Bath & Body Works, Inc. - Quarter Report: 2011 October (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 29, 2011



o	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 1-8344

_________________________________

LIMITED BRANDS, INC.

(Exact name of registrant as specified in its charter)

_________________________________



Delaware		31-1029810
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Three Limited Parkway, P.O. Box 16000, Columbus, Ohio		43216
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (614) 415-7000

_________________________________

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, $.50 Par Value		Outstanding at November 25, 2011
		296,349,578 Shares

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LIMITED BRANDS, INC.

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	Page No.
Part I. Financial Information

Item 1. Financial Statements *

Consolidated Statements of Income for the Thirteen Weeks and Thirty-nine Weeks Ended October 29, 2011 and October 30, 2010 (Unaudited)	3

Consolidated Balance Sheets as of October 29, 2011 (Unaudited), January 29, 2011 and October 30, 2010 (Unaudited)	4

Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended October 29, 2011 and October 30, 2010 (Unaudited)	5

Notes to Consolidated Financial Statements (Unaudited)	6

Report of Independent Registered Public Accounting Firm	28

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	29

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3. Quantitative and Qualitative Disclosures About Market Risk	45

Item 4. Controls and Procedures	47

Part II. Other Information	47

Item 1. Legal Proceedings	48

Item 1A. Risk Factors	48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3. Defaults Upon Senior Securities	48

Item 4. Reserved	48

Item 5. Other Information	48

Item 6. Exhibits	48

Signatures	50



*	The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2011” and “third quarter of 2010” refer to the thirteen week periods ending October 29, 2011 and October 30, 2010, respectively. “Year-to-date 2011” and “year-to-date 2010” refer to the thirty-nine week periods ending October 29, 2011 and October 30, 2010, respectively.

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PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions except per share amounts)

(Unaudited)



	Third Quarter						Year-to-Date
	2011			2010			2011			2010
Net Sales	$	2,174		$	1,983		$	6,849		$	6,157
Costs of Goods Sold, Buying and Occupancy	(1,389		)	(1,269		)	(4,319		)	(3,971		)
Gross Profit	785			714			2,530			2,186
General, Administrative and Store Operating Expenses	(599		)	(565		)	(1,933		)	(1,616		)
Operating Income	186			149			597			570
Interest Expense	(64		)	(48		)	(183		)	(160		)
Other Income	—			—			233			122
Income Before Income Taxes	122			101			647			532
Provision for Income Taxes	28			40			156			180
Net Income	$	94		$	61		$	491		$	352
Net Income Per Basic Share	$	0.32		$	0.19		$	1.60		$	1.09
Net Income Per Diluted Share	$	0.31		$	0.18		$	1.55		$	1.06
Dividends Per Share	$	0.20		$	0.15		$	1.60		$	1.45

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except per share amounts)



	October 29, 2011			January 29, 2011			October 30, 2010
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	498		$	1,130		$	988
Accounts Receivable, Net	298			232			247
Inventories	1,537			1,032			1,456
Deferred Income Taxes	30			35			35
Other	253			163			255
Total Current Assets	2,616			2,592			2,981
Property and Equipment, Net	1,661			1,610			1,633
Goodwill	1,452			1,451			1,448
Trade Names and Other Intangible Assets, Net	590			592			597
Other Assets	198			206			232
Total Assets	$	6,517		$	6,451		$	6,891
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	800		$	545		$	687
Accrued Expenses and Other	700			765			677
Income Taxes	4			194			8
Total Current Liabilities	1,504			1,504			1,372
Deferred Income Taxes	220			202			219
Long-term Debt	3,536			2,507			2,519
Other Long-term Liabilities	736			761			737
Shareholders’ Equity:
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—			—			—
Common Stock - $0.50 par value; 1,000 shares authorized; 335, 329 and 327 shares issued; 297, 321 and 321 shares outstanding, respectively	167			164			164
Paid-in Capital	283			164			102
Accumulated Other Comprehensive Income	—			1			5
Retained Earnings	1,354			1,354			1,919
Less: Treasury Stock, at Average Cost; 38, 8 and 6 shares, respectively	(1,284		)	(207		)	(147		)
Total Limited Brands, Inc. Shareholders’ Equity	520			1,476			2,043
Noncontrolling Interest	1			1			1
Total Equity	521			1,477			2,044
Total Liabilities and Equity	$	6,517		$	6,451		$	6,891

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Year-to-Date
	2011			2010
Operating Activities:
Net Income	$	491		$	352
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Depreciation and Amortization of Long-lived Assets	290			291
Amortization of Landlord Allowances	(26		)	(25		)
Deferred Income Taxes	22			(6		)
Share-based Compensation Expense	38			38
Excess Tax Benefits from Share-based Compensation	(40		)	(12		)
Gain on Sale of Express Common Stock	(86		)	—
Contribution of Express Common Stock to The Limited Brands Foundation	163			—
Gain on Contribution of Express Common Stock to The Limited Brands Foundation	(147		)	—
Gain on Distribution from Express	—			(49		)
Gain on Express Initial Public Offering	—			(52		)
Gain on Divestiture of Limited Stores	—			(20		)
Loss on Extinguishment of Debt	—			25
Changes in Assets and Liabilities:
Accounts Receivable	(57		)	(28		)
Inventories	(504		)	(415		)
Accounts Payable, Accrued Expenses and Other	155			181
Income Taxes Payable	(150		)	(120		)
Other Assets and Liabilities	(55		)	(79		)
Net Cash Provided by Operating Activities	94			81
Investing Activities:
Capital Expenditures	(338		)	(197		)
Proceeds from Sale of Express Common Stock	99			—
Return of Capital from Express	—			49
Return of Capital from Limited Stores	—			7
Proceeds from Divestiture of Limited Stores	—			32
Proceeds from Express Initial Public Offering	—			20
Other Investing Activities	—			4
Net Cash Used for Investing Activities	(239		)	(85		)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs	981			390
Payments of Long-term Debt	—			(645		)
Financing Costs	(7		)	(14		)
Repurchase of Common Stock	(1,073		)	(147		)
Dividends Paid	(491		)	(471		)
Excess Tax Benefits from Share-based Compensation	40			12
Proceeds from Exercise of Stock Options and Other	61			60
Net Cash Used for Financing Activities	(489		)	(815		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	2			3
Net Decrease in Cash and Cash Equivalents	(632		)	(816		)
Cash and Cash Equivalents, Beginning of Period	1,130			1,804
Cash and Cash Equivalents, End of Period	$	498		$	988

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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LIMITED BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

Limited Brands, Inc. (“the Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of women’s intimate and other apparel, beauty and personal care products and accessories. The Company sells its merchandise through specialty retail stores in the United States (“U.S.”) and Canada, which are primarily mall-based, and through its websites, catalogue and international franchise, license and wholesale partners. The Company currently operates the following retail brands:


•	Victoria’s Secret


•	Victoria’s Secret Pink


•	Bath & Body Works


•	La Senza


•	Henri Bendel

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2011” and “third quarter of 2010” refer to the thirteen week periods ending October 29, 2011 and October 30, 2010, respectively. “Year-to-date 2011” and “year-to-date 2010” refer to the thirty-nine week periods ending October 29, 2011 and October 30, 2010, respectively.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in Costs of Goods Sold, Buying and Occupancy on the Consolidated Statements of Income. The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income on the Consolidated Statements of Income. The Company’s equity investments are required to be tested for impairment when it is determined there may be an other than temporary loss in value.

Express

2010

Through May 12, 2010, the Company had a 25% ownership interest in Express and accounted for this investment under the equity method of accounting. On May 13, 2010, Express completed an initial public offering (“IPO”). Additionally, the Company sold a portion of its shares of common stock in Express in conjunction with the IPO. As a result, the Company’s ownership interest was diluted from 25% to 18%. The Company eliminated in consolidation 25% of gross merchandise sourcing revenue to Express through May 12, 2010 and eliminated 18% from May 13, 2010 through the end of the second quarter of 2010.

Based on the Company’s reduced ownership in Express, the resulting loss of contractual rights and the resignation of the Company’s seats on Express’ Board of Directors in August 2010, the Company concluded that it was no longer appropriate to account for its investment in Express using the equity method of accounting. Thus, at the beginning of the third quarter of 2010, the Company commenced accounting for its investment in Express using the cost method of accounting. As a result of the accounting change, the Company ceased recording equity income (loss) from Express in Other Income on the Consolidated Statement of Income and the Company also began recognizing 100% of gross merchandise sourcing revenue from Express.

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2011

In April 2011, the Company sold a portion of its remaining shares of common stock in Express in an Express secondary offering, which reduced the Company’s ownership in Express to 8%. A gain was recognized upon the disposition of the shares. In April 2011, the Company also formally renounced its rights to its Express Board of Directors’ seat. As a result, the Company commenced accounting for its investment in Express using the available-for-sale method of accounting in the first quarter of 2011.

In July 2011, the Company contributed all of its remaining shares of common stock in Express to The Limited Brands Foundation. For additional information, see Note 7, “Equity Investments and Other.”

Limited Stores

Through June 9, 2010, the Company had a 25% ownership interest in Limited Stores. The Company accounted for this investment under the equity method of accounting and eliminated in consolidation 25% of gross merchandise sourcing revenue to Limited Stores equal to the Company’s ownership percentage. On June 10, 2010, the Company divested its remaining 25% ownership percentage in Limited Stores and resigned its seat on Limited Stores’ Board of Directors. Beginning June 10, 2010, the Company ceased recording equity income (loss) from Limited Stores and also began recognizing 100% of gross merchandise sourcing revenue to Limited Stores.

Interim Financial Statements

The Consolidated Financial Statements as of and for the quarter ended October 29, 2011 and October 30, 2010 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2010 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 for a fair presentation of the results for the interim periods.

Seasonality of Business

Due to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.

Concentration of Credit Risk

The Company maintains cash and cash equivalents with various major financial institutions. Currently, the Company’s investment portfolio is comprised of U.S. and Canadian government obligations and AAA-rated money market funds, bank time deposits and highly rated commercial paper.

The Company monitors the relative credit standing of financial institutions and other entities with whom the Company transacts and limits the amount of credit exposure with any one entity. The Company also monitors the creditworthiness of entities to which the Company grants credit terms in the normal course of business and counterparties to derivative instruments.

2. New Accounting Pronouncements

Other Comprehensive Income

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-05, Presentation of Comprehensive Income, which amends ASC 220, Comprehensive Income. This guidance eliminates the option to present the components of other comprehensive income as a part of the statement of shareholders’ equity and requires other comprehensive income to be presented as part of a single continuous statement of comprehensive income or in a statement of other comprehensive income immediately following the statement of income. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. This guidance will be effective beginning in fiscal year 2012 and must be retrospectively applied to all reporting periods presented. The FASB has permitted early adoption. ASU 2011-05 will not have an impact on the Company’s consolidated results of operations, financial position or cash flows.

Goodwill

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more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. This guidance will be effective beginning in fiscal year 2012, however, early adoption is permitted. The Company is currently evaluating the provisions of this ASU.

