especially
significant at Victoria's Secret Stores due to higher initial markups and the
continuation of strong sales increases in high margin personal care products.
The increase in buying and occupancy costs, expressed as a percentage of net
sales, resulted from an increase at Victoria's Secret Catalogue, primarily due
to additional costs incurred from tailoring catalogues to the Japanese market
and the accelerated depreciation expense to regularly remodel and refresh stores
at Victoria's Secret. This increase was slightly offset by the closing of
Cacique and the growth of Bath & Body Works net sales as a percentage of the
total Company to 27% from 25% in 1997. Bath & Body Works records lower buying
and occupancy costs due to smaller store size and higher sales productivity.
12
<PAGE> 13
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses increased, expressed as a
percentage of net sales, to 26.0% in the first quarter of 1998 from 23.8% for
the same period in 1997. The rate increase was primarily due to additional
expenses in information technology, real estate and brand marketing for projects
directly attributable to brand building at the businesses and other Company
initiatives.
Operating Income
- ----------------
First quarter operating income, expressed as a percentage of sales, was 9.3% in
1998 and 8.6% in 1997. The increase was a result of the improved gross income
rate, which more than offset increases in the general, administrative and store
operating expenses expressed as a percentage of net sales, as explained above.
Interest Expense and Other Income
- ---------------------------------
The Company incurred $7.6 million in interest expense in both the first quarter
of 1998 and 1997 on the Company's $350 million in long-term debt.
In the first quarter of 1998, the Company earned $4.4 million in other income
compared to $2.1 million for the same period in 1997. The other income was
primarily interest income earned from excess net cash from operations managed
through The Limited's centralized cash management system (see Note 7).
FINANCIAL CONDITION
The Company's consolidated balance sheet as of May 2, 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 from operating activities and cash funding from The Limited's
centralized cash management systems provide the resources to support operations,
including projected growth, seasonal requirements and capital expenditures. A
summary of the Company's working capital position and capitalization follows
(thousands):
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
---------- -----------
<S> <C> <C>
Working Capital $476,149 $463,123
========== ===========
Capitalization:
Long-term debt $350,000 $350,000
Shareholders' equity 567,570 560,795
---------- -----------
Total Capitalization $917,570 $910,795
========== ===========
</TABLE>
13
<PAGE> 14
Net cash used in operating activities totaled $62.8 million for the thirteen
weeks ended May 2, 1998 versus $68.8 million for the same period in 1997. The
decrease in the net cash requirements of the Company for the first quarter was
due principally to the timing of payments and the positive tax effect associated
with the closing of the Cacique business. The cash provided from the additional
net income realized in the first quarter this year was more than offset by
expected inventory needs.
Investing activities were all for capital expenditures, which are primarily for
new and remodeled stores.
Financing activities included the quarterly cash dividend payment of $.14 per
share and the $168.4 million net increase in the Limited's intercompany cash
management account receivable (see Note 7). The Company has previously announced
authorization by its Board of Directors to repurchase up to 4,000,000 shares of
its common stock on the open market specifically reserved to cover shares needed
for employee benefit plans. At May 2, 1998, the Company had repurchased
approximately 442,000 shares for this program.
Capital Expenditures
- --------------------
Capital expenditures, primarily for new and remodeled stores, totaled $20.4
million for the thirteen weeks ended May 2, 1998, compared to $15.1 million for
the comparable period of 1997. The Company anticipates spending $140-$160
million in 1998 for capital expenditures, of which $110-$120 million will be for
new stores, the relocation and expansion of existing stores and related
improvements for the retail business.
The Company intends to add approximately 650,000 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 51 stores. The Company expects that capital
expenditures will be funded principally by net cash provided by operating
activities.
Information Systems and "Year 2000" Compliance
- ----------------------------------------------
As discussed in the Company's Annual Report on Form 10-K, the Company has
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 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 timely converted. However, there can be no
assurance that the systems of other companies on which the Company's systems
rely also will be timely converted 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.
14
<PAGE> 15
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 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.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in a variety of lawsuits arising in the
ordinary course of business.
On November 13, 1997, the United States District Court for the Southern
District of Ohio, Eastern Division, dismissed with prejudice an amended
complaint previously transferred to that court by the United States
District Court, Central District of California. The amended complaint,
which had been filed against the Company, The Limited and certain of
The Limited's other subsidiaries by the American Textile Manufacturers
Institute ("ATMI"), a textile industry trade association, alleged that
the defendants violated the federal False Claims Act by submitting
false country of origin records to the U.S. Customs Service. On
November 26, 1997, ATMI served a motion to alter or amend judgment and
a motion to disqualify the presiding judge and to vacate the order of
dismissal. The 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 was
transferred to another judge of the United States District Court for
the Southern District of Ohio, Western Division. On May 21, 1998, this
judge reaffirmed the earlier dismissal and denied all pending motions
seeking to alter, amend or vacate the judgment that had been entered in
favor of the Company. On June 5, 1998, ATMI filed a notice of appeal to
the United States Court of Appeals for the Sixth Circuit.