3. Earnings Per Share and Shareholders’ Equity

Earnings Per Share

Earnings per basic share are computed based on the weighted-average number of outstanding common shares. Earnings per diluted share include the weighted-average effect of dilutive options and restricted stock on the weighted-average shares outstanding.

The following table provides shares utilized for the calculation of basic and diluted earnings per share for the third quarter and year-to-date of 2011 and 2010:



	Third Quarter				Year-to-Date
	2011		2010		2011		2010
	(in millions)
Weighted-average Common Shares:
Issued Shares	334		326		333		325
Treasury Shares	(36	)	(4	)	(26	)	(1	)
Basic Shares	298		322		307		324
Effect of Dilutive Options and Restricted Stock	10		10		10		9
Diluted Shares	308		332		317		333
Anti-dilutive Options and Awards (a)	1		1		1		2


(a)	These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Shareholders’ Equity

Share Repurchases

Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs for year-to-date 2011 and 2010:



	Amount		Shares Repurchased		Amount Repurchased
Repurchase Program	Authorized		2011	2010	2011		2010
	(in millions)		(in thousands)		(in millions)
May 2011 (a)	$	500	12,535	NA	$	468	NA
March 2011	500		13,695	NA	500		NA
November 2010 (b)	200		3,431	NA	109		NA
March 2010 (c)	200		NA	5,714	NA		147
Total			29,661	5,714	$	1,077	$	147


(a)	The May 2011 repurchase program had $32 million remaining as of October 29, 2011.


(b)	The November 2010 repurchase program had $31 million remaining at the time it was cancelled in conjunction with the approval of the March 2011 repurchase program.


(c)	The March 2010 repurchase program had $53 million remaining at the time it was cancelled in conjunction with the approval of the November 2010 repurchase program.


NA	Not applicable

For the May 2011 repurchase program, $4 million of share repurchases were reflected in Accounts Payable on the October 29, 2011 Consolidated Balance Sheet and were settled in November 2011.

Subsequent to October 29, 2011, the Company completed the May 2011 repurchase program and the Company's Board of Directors approved a new $250 million share repurchase program ("November 2011 repurchase program") in conjunction with

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the completion of the May 2011 repurchase program.

Subsequent to October 29, 2011, the Company repurchased an additional 0.8 million shares of common stock for $32 million under the May 2011 repurchase program and an additional 0.6 million shares of common stock for $26 million under the November 2011 repurchase program.

Dividends

In March 2010, the Company’s Board of Directors declared a special dividend of $1 per share. The special dividend, totaling $325 million, was distributed on April 19, 2010 to shareholders of record at the close of business on April 5, 2010. In accordance with the anti-dilutive provisions of the 1993 Stock Option and Performance Incentive Plan, the Company adjusted both the exercise price and the number of share-based awards outstanding as of the record date of the special dividend. The aggregate fair value, the aggregate intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately before and after the adjustment. Therefore, no compensation expense was recognized.

In May 2011, the Company’s Board of Directors declared a special dividend of $1 per share. The special dividend, totaling $304 million, was distributed on July 1, 2011 to shareholders of record at the close of business on June 17, 2011. Consistent with the March 2010 special dividend, the Company adjusted both the exercise price and the number of share-based awards outstanding as of the record date.

Subsequent to October 29, 2011, the Company declared a special dividend of $2 per share, estimated to total $600 million. The special dividend will be distributed on December 23, 2011 to shareholders of record at the close of business on December 12, 2011.

4. Inventories

The following table provides details of inventories as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Finished Goods Merchandise	$	1,449	$	956	$	1,365
Raw Materials and Merchandise Components	88		76		91
Total Inventories	$	1,537	$	1,032	$	1,456

Inventories are principally valued at the lower of cost, as determined by the weighted-average cost method, or market.

5. Property and Equipment, Net

The following table provides details of property and equipment, net as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011			January 29, 2011			October 30, 2010
	(in millions)
Property and Equipment, at Cost	$	4,362		$	4,183		$	4,148
Accumulated Depreciation and Amortization	(2,701		)	(2,573		)	(2,515		)
Property and Equipment, Net	$	1,661		$	1,610		$	1,633

Depreciation expense was $93 million and $96 million for the third quarter of 2011 and 2010, respectively. Depreciation expense was $287 million and $286 million for year-to-date 2011 and 2010, respectively.

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6. Goodwill, Trade Names and Other Intangible Assets, Net

Goodwill

The following table provides the rollforward of goodwill for year-to-date 2011:



	Victoria’s Secret (a)		Bath & Body Works		Total
	(in millions)
Balance as of January 29, 2011	$	823	$	628	$	1,451
Foreign Currency Translation	1		—		1
Balance as of October 29, 2011	$	824	$	628	$	1,452


(a)	Balance is presented net of a $189 million La Senza impairment recognized in the fourth quarter of 2008.

The following table provides the rollforward of goodwill for year-to-date 2010:



	Victoria’s Secret (a)		Bath & Body Works		Total
	(in millions)
Balance as of January 30, 2010	$	814	$	628	$	1,442
Foreign Currency Translation	6		—		6
Balance as of October 30, 2010	$	820	$	628	$	1,448


(a)	Balance is presented net of a $189 million La Senza impairment recognized in the fourth quarter of 2008.

Intangible Assets – Indefinite Lives

Intangible assets with indefinite lives represent the Victoria’s Secret, Bath & Body Works and La Senza trade names. These assets totaled $577 million as of October 29, 2011, $576 million as of January 29, 2011 and $573 million as of October 30, 2010 and are included in Trade Names and Other Intangible Assets, Net on the Consolidated Balance Sheets.

Intangible Assets – Finite Lives

Intangible assets with finite lives represent intellectual property, certain trademarks, licensing agreements, customer relationships and favorable operating leases. These assets totaled $13 million as of October 29, 2011, $16 million as of January 29, 2011 and $24 million as of October 30, 2010 and are included in Trade Names and Other Intangible Assets, Net on the Consolidated Balance Sheets. Amortization expense was $1 million and $2 million for the third quarter of 2011 and 2010, respectively. Amortization expense was $3 million and $5 million for year-to-date 2011 and 2010, respectively. Estimated future annual amortization expense will be approximately $1 million for the remainder of 2011, $4 million in 2012, $3 million in 2013, $3 million in 2014 and $2 million in 2015.

7. Equity Investments and Other

Express

In July 2007, the Company completed the divestiture of 75% of its ownership interest in Express. In conjunction with the transaction, the Company and Express entered into transition services agreements whereby the Company provided support to Express in various operational areas including logistics, technology and merchandise sourcing. The terms of these transition services arrangements varied and ranged from three months to three years.

In October 2009, the Company entered into new agreements with Express whereby the Company will continue to provide logistics services and lease office space. The Company also continues to provide sourcing services to Express.

The Company recognized merchandise sourcing revenue from Express of $123 million and $122 million in the third quarter of 2011 and 2010, respectively. The Company recognized merchandise sourcing revenue from Express of $315 million and $267 million in year-to-date 2011 and 2010, respectively. The 2010 amounts are net of the elimination of merchandise sourcing revenue equal to the Company’s ownership percentage. The Company’s accounts receivable from Express for merchandise sourcing and other services provided totaled $88 million as of October 29, 2011, $74 million as of January 29, 2011 and $100 million as of October 30, 2010.

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In March 2010, Express completed a cash distribution to its owners and the Company received $57 million. The Company’s portion representing a return on capital was $8 million and is included in Other Assets and Liabilities within the Operating Activities section of the 2010 Consolidated Statement of Cash Flows. The remaining portion representing a return of capital was $49 million and is included in Return of Capital from Express within the Investing Activities section of the 2010 Consolidated Statement of Cash Flows. The proceeds received from the cash distribution were in excess of the Company’s carrying value of the investment in Express. As a result, the carrying value was reduced to zero as of the date of the cash distribution and a pre-tax gain of approximately $49 million was recorded. The pre-tax gain is included in Other Income on the year-to-date 2010 Consolidated Statement of Income.

On May 13, 2010, Express completed an IPO and the Company sold 1.3 million shares of its common stock in Express for $20 million. As a result, the Company’s ownership interest was diluted from 25% to 18% and the carrying value of the Company’s remaining investment was increased to reflect the proportional impact of the IPO. As a result of these events, the Company recognized a pre-tax gain of $52 million, which is included in Other Income on the 2010 Consolidated Statements of Income.

Based on the Company’s reduced ownership in Express, the resulting loss of contractual rights and the resignation of the Company’s seats on Express’ Board of Directors in August 2010, the Company concluded that it was no longer appropriate to account for its investment in Express using the equity method of accounting. Thus, at the beginning of the third quarter of 2010, the Company commenced accounting for its investment in Express using the cost method of accounting because the Company’s shares of Express’ common stock were subject to certain market and contractual restrictions. As a result of the accounting change, the Company ceased recording equity income (loss) from Express in Other Income on the Consolidated Statement of Income and the Company also began recognizing 100% of gross merchandise sourcing revenue to Express.

On December 15, 2010, Express completed a secondary offering and the Company sold an additional 3.6 million shares of its common stock in Express for $52 million. As a result, the Company’s ownership interest was reduced from 18% to 14% and the Company recognized a pre-tax gain of $45 million. Express also completed a cash dividend to its owners in December 2010 and the Company received $7 million. As a result of the dividend, the Company recognized a pre-tax gain of $7 million.

On April 12, 2011, the Company sold 5.5 million shares of its common stock in Express for $99 million. As a result, the Company’s ownership interest was reduced from 14% to 8% and the Company recognized a pre-tax gain of $86 million, which is included in Other Income on the year-to-date 2011 Consolidated Statement of Income. On April 21, 2011, the Company formally renounced its rights to its Express Board of Directors’ seat. As a result, the Company commenced accounting for its investment in Express using the available-for-sale method of accounting in the first quarter of 2011.

In July 2011, the Company contributed all of its remaining 7.2 million shares of Express to The Limited Brands Foundation. This charitable contribution funded the Company’s April 2011 $50 million pledge to The Limited Brands Foundation and provided additional funding for their charitable activities. As a result, the Company recognized contribution expense in the second quarter of 2011 of $113 million equal to the difference between the market value of the Express shares on the date of the contribution and the amount of the pledge made in the first quarter of 2011. These amounts are included in General, Administrative and Store Operating Expenses on the year-to-date 2011 Consolidated Statements of Income. The Company also recognized a non-taxable gain of $147 million representing the difference between the market value of the Express shares on the date of the contribution and the Company’s net carrying value. The gain is included in Other Income on the year-to-date 2011 Consolidated Statements of Income.

The Company’s investment carrying value under the cost method of accounting was $29 million as of January 29, 2011 and $37 million as of October 30, 2010. These amounts are included in Other Assets on the 2010 Consolidated Balance Sheets.

Limited Stores

In August 2007, the Company completed the divestiture of 75% of its ownership interest in Limited Stores. In conjunction with the transaction, the Company and Limited Stores entered into transition services agreements whereby the Company provided support to Limited Stores in various operational areas including logistics, technology and merchandise sourcing. The terms of these transition services arrangements varied and ranged from three months to three years.

In June 2010, the Company entered into a new agreement with Limited Stores whereby the Company will continue to provide logistics services. The Company also continues to provide merchandise sourcing services to Limited Stores.

The Company recognized merchandise sourcing revenue from Limited Stores of $30 million and $22 million in the third quarter of 2011 and 2010, respectively. The Company recognized merchandise sourcing revenue from Limited Stores of $82 million and $56 million in year-to-date 2011 and 2010, respectively. These amounts are net of the elimination of merchandise sourcing revenue equal to the Company’s ownership percentage. The Company’s accounts receivable from Limited Stores for merchandise sourcing and other services provided totaled $16 million as of October 29, 2011, $9 million as of January 29, 2011

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and $11 million as of October 30, 2010.

In February 2010, Limited Stores completed a cash distribution to its owners and the Company received $7 million. The proceeds received from the cash dividend reduced the Company’s carrying value of the investment in Limited Stores. The distribution represented a return of capital and is included in Return of Capital from Limited Stores within the Investing Activities section on the 2010 Consolidated Statement of Cash Flows.

In June 2010, the Company completed the divestiture of its remaining 25% ownership interest in Limited Stores and resigned its seat on Limited Stores’ Board of Directors. The Company received pre-tax net cash proceeds of $32 million from the divestiture. The Company recorded a pre-tax gain on the divestiture of $20 million ($42 million net of related tax benefits). The Company ceased recording equity income (loss) from Limited Stores in Other Income on the Consolidated Statement of Income. The Company also began recognizing 100% of gross merchandise sourcing revenue to Limited Stores following the divestiture.

Easton Investment

The Company has land and other investments in Easton, a 1,300 acre planned community in Columbus, Ohio that integrates office, hotel, retail, residential and recreational space. These investments, at cost, totaled $69 million as of October 29, 2011, $69 million as of January 29, 2011 and $68 million as of October 30, 2010 and are recorded in Other Assets on the Consolidated Balance Sheets.

Included in the Company’s Easton investments is an equity interest in Easton Town Center, LLC (“ETC”), an entity that owns and has developed a commercial entertainment and shopping center. The Company’s investment in ETC is accounted for using the equity method of accounting. The Company has a majority financial interest in ETC, but another unaffiliated member manages ETC. Certain significant decisions regarding ETC require the consent of unaffiliated members in addition to the Company.

8. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. The Company’s quarterly effective tax rate does not reflect a benefit associated with losses related to certain foreign subsidiaries.

For the third quarter of 2011 and year-to-date 2011, the Company’s effective tax rates were 22.6% and 24.1%, respectively. The third quarter of 2011 rate was lower than the Company's combined estimated federal and state rate of 38.5% primarily due to the resolution of certain income tax matters. The year-to-date 2011 rate was lower than the Company's combined estimated federal and state rate of 38.5% primarily due to tax benefits associated with the Company's charitable contribution of Express shares to The Limited Brands Foundation as well as the resolution of certain tax matters.

For the third quarter of 2010 and year-to-date 2010, the Company’s effective tax rates were 39.6% and 33.8%, respectively. The year-to-date 2010 rate was lower than the Company’s combined estimated federal and state rate of 38.5% primarily due to the divestiture of its remaining 25% ownership in Limited Stores, which resulted in the recognition of the capital loss associated with the 2007 divestiture of 75% of its ownership in Limited Stores.

Income taxes paid were approximately $24 million and $74 million for the third quarter of 2011 and 2010, respectively. Income taxes paid approximated $377 million and $342 million for year-to-date 2011 and 2010, respectively.

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9. Long-term Debt

The following table provides the Company’s long-term debt balance as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	1,000	$	—	$	—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019, Less Unamortized Discount (“2019 Notes”)	487		486		485
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	400		400		400
Total Senior Unsecured Debt with Subsidiary Guarantee	$	1,887	$	886	$	885
Senior Unsecured Debt
$700 million, 6.90% Fixed Interest Rate Notes due July 2017, Less Unamortized Discount (“2017 Notes”)(a)	$	721	$	699	$	707
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033, Less Unamortized Discount (“2033 Notes”)	350		350		350
$300 million, 7.60% Fixed Interest Rate Notes due July 2037, Less Unamortized Discount (“2037 Notes”)	299		299		299
5.25% Fixed Interest Rate Notes due November 2014, Less Unamortized Discount (“2014 Notes”)(b)	221		215		220
6.125% Fixed Interest Rate Notes due December 2012, Less Unamortized Discount (“2012 Notes”)(c)	58		58		58
Total Senior Unsecured Debt	$	1,649	$	1,621	$	1,634
Total Long-term Debt	$	3,536	$	2,507	$	2,519


(a)	The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $22 million as of October 29, 2011, $0 million as of January 29, 2011 and $7 million as of October 30, 2010.


(b)	The principal balance outstanding was $213 million as of October 29, 2011, January 29, 2011 and October 30, 2010. The balances include a fair value interest rate hedge adjustment which increased the debt balance by $8 million as of October 29, 2011, $2 million as of January 29, 2011 and $7 million as of October 30, 2010.


(c)	The principal balance outstanding was $57 million as of October 29, 2011, January 29, 2011 and October 30, 2010. The balances included a fair value interest rate hedge adjustment which increased the debt balance by $1 million as of October 29, 2011, January 29, 2011 and October 30, 2010.

Issuance of Notes

2011

In March 2011, the Company issued $1 billion of 6.625% notes due in April 2021 utilizing an existing shelf registration under which debt securities, common and preferred stock and other securities can be issued. The 2021 Notes are jointly and severally guaranteed on a full and unconditional basis by the guarantors. The net proceeds from the issuance were $981 million, which included transaction costs of $19 million. These transaction costs are being amortized through the maturity date of April 2021 and are included within Other Assets on the October 29, 2011 Consolidated Balance Sheet.

2010

In May 2010, the Company issued $400 million of 7.00% notes due in May 2020 utilizing an existing shelf registration under which debt securities, common and preferred stock and other securities can be issued. The 2020 Notes are jointly and severally guaranteed on a full and unconditional basis by the guarantors. The net proceeds from the issuance were $390 million, which included transaction costs of $10 million. These transaction costs are being amortized through the maturity date of May 2020 and are included within Other Assets on the October 29, 2011, January 29, 2011 and October 30, 2010 Consolidated Balance Sheets.

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Repurchase of Notes

In May 2010, the Company used a portion of the proceeds from the 2020 Notes to repurchase $134 million of the Company’s 2012 Notes for $144 million. The Company used the remaining portion of the proceeds from the 2020 Notes to repurchase $266 million of the 2014 Notes for $277 million. The loss on extinguishment of this debt was $25 million and is included in Other Income (Loss) on the 2010 Consolidated Statements of Income.

In August 2010, the Company repurchased $20 million and $1 million of 2014 Notes and 2012 Notes, respectively, through open-market transactions.

Revolving Facility

On July 15, 2011, the Company entered into an amendment and restatement (“Amendment”) of its secured revolving credit facility (“Revolving Facility”). The Amendment increased the aggregate amount of the commitments of the lenders under the Revolving Facility from $800 million to $1 billion and extended the termination date from August 1, 2014 to July 15, 2016. In addition, the Amendment reduced fees payable under the Revolving Facility which are based on the Company’s long-term credit ratings. The fees related to committed and unutilized amounts per year were reduced from 0.50% to 0.325% per annum and the fees related to outstanding letters of credit were reduced from 3.00% to 1.75% per annum. In addition, the interest rate on outstanding borrowings was reduced from the London Interbank Offered Rate (“LIBOR”) plus 3.00% to LIBOR plus 1.75%.

The Company incurred fees related to the Amendment of the Revolving Facility of $7 million, which were capitalized and are being amortized over the remaining term of the Revolving Facility.

The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of October 29, 2011, the Company was in compliance with both of its financial covenants and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

As of October 29, 2011, there were no borrowings outstanding under the Revolving Facility.

Letters of Credit

The Revolving Facility supports the Company’s letter of credit program. The Company had $32 million of outstanding letters of credit as of October 29, 2011 that reduces its remaining availability under its credit agreements.

Term Loan and Participating Interest Rate Swap Arrangements

In March 2010, the Company prepaid $200 million of a term loan. In conjunction with the term loan prepayment, the Company terminated participating interest rate swap arrangements totaling $200 million. For additional information, see Note 10, “Derivative Instruments.”

Fair Value Interest Rate Swap Arrangements

For information related to the Company’s fair value interest rate swap arrangements, see Note 10, “Derivative Instruments.”

10. Derivative Instruments

Foreign Exchange Risk

In January 2007, the Company entered into a series of cross-currency swaps related to approximately $470 million of Canadian dollar denominated intercompany loans. These cross-currency swaps mitigate the exposure to fluctuations in the U.S. dollar-Canadian dollar exchange rate related to the Company’s La Senza operations. The cross-currency swaps require the periodic exchange of fixed rate Canadian dollar interest payments for fixed rate U.S. dollar interest payments as well as exchange of Canadian dollar and U.S. dollar principal payments upon maturity. The cross-currency swaps mature between 2015 and 2018 at the same time as the related loans and are designated as cash flow hedges of foreign currency exchange risk. Changes in the U.S. dollar-Canadian dollar exchange rate and the related swap settlements result in reclassification of amounts from accumulated other comprehensive income (loss) to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loans.

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The following table provides a summary of the fair value and balance sheet classification of the derivative financial instruments designated as foreign exchange cash flow hedges as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Other Long-term Liabilities	$	66	$	57	$	45

The following table provides a summary of the pre-tax financial statement effect of the gains and losses on the Company’s derivative instruments designated as foreign exchange cash flow hedges for the third quarter and year-to-date 2011 and 2010:



		Third Quarter						Year-to-Date
	Location	2011			2010			2011			2010
		(in millions)
Gain (Loss) Recognized in Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	$	17		$	(11	)	$	(9	)	$	(11	)
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Other Income (Loss) (a)	Other Income (Loss)	(17		)	5			6			23


(a)	Represents reclassification of amounts from accumulated other comprehensive income (loss) to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loans. No ineffectiveness was associated with these foreign exchange cash flow hedges.

Interest Rate Risk

Interest Rate Designated Cash Flow Hedges

In March 2010, the Company prepaid a $200 million term loan. In conjunction with the term loan pre-payment, the Company terminated participating interest rate swap arrangements totaling $200 million resulting in a realized loss of $10 million. This realized loss was expensed in Interest Expense on the year-to-date 2010 Consolidated Statement of Income as there are no future cash flows associated with these terminated swap arrangements.

Interest Rate Designated Fair Value Hedges

In June 2010, the Company entered into multiple interest rate swap arrangements related to all of the outstanding 2012 Notes, all of the outstanding 2014 Notes and $175 million of the outstanding 2017 Notes. The interest rate swap arrangements effectively convert the fixed interest rate on the related debt to a variable interest rate based on a LIBOR plus a fixed interest rate.