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
The Company held its Annual Meeting of Stockholders on May 18, 1998.
The matters voted upon and the results of the voting were as follows:
Leslie H. Wexner, Kenneth B. Gilman and Beth M. Pritchard were elected
to the Board of Directors for a term of three years. Of the 35,496,916
Class A shares and 210,000,000 Class B shares (representing 630,000,000
votes) present in person or represented by proxy at the meeting, the
number of votes for and the number of votes as to which authority to
vote in the election was withheld, were as follows with respect to each
of the nominees:
16
<PAGE> 17
<TABLE>
<CAPTION>
Votes Votes as to Which
For Voting Authority
Name Election Withheld
---------------------------------- ---------------- ------------------------
<S> <C> <C>
Kenneth B. Gilman 665,251,714 245,202
Beth M. Pritchard 665,252,474 244,442
Leslie H. Wexner 665,248,399 248,517
</TABLE>
In addition, directors whose term of office continued after the Annual
Meeting were: Roger D. Blackwell, Grace A. Nichols, Donald B.
Shackelford, Cynthia A. Fields, E. Gordon Gee and Alex Shumate.
Item 5. OTHER INFORMATION
The Company's Certificate of Incorporation includes provisions relating
to potential conflicts of interest that may arise between the Company
and The Limited. Such provisions were adopted in light of the fact that
the Company and The Limited and its subsidiaries are engaged in retail
businesses and may pursue similar opportunities in the ordinary course
of business. Among other things, these provisions generally eliminate
the liability of directors and officers of the Company with respect to
certain matters involving The Limited and its subsidiaries, including
matters that may constitute corporate opportunities of The Limited, its
subsidiaries or the Company. Any person purchasing or acquiring an
interest in shares of capital stock of the Company will be deemed to
have consented to such provisions relating to conflicts of interest and
corporate opportunities, and such consent may restrict such person's
ability to challenge transactions carried out in compliance with such
provisions. Investors should review the Company's Certificate of
Incorporation before making any investment in shares of the Company's
capital stock.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3. Articles of Incorporation and Bylaws.
3.1 Amended and Restated Certificate of Incorporation of
the Company incorporated by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 28, 1995.
3.2 Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended October 28, 1995.
4. Instruments Defining the Rights of Security Holders.
4.1 Specimen Certificate of Class A Common Stock of the
Company incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(File No. 33-92568) (the "Form S-1").
17
<PAGE> 18
4.2 Certificate of Incorporation of The Limited, Inc.
incorporated by reference to Exhibit 4.2 to the
Company's Form S-1.
4.3 Bylaws of The Limited, Inc. incorporated by reference
to Exhibit 4.3 to the Company's Form S-1.
10. Material Contracts.
10.1 Intimate Brands, Inc. 1996 Stock Option and
Performance Incentive Plan incorporated by reference
to Exhibit 4.3 to the Company's Registration
Statement on Form S-8 (File No. 333-04923).
10.2 Intimate Brands, Inc. Incentive Compensation Plan
incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8
(File No. 333-04921).
15. Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of
Independent Accountants' Report.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
None.
18
<PAGE> 19
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTIMATE BRANDS, INC.
(Registrant)
By /S/ Philip E. Mallott
-----------------------------
Philip E. Mallott,
Chief Financial Officer*
Date: June 11, 1998
- --------------------------------
* Mr. Mallott is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
19
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- --------
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation
of Independent Accountants' Report.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 15
----------
[Coopers & Lybrand Letterhead]
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
We are aware that our report dated May 13, 1998, on our review of the interim
consolidated financial information of Intimate Brands, Inc. and Subsidiaries for
the thirteen-week period ended May 2, 1998 and included in this Form 10-Q is
incorporated by reference in the Company's registration statements on Form S-8,
Registration Nos. 333-04921 and 333-04923. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
June 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements (unaudited) of Intimate Brands, Inc. and
Subsidiaries for the quarter ended May 2, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 22,850
<SECURITIES> 0
<RECEIVABLES> 18,375
<ALLOWANCES> 0
<INVENTORY> 439,886
<CURRENT-ASSETS> 759,083
<PP&E> 758,957
<DEPRECIATION> 370,898
<TOTAL-ASSETS> 1,224,539
<CURRENT-LIABILITIES> 282,934
<BONDS> 0
0
0
<COMMON> 2,527
<OTHER-SE> 565,043
<TOTAL-LIABILITY-AND-EQUITY> 1,224,539
<SALES> 770,868
<TOTAL-REVENUES> 770,868
<CGS> 498,996
<TOTAL-COSTS> 498,996
<OTHER-EXPENSES> 200,454
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,563
<INCOME-PRETAX> 68,227
<INCOME-TAX> 27,200
<INCOME-CONTINUING> 41,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,027
<EPS-PRIMARY> $.16
<EPS-DILUTED> $.16
</TABLE>