The swap arrangements are designated as fair value hedges. The changes in the fair value of the interest rate swaps have an equal and offsetting impact to the carrying value of the debt on the balance sheet. The differential to be paid or received on the interest rate swap arrangements is accrued and recognized as an adjustment to interest expense.

In August 2010, the Company terminated interest rate designated fair value hedges with a notional amount of $21 million in conjunction with the repurchase of $20 million and $1 million of 2014 Notes and 2012 Notes, respectively.

In January 2011, the Company entered into multiple fair value interest rate swap arrangements to effectively convert an additional $150 million of the outstanding 2017 Notes from a fixed interest rate to a variable interest rate.

In July 2011, the Company terminated interest rate designated fair value hedges related to the 2012 Notes with a notional amount of $57 million. In settlement of these hedges, the Company received $1 million. The settlement amount was equal to the fair value adjustment to the 2012 Notes and is being amortized as a reduction to interest expense through the maturity date of the 2012 Notes.

In August 2011, the Company terminated interest rate designated fair value hedges related to the 2014 Notes with a notional amount of $213 million. In settlement of these hedges, the Company received $9 million. The settlement amount was equal to the fair value adjustment to the 2014 Notes and will be amortized as a reduction to interest expense through the maturity date of the 2014 Notes.

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In September 2011, the Company terminated interest rate designated fair value hedges related to the 2017 Notes with a notional amount of $150 million. In settlement of these hedges, the Company received $12 million. The settlement amount was equal to the fair value adjustment to the 2017 Notes and will be amortized as a reduction to interest expense through the maturity date of the 2017 Notes.

As of October 29, 2011, the Company's remaining interest rate designated fair value hedges have a notional amount of $175 million related to a portion of the Company's 2017 Notes.

The following table provides a summary of the fair value and balance sheet classification of the derivative financial instruments designated as interest rate fair value hedges as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Other Assets	$	10	$	3	$	15

11. Fair Value Measurements

The following table provides a summary of the carrying value and fair value of long-term debt as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Carrying Value	$	3,536	$	2,507	$	2,519
Fair Value (a)	3,762		2,638		2,702


(a)	The estimated fair value of the Company’s publicly traded debt is based on quoted market prices. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

The authoritative guidance included in ASC Topic 820, Fair Value Measurements and Disclosure, establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:


•	Level 1 – Quoted market prices in active markets for identical assets or liabilities.


•	Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices of similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.


•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

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The following table provides a summary of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of October 29, 2011, January 29, 2011 and October 30, 2010:



	Level 1		Level 2		Level 3		Total
	(in millions)
As of October 29, 2011
Assets:
Cash and Cash Equivalents	$	498	$	—	$	—	$	498
Interest Rate Designated Fair Value Hedges	—		10		—		10
Liabilities:
Cross-currency Cash Flow Hedges	—		66		—		66
Lease Guarantees	—		—		5		5
As of January 29, 2011
Assets:
Cash and Cash Equivalents	$	1,130	$	—	$	—	$	1,130
Interest Rate Designated Fair Value Hedges	—		3		—		3
Liabilities:
Cross-currency Cash Flow Hedges	—		57		—		57
Lease Guarantees	—		—		6		6
As of October 30, 2010
Assets:
Cash and Cash Equivalents	$	988	$	—	$	—	$	988
Interest Rate Designated Fair Value Hedges	—		15		—		15
Liabilities:
Cross-currency Cash Flow Hedges	—		45		—		45
Lease Guarantees	—		—		6		6

The Company’s Level 2 fair value measurements are measured using market approach valuation techniques. The primary inputs to these techniques include benchmark interest rates and foreign currency exchange rates, as applicable to the underlying instruments.

The Company’s Level 3 fair value measurements are measured using income approach valuation techniques. The primary inputs to these techniques include the guaranteed lease payments, discount rates as well as the Company’s assessment of the risk of default on guaranteed leases.

Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses approximate fair value because of their short maturity.

The following table provides a reconciliation of the Company’s lease guarantees measured at fair value on a recurring basis using unobservable inputs (Level 3) for third quarter and year-to-date 2011 and 2010:



	Third Quarter					Year-to-Date
	2011		2010			2011			2010
	(in millions)
Beginning Balance	$	5	$	7		$	6		$	9
Change in Estimated Fair Value Reported in Earnings	—		(1		)	(1		)	(3		)
Ending Balance	$	5	$	6		$	5		$	6

The Company’s lease guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of certain businesses. The fair value of these lease guarantees is impacted by economic conditions, probability of rent obligation payments, period of obligation as well as the

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discount rate utilized. For additional information, see Note 13, “Commitments and Contingencies.”

12. Comprehensive Income

The following table provides detail for other comprehensive income for third quarter and year-to-date 2011 and 2010:



	Third Quarter						Year-to-Date
	2011			2010			2011			2010
	(in millions)
Net Income	$	94		$	61		$	491		$	352
Other Comprehensive Income (Loss):
Foreign Currency Translation	2			—			1			—
Unrealized Gain (Loss) on Cash Flow Hedges	17			(11		)	(9		)	(11		)
Reclassification of Cash Flow Hedges to Earnings	(17		)	5			7			30
Total Comprehensive Income	$	96		$	55		$	490		$	371

The following table provides additional detail regarding the composition of accumulated other comprehensive income as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011			January 29, 2011			October 30, 2010
	(in millions)
Foreign Currency Translation	$	(7	)	$	(7	)	$	(6	)
Cash Flow Hedges	7			8			11
Total Accumulated Other Comprehensive Income	$	—		$	1		$	5

The components of other comprehensive income and accumulated other comprehensive income above are presented net of tax as applicable.

13. Commitments and Contingencies

The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Guarantees

In connection with the disposition of certain businesses, the Company has remaining guarantees of approximately $75 million related to lease payments of Express, Limited Stores, Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s), Lane Bryant and New York & Company under the current terms of noncancelable leases expiring at various dates through 2017. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the businesses. In certain instances, the Company’s guarantee may remain in effect if the term of a lease is extended.

The Company’s guarantees related to Express, Limited Stores and New York & Company require fair value accounting in accordance with generally accepted accounting principles (“U.S. GAAP”) in effect at the time of these divestitures. The guaranteed lease payments related to Express, Limited Stores and New York & Company totaled $53 million as of October 29, 2011, $65 million as of January 29, 2011 and $71 million as of October 30, 2010. The estimated fair value of these guarantee obligations was $5 million as of October 29, 2011, $6 million as of January 29, 2011 and $6 million as of October 30, 2010, and is included in Other Long-term Liabilities on the Consolidated Balance Sheets.

The Company’s guarantees related to Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s) and Lane Bryant are not subject to fair value accounting, but require that a loss be accrued when probable and reasonably estimable based on U.S. GAAP in effect at the time of these divestitures. The Company had no liability recorded with respect to any of the guarantee obligations as it concluded that payments under these guarantees were not probable as of October 29, 2011, January 29, 2011

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and October 30, 2010.

14. Retirement Benefits

The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all of its associates within the United States of America. Participation in the tax-qualified plan is available to associates who meet certain age and service requirements. Participation in the non-qualified plan is made available to associates who meet certain age, service, job level and compensation requirements.

The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $13 million and $11 million for the third quarter of 2011 and 2010, respectively. Total expense recognized related to the qualified plan was $40 million and $36 million for year-to-date 2011 and 2010, respectively.

The non-qualified plan is an unfunded plan which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount which the Company does not match. Associates’ accounts are credited with interest using a rate determined by the Company. Associate contributions and the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only. The remaining vested portion of associates’ accounts in the plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years. Total expense recognized related to the non-qualified plan was $9 million for the third quarter of 2011 and $7 million for the third quarter of 2010. Total expense recognized related to the non-qualified plan was $21 million and $19 million for year-to-date 2011 and 2010, respectively.

15. Segment Information

The Company has two reportable segments: Victoria’s Secret and Bath & Body Works.

The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products and accessories under the Victoria’s Secret, Victoria’s Secret Pink and La Senza brand names. Victoria’s Secret merchandise is sold through retail stores; its website, www.VictoriasSecret.com; and its catalogue. Through its website and catalogue, certain Victoria’s Secret’s merchandise may be purchased worldwide. La Senza sells merchandise through retail stores located throughout Canada and stores with licensing arrangements or franchise relationships in 42 other countries. La Senza products may also be purchased through its website, www.LaSenza.com.

The Bath & Body Works segment sells personal care, beauty and home fragrance products. Bath & Body Works merchandise is sold at retail stores and through its website, www.bathandbodyworks.com.

Other consists of the following:


•	International retail, franchise, license and wholesale operations (excluding La Senza), which include the Company’s Bath & Body Works and Victoria’s Secret stores in Canada;


•	Henri Bendel, a chain of specialty stores which feature accessories and other products;


•	Mast Global, a merchandise sourcing and production function serving the Company’s internal brands as well as third-party customers; and


•	Corporate functions including non-core real estate, equity investments and other governance functions such as treasury and tax.

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The following table provides the Company’s segment information for third quarter and year-to-date 2011 and 2010:



	Victoria’s Secret		Bath & Body Works		Other			Total
	(in millions)
2011
Third Quarter:
Net Sales	$	1,311	$	504	$	359		$	2,174
Operating Income (Loss)	149		41		(4		)	186
Year-to-Date:
Net Sales	$	4,326	$	1,547	$	976		$	6,849
Operating Income (Loss) (a)	628		165		(196		)	597
2010
Third Quarter:
Net Sales	$	1,189	$	467	$	327		$	1,983
Operating Income (Loss)	123		32		(6		)	149
Year-to-Date:
Net Sales	$	3,901	$	1,434	$	822		$	6,157
Operating Income (Loss)	482		134		(46		)	570


(a)	Other includes $163 million of expense associated with the charitable contribution to The Limited Brands Foundation. For additional information, see Note 7, “Equity Investments.”

The Company’s international sales, consisting of La Senza, Victoria's Secret Canada and Bath & Body Works Canada retail sales; non-U.S. franchise, license and wholesale operations; and direct sales shipped internationally, totaled $207 million and $176 million for third quarter of 2011 and 2010, respectively. The Company’s international sales totaled $643 million and $496 million for year-to-date 2011 and 2010, respectively.

16. Subsequent Events

Subsequent to October 29, 2011, the Company divested 51% of its ownership interest in its third-party sourcing business to affiliates of Sycamore Partners. In the fourth quarter of 2011, the Company received pre-tax net cash proceeds of $125 million and will recognize an estimated pre-tax gain of $115 million. Beginning in the fourth quarter of 2011, the Company will account for this investment under the equity method of accounting.

Subsequent to October 29, 2011, the Company completed the May 2011 repurchase program and the Company's Board of Directors approved a new $250 million share repurchase program in conjunction with the completion of the May 2011 repurchase program. In addition, the Company's Board of Directors declared a special dividend of $2 per share, estimated to total $600 million. For additional information, see Note 3, "Earnings Per Share and Shareholders' Equity."

17. Supplemental Guarantor Financial Information

The Company’s 2019 Notes, 2020 Notes and 2021 Notes are jointly and severally guaranteed on a full and unconditional basis by certain of the Company’s wholly owned subsidiaries. The Company is a holding company and its most significant assets are the stock of its subsidiaries. The guarantors represent (a) substantially all of the sales of the Company’s domestic subsidiaries, (b) more than 90% of the assets owned by the Company’s domestic subsidiaries, other than real property, certain other assets and intercompany investments and balances and (c) more than 95% of the accounts receivable and inventory directly owned by the Company’s domestic subsidiaries.

The following supplemental financial information sets forth for the Company and its guarantor and non-guarantor subsidiaries: the Condensed Consolidating Balance Sheets as of October 29, 2011, January 29, 2011 and October 30, 2010, the Condensed Consolidating Statements of Income for the third quarter and year-to-date periods ended October 29, 2011 and October 30, 2010 and the Condensed Consolidating Statements of Cash Flows for the year-to-date periods ended October 29, 2011 and October 30, 2010.

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LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)

(Unaudited)



	October 29, 2011
	Limited Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	89	$	409		$	—		$	498
Accounts Receivable, Net	1			238		59			—			298
Inventories	—			1,274		264			(1		)	1,537
Deferred Income Taxes	—			31		(1		)	—			30
Other	—			152		101			—			253
Total Current Assets	1			1,784		832			(1		)	2,616
Property and Equipment, Net	—			928		733			—			1,661
Goodwill	—			1,318		134			—			1,452
Trade Names and Other Intangible Assets, Net	—			411		179			—			590
Net Investments in and Advances to/from Consolidated Affiliates	3,930			16,363		3,124			(23,417		)	—
Other Assets	198			45		628			(673		)	198
Total Assets	$	4,129		$	20,849	$	5,630		$	(24,091	)	$	6,517
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	2		$	389	$	409		$	—		$	800
Accrued Expenses and Other	67			386		247			—			700
Income Taxes	—			—		4			—			4
Total Current Liabilities	69			775		660			—			1,504
Deferred Income Taxes	(5		)	39		186			—			220
Long-term Debt	3,536			659		(6		)	(653		)	3,536
Other Long-term Liabilities	8			554		187			(13		)	736
Total Equity	521			18,822		4,603			(23,425		)	521
Total Liabilities and Equity	$	4,129		$	20,849	$	5,630		$	(24,091	)	$	6,517

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LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)



	January 29, 2011
	Limited Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries		Eliminations			Consolidated Limited Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	701	$	429	$	—		$	1,130
Accounts Receivable, Net	1			189		42		—			232
Inventories	—			830		202		—			1,032
Deferred Income Taxes	—			30		5		—			35
Other	—			117		47		(1		)	163
Total Current Assets	1			1,867		725		(1		)	2,592
Property and Equipment, Net	—			936		674		—			1,610
Goodwill	—			1,318		133		—			1,451
Trade Names and Other Intangible Assets, Net	—			411		181		—			592
Net Investments in and Advances to/from Consolidated Affiliates	11,835			28,045		14,486		(54,366		)	—
Other Assets	176			55		645		(670		)	206
Total Assets	$	12,012		$	32,632	$	16,844	$	(55,037	)	$	6,451
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	—		$	312	$	233	$	—		$	545
Accrued Expenses and Other	29			420		316		—			765
Income Taxes	(3		)	167		30		—			194
Total Current Liabilities	26			899		579		—			1,504
Deferred Income Taxes	(6		)	28		180		—			202
Long-term Debt	2,507			608		47		(655		)	2,507
Other Long-term Liabilities	12			576		188		(15		)	761
Total Equity	9,473			30,521		15,850		(54,367		)	1,477
Total Liabilities and Equity	$	12,012		$	32,632	$	16,844	$	(55,037	)	$	6,451

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LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)

(Unaudited)



	October 30, 2010
	Limited Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	567	$	421		$	—		$	988
Accounts Receivable, Net	3			203		41			—			247
Inventories	—			1,243		213			—			1,456
Deferred Income Taxes	—			36		(1		)	—			35
Other	8			134		113			—			255
Total Current Assets	11			2,183		787			—			2,981
Property and Equipment, Net	—			984		649			—			1,633
Goodwill	—			1,318		130			—			1,448
Trade Names and Other Intangible Assets, Net	—			418		179			—			597
Net Investments in and Advances to/from Consolidated Affiliates	11,929			12,975		6,199			(31,103		)	—
Other Assets	71			88		778			(705		)	232
Total Assets	$	12,011		$	17,966	$	8,722		$	(31,808	)	$	6,891
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	—		$	441	$	246		$	—		$	687
Accrued Expenses and Other	65			357		255			—			677
Income Taxes	—			—		8			—			8
Total Current Liabilities	65			798		509			—			1,372
Deferred Income Taxes	(8		)	36		191			—			219
Long-term Debt	2,519			609		82			(691		)	2,519
Other Long-term Liabilities	13			562		176			(14		)	737
Total Equity	9,422			15,961		7,764			(31,103		)	2,044
Total Liabilities and Equity	$	12,011		$	17,966	$	8,722		$	(31,808	)	$	6,891

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LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions)

(Unaudited)



	Third Quarter 2011
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	—		$	2,022		$	876		$	(724	)	$	2,174
Costs of Goods Sold, Buying and Occupancy	—			(1,328		)	(758		)	697			(1,389		)
Gross Profit	—			694			118			(27		)	785
General, Administrative and Store Operating Expenses	(1		)	(545		)	(79		)	26			(599		)
Operating Income (Loss)	(1		)	149			39			(1		)	186
Interest Expense	(64		)	(6		)	(3		)	9			(64		)
Other Income (Expense)	—			5			(1		)	(4		)	—
Income (Loss) Before Income Taxes	(65		)	148			35			4			122
Provision (Benefit) for Income Taxes	—			37			(9		)	—			28
Equity in Earnings, Net of Tax	159			(62		)	4			(101		)	—
Net Income (Loss)	$	94		$	49		$	48		$	(97	)	$	94

	Third Quarter 2010
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	—		$	1,858		$	630		$	(505	)	$	1,983
Costs of Goods Sold, Buying and Occupancy	—			(1,216		)	(525		)	472			(1,269		)
Gross Profit	—			642			105			(33		)	714
General, Administrative and Store Operating Expenses	(1		)	(528		)	(71		)	35			(565		)
Operating Income (Loss)	(1		)	114			34			2			149
Interest Expense	(48		)	—			(3		)	3			(48		)
Other Income (Expense)	(1		)	4			(1		)	(2		)	—
Income (Loss) Before Income Taxes	(50		)	118			30			3			101
Provision (Benefit) for Income Taxes	—			48			(8		)	—			40
Equity in Earnings, Net of Tax	111			172			(1		)	(282		)	—
Net Income (Loss)	$	61		$	242		$	37		$	(279	)	$	61

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LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions)

(Unaudited)



	Year-To-Date 2011
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	—		$	6,337		$	2,443		$	(1,931	)	$	6,849
Costs of Goods Sold, Buying and Occupancy	—			(4,058		)	(2,108		)	1,847			(4,319		)
Gross Profit	—			2,279			335			(84		)	2,530
General, Administrative and Store Operating Expenses	(5		)	(1,610		)	(405		)	87			(1,933		)
Operating Income (Loss)	(5		)	669			(70		)	3			597
Interest Expense	(183		)	(15		)	(9		)	24			(183		)
Other Income (Expense)	—			12			231			(10		)	233
Income (Loss) Before Income Taxes	(188		)	666			152			17			647
Provision (Benefit) for Income Taxes	—			119			37			—			156
Equity in Earnings, Net of Tax	679			346			153			(1,178		)	—
Net Income (Loss)	$	491		$	893		$	268		$	(1,161	)	$	491

	Year-To-Date 2010
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	—		$	5,803		$	1,757		$	(1,403	)	$	6,157
Costs of Goods Sold, Buying and Occupancy	—			(3,813		)	(1,471		)	1,313			(3,971		)
Gross Profit	—			1,990			286			(90		)	2,186
General, Administrative and Store Operating Expenses	(3		)	(1,521		)	(194		)	102			(1,616		)
Operating Income (Loss)	(3		)	469			92			12			570
Interest Expense	(159		)	—			(9		)	8			(160		)
Other Income (Expense)	(26		)	10			144			(6		)	122
Income (Loss) Before Income Taxes	(188		)	479			227			14			532
Provision (Benefit) for Income Taxes	(9		)	145			44			—			180
Equity in Earnings, Net of Tax	531			433			(32		)	(932		)	—
Net Income (Loss)	$	352		$	767		$	151		$	(918	)	$	352

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LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Year-To-Date 2011
	Limited Brands, Inc.			Guarantor Subsidiaries			Non-guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(159	)	$	35		$	218		$	—		$	94
Investing Activities:
Capital Expenditures	—			(174		)	(164		)	—			(338		)
Proceeds from Sale of Express Common Stock	—			—			99			—			99
Net Investments in Consolidated Affiliates	—			—			(62		)	62			—
Net Cash Provided by (Used for) Investing Activities	—			(174		)	(127		)	62			(239		)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs	981			—			—			—			981
Financing Costs	(7		)	—			—			—			(7		)
Repurchase of Common Stock	(1,073		)	—			—			—			(1,073		)
Dividends Paid	(491		)	—			—			—			(491		)
Excess Tax Benefits from Share-based Compensation	—			32			8			—			40
Net Financing Activities and Advances to/from Consolidated Affiliates	688			(505		)	(121		)	(62		)	—
Proceeds from Exercise of Stock Options and Other	61			—			—			—			61
Net Cash Provided by (Used for) Financing Activities	159			(473		)	(113		)	(62		)	(489		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			2			—			2
Net Decrease in Cash and Cash Equivalents	—			(612		)	(20		)	—			(632		)
Cash and Cash Equivalents, Beginning of Period	—			701			429			—			1,130
Cash and Cash Equivalents, End of Period	$	—		$	89		$	409		$	—		$	498

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LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Year-To-Date 2010
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated Limited Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(151	)	$	102		$	130		$	—	$	81
Investing Activities:
Capital Expenditures	—			(116		)	(81		)	—		(197		)
Return of Capital from Express	—			—			49			—		49
Return of Capital from Limited Stores	—			—			7			—		7
Proceeds from Divestiture of Limited Stores	—			—			32			—		32
Proceeds from Express Initial Public Offering	—			—			20			—		20
Other Investing Activities	—			—			4			—		4
Net Cash Provided by (Used for) Investing Activities	—			(116		)	31			—		(85		)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs	390			—			—			—		390
Payment of Long-term Debt	(645		)	—			—			—		(645		)
Financing Costs	(14		)	—			—			—		(14		)
Repurchase of Common Stock	(147		)	—			—			—		(147		)
Dividends Paid	(471		)	—			—			—		(471		)
Excess Tax Benefits from Share-based Compensation	—			10			2			—		12
Net Financing Activities and Advances to/from Consolidated Affiliates	978			(870		)	(108		)	—		—
Proceeds from Exercise of Stock Options and Other	60			—			—			—		60
Net Cash Provided by (Used for) Financing Activities	151			(860		)	(106		)	—		(815		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			3			—		3
Net Increase (Decrease) in Cash and Cash Equivalents	—			(874		)	58			—		(816		)
Cash and Cash Equivalents, Beginning of Period	—			1,441			363			—		1,804
Cash and Cash Equivalents, End of Period	$	—		$	567		$	421		$	—	$	988

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Limited Brands, Inc.:

We have reviewed the consolidated balance sheets of Limited Brands, Inc. and subsidiaries (the “Company”) as of October 29, 2011 and October 30, 2010, and the related consolidated statements of income for the thirteen and thirty-nine week periods ended October 29, 2011 and October 30, 2010, and the consolidated statements of cash flows for the thirty-nine week periods ended October 29, 2011 and October 30, 2010. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, 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 reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Limited Brands, Inc. and subsidiaries as of January 29, 2011, and the related consolidated statements of income, total equity, and cash flows for the year then ended (not presented herein), and in our report dated March 18, 2011, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 29, 2011, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Columbus, Ohio

December 2, 2011

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SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

Limited Brands, Inc. cautions 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 our company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential” and similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our company or our management:


•	general economic conditions, consumer confidence, consumer spending patterns and market disruptions including severe weather conditions, natural disasters, health hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;


•	the seasonality of our business;


•	the dependence on a high volume of mall traffic and the possible lack of availability of suitable store locations on appropriate terms;


•	our ability to grow through new store openings and existing store remodels and expansions;


•	our ability to successfully expand into international markets and related risks;


•	our independent licensees and franchisees;


•	our direct channel business;


•	our failure to protect our reputation and our brand images;


•	our failure to protect our trade names, trademarks and patents;


•	the highly competitive nature of the retail industry generally and the segments in which we operate particularly;


•	consumer acceptance of our products and our ability to keep up with fashion trends, develop new merchandise and launch new product lines successfully;


•	our reliance on foreign sources of production, including risks related to:


•	political instability;


•	duties, taxes, other charges on imports;


•	legal and regulatory matters;


•	volatility in currency exchange rates;


•	local business practices and political issues;


•	potential delays or disruptions in shipping and related pricing impacts;


•	the disruption of imports by labor disputes; and


•	changing expectations regarding product safety due to new legislation;


•	stock price volatility;


•	our failure to maintain our credit rating;


•	our ability to service our debt;


•	our ability to retain key personnel;


•	our ability to attract, develop and retain qualified employees and manage labor costs;


•	the inability of our manufacturers to deliver products in a timely manner and meet quality standards;


•	fluctuations in product input costs;


•	fluctuations in energy costs;


•	increases in the costs of mailing, paper and printing;


•	claims arising from our self-insurance;


•	our ability to implement and maintain information technology systems;


•	our failure to comply with regulatory requirements;


•	tax matters; and


•	legal and compliance matters.

We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in our 2010 Annual Report on Form 10-K.

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Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The following information should be read in conjunction with our financial statements and the related notes included in Item 1. Financial Statements.

Executive Overview

We had strong performance in the third quarter of 2011. Our net sales increased $191 million to $2.174 billion driven by a comparable store sales increase of 9%. Our operating income increased $37 million to $186 million and our operating income rate improved to 8.6% from 7.5%. Our third quarter earnings included $17 million of income tax benefit primarily related to the resolution of certain tax matters. For additional information related to our third quarter 2011 financial performance, see “Results of Operations.”

Subsequent to October 29, 2011, we divested 51% of our ownership interest in our third-party apparel sourcing business to affiliates of Sycamore Partners. In the fourth quarter of 2011, we received pre-tax net cash proceeds of $125 million and will recognize an estimated pre-tax gain of $115 million.

The global retail sector and our business continue to face an uncertain environment and, as a result, we continue to take a conservative stance in terms of the financial management of our business. We will continue to manage our business carefully and focus on the execution of the retail fundamentals, including bringing compelling merchandise assortments, marketing and store experiences to our customers.

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Store Data

The following table compares third quarter of 2011 store data to third quarter of 2010 and year-to-date 2011 store data to year-to-date 2010:



	Third Quarter							Year-to-Date
Sales Per Average Selling Square Foot	2011		2010		% Change			2011		2010		% Change
Victoria's Secret Stores U.S.	$	156	$	138	13		%	$	495	$	432	15		%
Bath & Body Works U.S.		124		115	8		%		380		353	8		%
La Senza Canada (a)		90		89	1		%		277		277	—		%

Sales Per Average Store (in thousands)
Victoria's Secret Stores U.S.	$	925	$	810	14		%	$	2,926	$	2,526	16		%
Bath & Body Works U.S.		294		273	8		%		900		836	8		%
La Senza Canada (a)		298		299	—		%		923		930	(1	)	%

Average Store Size (selling square feet)
Victoria's Secret Stores U.S.		5,934		5,865	1		%
Bath & Body Works U.S.		2,372		2,368	—		%
La Senza Canada		3,319		3,356	(1	)	%

Total Selling Square Feet (in thousands)
Victoria's Secret Stores U.S.		6,035		6,094	(1	)	%
Bath & Body Works U.S.		3,784		3,825	(1	)	%
La Senza Canada		826		856	(3	)	%


(a)	Metric is presented in Canadian dollars to eliminate the impact of foreign currency fluctuations.

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The following table compares third quarter of 2011 store data to the third quarter of 2010 and year-to-date 2011 store data to year-to-date 2010:



	Third Quarter						Year-to-Date
	2011			2010			2011			2010
Number of Stores (a)
Victoria's Secret
Beginning of Period		1,018			1,039			1,028			1,040
Opened		1			1			2			5
Closed		(2	)		(1	)		(13	)		(6	)
End of Period		1,017			1,039			1,017			1,039
Bath & Body Works
Beginning of Period		1,596			1,619			1,606			1,627
Opened		2			—			3			2
Closed		(3	)		(4	)		(14	)		(14	)
End of Period		1,595			1,615			1,595			1,615
La Senza Canada
Beginning of Period		249			255			252			258
Opened		—			—			—			—
Closed		—			—			(3	)		(3	)
End of Period		249			255			249			255
Bath & Body Works Canada
Beginning of Period		62			39			59			31
Opened		3			17			6			25
Closed		—			—			—			—
End of Period		65			56			65			56
Victoria's Secret Canada
Beginning of Period		14			6			12			4
Opened		4			6			6			8
Closed		(1	)		—			(1	)		—
End of Period		17			12			17			12
Henri Bendel
Beginning of Period		12			11			11			11
Opened		4			—			5			—
Closed		—			—			—			—
End of Period		16			11			16			11
Total
Beginning of Period		2,951			2,969			2,968			2,971
Opened		14			24			22			40
Closed		(6	)		(5	)		(31	)		(23	)
End of Period		2,959			2,988			2,959			2,988


(a)	Number of stores excludes independently owned La Senza, Bath & Body Works and Victoria's Secret stores operated by licensees and franchisees.

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Results of Operations

Third Quarter of 2011 Compared to Third Quarter of 2010

Operating Income

The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for the third quarter of 2011 in comparison to the third quarter of 2010:



							Operating Income Rate
	2011			2010			2011		2010
Third Quarter	(in millions)
Victoria’s Secret	$	149		$	123		11.3	%	10.4	%
Bath & Body Works	41			32			8.1	%	6.8	%
Other (a)	(4		)	(6		)	(0.9	)%	(1.8	)%
Total Operating Income	$	186		$	149		8.6	%	7.5	%


(a)	Includes Corporate, Mast Global, Henri Bendel and our international operations excluding La Senza.

For the third quarter of 2011, operating income increased $37 million to $186 million and the operating income rate increased to 8.6% from 7.5%. The drivers of the operating income results are discussed in the following sections.

Net Sales

The following table provides net sales for the third quarter of 2011 in comparison to the third quarter of 2010:



	2011		2010		% Change
Third Quarter	(in millions)
Victoria’s Secret Stores	$	941	$	841	12	%
La Senza	93		90		3	%
Victoria’s Secret Direct	277		258		8	%
Total Victoria’s Secret	1,311		1,189		10	%
Bath & Body Works	504		467		8	%
Other (a)	359		327		10	%
Total Net Sales	$	2,174	$	1,983	10	%


(a)	Includes Mast Global, Henri Bendel and our international operations excluding La Senza.

The following table provides a reconciliation of net sales for the third quarter of 2011 to the third quarter of 2010:



	Victoria’s Secret		Bath & Body Works			Other			Total
Third Quarter	(in millions)
2010 Net Sales	$	1,189	$	467		$	327		$	1,983
Comparable Store Sales	96		36			(8		)	124
Sales Associated with New, Closed, and Non-comparable Remodeled Stores, Net	4		(8		)	20			16
Foreign Currency Translation	3		—			2			5
Direct Channels	19		9			—			28
Mast Global Third-party Sales and Other	—		—			18			18
2011 Net Sales	$	1,311	$	504		$	359		$	2,174

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The following table compares the third quarter of 2011 comparable store sales to the third quarter of 2010:



Third Quarter	2011		2010
Victoria’s Secret Stores	13	%	14	%
La Senza	(4	)%	1	%
Total Victoria’s Secret	11	%	13	%
Bath & Body Works	9	%	6	%
Total Comparable Store Sales (a)	9	%	10	%


(a)	Includes Bath & Body Works Canada, Victoria’s Secret Canada and Henri Bendel.

For the third quarter of 2011, our net sales increased $191 million to $2.174 billion and comparable store sales increased 9%. The increase in our net sales was primarily driven by the following:

Victoria's Secret

For the third quarter of 2011, net sales increased $122 million to $1.311 billion and comparable store sales increased 11%. The increase in net sales was primarily driven by the following:


•	At Victoria's Secret Stores, net sales increased across most categories including Pink, core lingerie and beauty, driven by a compelling merchandise assortment that incorporated newness, innovation and fashion as well as in-store execution;


•	At Victoria's Secret Direct, net sales increased 8% related to increases in Pink and apparel; and


•	At La Senza, net sales increased primarily due to favorable currency translation, partially offset by a decline in the Canadian retail business.

The increase in comparable store sales was primarily driven by an increase in total transactions and higher average dollar sales at Victoria's Secret Stores.

Bath & Body Works

For the third quarter of 2011, net sales increased $37 million to $504 million and comparable store sales increased 9%. From a merchandise category perspective, net sales were driven by growth in home fragrance, the Signature Collection and antibacterial categories which all incorporated newness and innovation. The increase in comparable store sales was driven by an increase in total transactions with flat average dollar sales.

Other

For the third quarter of 2011, net sales increased $32 million to $359 million primarily related to new Victoria's Secret and Bath & Body Works stores in Canada, revenue from our international wholesale and franchise business and an increase in third-party sales at Mast Global.

Gross Profit

For the third quarter of 2011, our gross profit increased $71 million to $785 million and our gross profit rate (expressed as a percentage of net sales) slightly increased to 36.1% from 36.0%, primarily driven by the following:

Victoria's Secret

For the third quarter of 2011, the gross profit increase was primarily driven by the following:


•	At Victoria's Secret Stores, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales. The increase in merchandise margin dollars was partially offset by higher buying and occupancy expenses due to an increase in occupancy expense driven by higher net sales and store related activity; and


•	At Victoria's Secret Direct, gross profit increased primarily due to higher merchandise margin dollars as a result of the increase in net sales.

The gross profit rate was flat driven primarily by a decrease in the merchandise margin rate related to increased product costs and positive response to our customer marketing programs offset by a decrease in buying and occupancy expense rate due to leverage associated with higher sales.

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Bath & Body Works

For the third quarter of 2011, the gross profit increase was driven by higher merchandise margin dollars related to the increase in net sales. The increase in merchandise margin dollars was partially offset by an increase in buying and occupancy expenses driven by higher occupancy costs related to the increase in net sales and store related activity.

The gross profit rate was flat driven primarily by a decrease in the merchandise margin rate related to increased product costs offset by a decrease in buying and occupancy expense rate due to leverage associated with higher sales.

Other

For the third quarter of 2011, the gross profit increase was primarily driven by an increase in Mast Global third-party sales, net sales increases in our Canadian Victoria's Secret and Bath & Body Works stores as well as revenue increases from our international wholesale and franchise business. The gross profit rate increased due to an increase in higher margin sales related to our international businesses partially offset by an increase in lower margin Mast Global third-party sales.

General, Administrative and Store Operating Expenses

For the third quarter of 2011, our general, administrative and store operating expenses increased $34 million to $599 million primarily driven by an increase in store selling expenses related to higher sales and other investments to improve the customer experience including investments in training and technology.

The general, administrative and store operating expense rate decreased to 27.6% from 28.5% due to leverage associated with higher sales.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for the third quarter of 2011 and 2010:



Third Quarter	2011			2010
Average daily borrowings (in millions)	$	3,560		$	2,562
Average borrowing rate (in percentages)	6.71		%	7.05		%

For the third quarter of 2011, our interest expense increased $16 million to $64 million primarily driven by an increase in average borrowings related to the March 2011 $1 billion note issuance, partially offset by a decrease in the average borrowing rate.

Provision for Income Taxes

For the third quarter of 2011, our effective tax rate was 22.6% as compared to 39.6% in the third quarter of 2010. The 2011 rate was lower than our combined estimated federal and state rate of 38.5% primarily due to income tax benefits associated with the resolution of certain tax matters.

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Results of Operations

Year-to-Date 2011 Compared to Year-to-Date 2010

Operating Income

The following table provides our segment operating income (loss) and operating income rates (expressed as a percentage of net sales) for year-to-date 2011 in comparison to year-to-date 2010:



							Operating Income Rate
	2011			2010			2011		2010
Year-to-Date	(in millions)
Victoria’s Secret	$	628		$	482		14.5	%	12.4	%
Bath & Body Works	165			134			10.7	%	9.3	%
Other (a) (b)	(196		)	(46		)	(20.1	)%	(5.5	)%
Total Operating Income	$	597		$	570		8.7	%	9.3	%


(a)	Includes Corporate, Mast, Henri Bendel and our international operations excluding La Senza.


(b)	2011 includes $163 million of expense associated with the charitable contribution of all of our remaining shares of Express to The Limited Brands Foundation. For additional information, see Note 7, “Equity Investments.”

For year-to-date 2011, operating income increased $27 million to $597 million and the operating income rate decreased to 8.7% from 9.3%. The drivers of the operating income results are discussed in the following sections.

Net Sales

The following table provides net sales for year-to-date 2011 in comparison to year-to-date 2010:



	2011		2010		% Change
Year-to-Date	(in millions)
Victoria’s Secret Stores	$	2,992	$	2,625	14	%
La Senza	295		277		6	%
Victoria’s Secret Direct	1,039		999		4	%
Total Victoria’s Secret	4,326		3,901		11	%
Bath & Body Works	1,547		1,434		8	%
Other (a)	976		822		19	%
Total Net Sales	$	6,849	$	6,157	11	%


(a)	Includes Mast, Henri Bendel and our international operations excluding La Senza.

The following table provides a reconciliation of net sales for year-to-date 2011 to year-to-date 2010:



	Victoria’s Secret		Bath & Body Works			Other			Total
Year-to-Date	(in millions)
2010 Net Sales	$	3,901	$	1,434		$	822		$	6,157
Comparable Store Sales	353		99			(7		)	445
Sales Associated With New, Closed and Non-comparable Remodeled Stores, Net	16		(14		)	78			80
Foreign Currency Translation	16		—			8			24
Direct Channels	40		28			—			68
Mast Third-party Sales and Other	—		—			75			75
2011 Net Sales	$	4,326	$	1,547		$	976		$	6,849

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The following table compares year-to-date 2011 comparable store sales to year-to-date 2010:



Year-to-Date	2011		2010
Victoria’s Secret Stores	15	%	13	%
La Senza	(2	)%	1	%
Total Victoria’s Secret	13	%	12	%
Bath & Body Works	8	%	4	%
Total Comparable Store Sales (a)	11	%	9	%


(a)	Includes Bath & Body Works Canada, Victoria’s Secret Canada and Henri Bendel.

For year-to-date 2011, our net sales increased $692 million to $6.849 billion and comparable store sales increased 11%. The increase in our net sales was primarily driven by the following:

Victoria's Secret

For year-to-date 2011, net sales increased $425 million to $4.326 billion and comparable store sales increased 13%. The increase in net sales was primarily driven by:


•	At Victoria's Secret Stores, net sales increased across most categories including Pink, core lingerie and beauty driven by a compelling merchandise assortment that incorporated newness, innovation and fashion as well as in-store execution;


•	At Victoria's Secret Direct, net sales increased 4% with increases across most categories including Pink, swimwear, core lingerie and apparel driven by a compelling merchandise assortment; and


•	At La Senza, net sales increased primarily due to favorable currency fluctuations and an increase in the international franchise business, partially offset by a decline in the Canadian retail business.

The increase in comparable store sales was driven by a significant increase in total transactions and higher average dollar sales.

Bath & Body Works

For year-to-date 2011, net sales increased $113 million to $1.547 billion and comparable store sales increased 8%. From a merchandise category perspective, net sales were driven by growth in the Signature Collection, home fragrance and antibacterial categories. The increase in comparable store sales was primarily driven by an increase in total transactions and a slight increase in average dollar sales.

Other

For year-to-date 2011, net sales increased $154 million to $976 million primarily related to new Victoria's Secret and Bath & Body Works stores in Canada, an increase in third-party sales at Mast Global and revenue from our international wholesale and franchise business.

Gross Profit

For year-to-date 2011, our gross profit increased $344 million to $2.530 billion and our gross profit rate (expressed as a percentage of net sales) increased to 36.9% from 35.5% primarily driven by the following:

Victoria's Secret

For year-to-date 2011, the gross profit increase was primarily driven by:


•	At Victoria's Secret Stores, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales. The increase in merchandise margin was partially offset by an increase in buying and occupancy expenses primarily driven by higher net sales and store related activity; and


•	At Victoria's Secret Direct, gross profit increased due to higher merchandise margin dollars as a result of the increase in net sales and decreased promotional activity, partially offset by an increase in product costs. In addition, buying and occupancy expenses decreased primarily due to lower fulfillment costs.

The gross profit rate increase was driven primarily by leverage on buying and occupancy expenses from the increase in net sales and an increase in the merchandise margin rate at Victoria's Secret Direct from decreased promotional activity

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partially offset by increased product costs.

Bath & Body Works

For year-to-date 2011, the gross profit increase was driven by higher merchandise margin dollars related to the increase in net sales. The increase in merchandise margin dollars was partially offset by an increase in buying and occupancy expenses driven by higher occupancy costs related to the increase in net sales and store related activity. The gross profit rate increase was driven by an increase in the merchandise margin rate and leverage on buying and occupancy expense.

Other

For year-to-date 2011, the gross profit increase was primarily driven by net sales increases in our Canadian Victoria's Secret and Bath & Body Works stores, increases in Mast Global third-party sales as well as revenue increases from our international wholesale and franchise business. The gross profit rate increased due to an increase in higher margin sales related to our international businesses partially offset by an increase in lower margin Mast Global third-party sales.

General, Administrative and Store Operating Expenses

For year-to-date 2011, our general, administrative and store operating expenses increased $317 million to $1.933 billion primarily driven by $163 million of expense associated with the $50 million charitable pledge to The Limited Brands Foundation in the first quarter and the charitable contribution of all of our remaining shares of Express to The Limited Brands Foundation in the second quarter. Additionally, store selling and marketing expenses increased related to the increase in net sales.

The general, administrative and store operating expense rate increased to 28.2% from 26.2% due to deleverage associated with the charitable pledge and contribution to The Limited Brands Foundation.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for year-to-date 2011 and 2010:



Year-to-Date	2011			2010
Average daily borrowings (in millions)	$	3,351		$	2,615
Average borrowing rate (in percentages)	6.61		%	6.95		%

For year-to-date 2011, our interest expense increased $23 million to $183 million primarily driven by an increase in average borrowings related to the March 2011 $1 billion note issuance, partially offset by a decrease in the average borrowing rate. In addition, our 2010 interest expense included $10 million of expense associated with terminating our remaining participating interest rate swap arrangements, the write-off of deferred financing costs and debt issuance costs.

Other Income

For year-to-date 2011, our other income (loss) increased from $122 million to $233 million. Our 2011 other income includes an $86 million pre-tax gain related to the sale of a portion of our shares of Express completed in April 2011 and a $147 million gain related to the charitable contribution of our remaining shares of Express to The Limited Brands Foundation completed in July 2011. Our 2010 other income includes a $52 million pre-tax gain related to the Express IPO, a $49 million pre-tax gain related to a $57 million cash distribution from Express, a $20 million pre-tax gain related to the divestiture of the remaining 25% ownership in Limited Stores, a $25 million pre-tax loss on extinguishment of a portion of our 2012 and 2014 Notes and income from our equity method investments in Express and Limited Stores.

Provision for Income Taxes

For year-to-date 2011, our effective tax rate was 24.1% as compared to 33.8% in 2010. The 2011 rate was lower than our combined estimated federal and state statutory rate of 38.5% primarily due to tax benefits associated with the charitable contribution of Express shares to The Limited Brands Foundation as well as the resolution of certain tax matters. The 2010 rate was lower than our combined federal and state rate primarily due to the divestiture of our remaining 25% ownership in Limited Stores, which resulted in the recognition of the capital loss associated with the 2007 divestiture of 75% of our

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ownership in Limited Stores.

FINANCIAL CONDITION

Liquidity and Capital Resources

Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, timing of new product introductions and profit margins. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period.

Our total cash and cash equivalents held outside of the United States in various foreign jurisdictions were $324 million as of October 29, 2011. Under current tax laws and regulations, if cash and cash equivalents held outside the U.S. are repatriated to the U.S., we may be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes.

The following table provides our long-term debt balance as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	1,000	$	—	$	—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019, Less Unamortized Discount (“2019 Notes”)	487		486		485
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	400		400		400
Total Senior Unsecured Debt with Subsidiary Guarantee	$	1,887	$	886	$	885
Senior Unsecured Debt
$700 million, 6.90% Fixed Interest Rate Notes due July 2017, Less Unamortized Discount (“2017 Notes”)(a)	$	721	$	699	$	707
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033, Less Unamortized Discount (“2033 Notes”)	350		350		350
$300 million, 7.60% Fixed Interest Rate Notes due July 2037, Less Unamortized Discount (“2037 Notes”)	299		299		299
5.25% Fixed Interest Rate Notes due November 2014, Less Unamortized Discount (“2014 Notes”)(b)	221		215		220
6.125% Fixed Interest Rate Notes due December 2012, Less Unamortized Discount (“2012 Notes”)(c)	58		58		58
Total Senior Unsecured Debt	$	1,649	$	1,621	$	1,634
Total Long-term Debt	$	3,536	$	2,507	$	2,519


(a)	The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $22 million as of October 29, 2011, $0 million as of January 29, 2011 and $7 million as of October 30, 2010.


(b)	The principal balance outstanding was $213 million as of October 29, 2011, January 29, 2011 and October 30, 2010. The balances include a fair value interest rate hedge adjustment which increased the debt balance by $8 million as of October 29, 2011, $2 million as of January 29, 2011 and $7 million as of October 30, 2010.


(c)	The principal balance outstanding was $57 million as of October 29, 2011, January 29, 2011 and October 30, 2010. The balances included a fair value interest rate hedge adjustment which increased the debt balance by $1 million as of October 29, 2011, January 29, 2011 and October 30, 2010.

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Issuance of Notes

2011

In March 2011, we issued $1 billion of 6.625% notes due in April 2021 utilizing an existing shelf registration under which debt securities, common and preferred stock and other securities can be issued. The 2021 Notes are jointly and severally guaranteed on a full and unconditional basis by the guarantors. The net proceeds from the issuance were $981 million, which included transaction costs of $19 million.

2010

In May 2010, we issued $400 million of 7.00% notes due in May 2020 utilizing an existing shelf registration under which debt securities, common and preferred stock and other securities can be issued. The 2020 Notes are jointly and severally guaranteed on a full and unconditional basis by the guarantors. The net proceeds from the issuance were $390 million, which included transaction costs of $10 million.

Repurchase of Notes

In May 2010, we used a portion of the proceeds from the 2020 Notes to repurchase $134 million of our 2012 Notes for $144 million. We used the remaining portion of the proceeds from the 2020 Notes to repurchase $266 million of the 2014 Notes for $277 million.

In August 2010, we repurchased $20 million and $1 million of 2014 Notes and 2012 Notes, respectively, through open-market transactions.

Revolving Facility

On July 15, 2011, we entered into an amendment and restatement (“Amendment”) of our secured revolving credit facility (“Revolving Facility”). The Amendment increased the aggregate amount of the commitments of the lenders under the Revolving Facility from $800 million to $1 billion and extended the termination date from August 1, 2014 to July 15, 2016. In addition, the Amendment reduced fees payable under the Revolving Facility which are based on our long-term credit ratings. The fees related to committed and unutilized amounts per year were reduced from 0.50% to 0.325% per annum and the fees related to outstanding letters of credit were reduced from 3.00% to 1.75% per annum. In addition, the interest rate on outstanding borrowings was reduced from the London Interbank Offered Rate (“LIBOR”) plus 3.00% to LIBOR plus 1.75%.

We incurred fees related to the Amendment of the Revolving Facility of $7 million, which were capitalized and are being amortized over the remaining term of the Revolving Facility.

The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of October 29, 2011, we were in compliance with both of our financial covenants and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

As of October 29, 2011, there were no borrowings outstanding under the Revolving Facility.

Letters of Credit

The Revolving Facility supports our letter of credit program. We had $32 million of outstanding letters of credit as of October 29, 2011 that reduces our remaining availability under our credit agreements.

Term Loan and Participating Interest Rate Swap Arrangements

In March 2010, we prepaid $200 million of a term loan. In conjunction with the term loan prepayment, we terminated participating interest rate swap arrangements totaling $200 million. For additional information, see Note 10, “Derivative Instruments.”

Fair Value Interest Rate Swap Arrangements

In June 2010, we entered into multiple interest rate swap arrangements related to all of the outstanding 2012 Notes, all of the outstanding 2014 Notes and $175 million of the outstanding 2017 Notes. The interest rate swap arrangements effectively

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convert the fixed interest rate on the related debt to a variable interest rate based on a LIBOR plus a fixed interest rate.

In August 2010, we terminated interest rate designated fair value hedges with a notional amount of $21 million in conjunction with the repurchase of $20 million and $1 million of 2014 Notes and 2012 Notes, respectively.

In January 2011, we entered into multiple fair value interest rate swap arrangements to effectively convert an additional $150 million of the outstanding 2017 Notes from a fixed interest rate to a variable interest rate.

In July 2011, we terminated interest rate designated fair value hedges related to the 2012 Notes with a notional amount of $57 million. In settlement of these hedges, we received $1 million.

In August 2011, we terminated interest rate designated fair value hedges related to the 2014 Notes with a notional amount of $213 million. In settlement of these hedges, we received $9 million.

In September 2011, we terminated interest rate designated fair value hedges related to the 2017 Notes with a notional amount of $150 million. In settlement of these hedges, we received $12 million.

As of October 29, 2011, our remaining interest rate designated fair value hedges have a notional amount of $175 million related to a portion of our 2017 Notes.

Working Capital and Capitalization

We believe that our available short-term and long-term capital resources are sufficient to fund foreseeable requirements.

The following table provides a summary of our working capital position and capitalization as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011		January 29, 2011		October 30, 2010
	(in millions)
Cash Provided by Operating Activities (a)	$	94	$	1,284	$	81
Capital Expenditures (a)	338		274		197
Working Capital	1,112		1,088		1,609
Capitalization:
Long-term Debt	3,536		2,507		2,519
Shareholders’ Equity	520		1,476		2,043
Total Capitalization	4,056		3,983		4,562
Remaining Amounts Available Under Credit Agreements (b)	968		755		733


(a)	The January 29, 2011 amounts represent a twelve-month period and the October 29, 2011 and October 30, 2010 amounts represent nine-month periods.


(b)	Letters of credit issued reduce our remaining availability under the Revolving Facility. We have outstanding letters of credit that reduce our remaining availability under the Revolving Facility of $32 million as of October 29, 2011, $45 million as of January 29, 2011 and $67 million as of October 30, 2010.

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Credit Ratings

The following table provides our credit ratings as of October 29, 2011:




	Moody’s	S&P	Fitch
Corporate	Ba1	BB+	BB+
Senior Unsecured Debt with Subsidiary Guarantee	Ba1	BB+	BB+
Senior Unsecured Debt	Ba2	BB+	BB
Outlook	Stable	Stable	Stable

Our borrowing costs under our Revolving Facility are linked to our credit ratings at S&P, Moody’s and Fitch. If we receive an upgrade or downgrade to our corporate credit ratings by S&P, Moody’s or Fitch, the borrowing costs could decrease or increase, respectively. The guarantees of our obligations under the Revolving Facility by certain of our subsidiaries (such subsidiaries, the “Guarantors”) and the security interests granted in our and the Guarantors’ collateral securing such obligations are released if our credit ratings are higher than a certain level. Additionally, the restrictions imposed under the Revolving Facility on our ability to make investments and to make restricted payments cease to apply if our credit ratings are higher than certain levels. Credit rating downgrades by any of the agencies do not accelerate the repayment of any of our debt.

Common Stock Share Repurchases

Under the authority of our Board of Directors, we repurchased shares of our common stock under the following repurchase programs for year-to-date 2011 and 2010:



	Amount		Shares Repurchased		Amount Repurchased
Repurchase Program	Authorized		2011	2010	2011		2010
	(in millions)		(in thousands)		(in millions)
May 2011 (a)	$	500	12,535	NA	$	468	NA
March 2011	500		13,695	NA	500		NA
November 2010 (b)	200		3,431	NA	109		NA
March 2010 (c)	200		NA	5,714	NA		147
Total			29,661	5,714	$	1,077	$	147


(a)	The May 2011 repurchase program had $32 million remaining as of October 29, 2011.


(b)	The November 2010 repurchase program had $31 million remaining at the time it was cancelled in conjunction with the approval of the March 2011 repurchase program.


(c)	The March 2010 repurchase program had $53 million remaining at the time it was cancelled in conjunction with the approval of the November 2010 repurchase program.


NA	Not applicable

Subsequent to October 29, 2011, we completed the May 2011 repurchase program and our Board of Directors approved a new $250 million share repurchase program ("November 2011 repurchase program") in conjunction with the completion of the May 2011 repurchase program.

Subsequent to October 29, 2011, we repurchased an additional 0.8 million shares of common stock for $32 million under the May 2011 repurchase program and an additional 0.6 million shares of common stock for $26 million under the November 2011 repurchase program.

Dividend Policy and Procedures

In March 2010, our Board of Directors declared a special dividend of $1 per share. The special dividend, totaling $325 million, was distributed on April 19, 2010 to shareholders of record at the close of business on April 5, 2010.

In May 2011, our Board of Directors declared a special dividend of $1 per share. The special dividend, totaling $304 million, was distributed on July 1, 2011 to shareholders of record at the close of business on June 17, 2011.

Subsequent to October 29, 2011, we declared a special dividend of $2 per share, estimated to total $600 million. The special dividend will be distributed on December 23, 2011 to shareholders of record at the close of business on December 12, 2011.

Our Board of Directors will determine future dividends after giving consideration to our levels of profit and cash flow, capital

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requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time.

Cash Flow

The following table provides a summary of our cash flow activity for year-to-date 2011 and 2010:



	Year-to-Date
	2011			2010
	(in millions)
Cash and Cash Equivalents, Beginning of Period	$	1,130		$	1,804
Net Cash Flows Provided by Operating Activities	94			81
Net Cash Flows Used for Investing Activities	(239		)	(85		)
Net Cash Flows Used for Financing Activities	(489		)	(815		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	2			3
Net Decrease in Cash and Cash Equivalents	(632		)	(816		)
Cash and Cash Equivalents, End of Period	$	498		$	988

Operating Activities

Net cash provided by operating activities in 2011 was $94 million, including net income of $491 million. Net income included depreciation and amortization of $290 million, expense associated with a contribution of our remaining shares of Express to The Limited Brands Foundation of $163 million, a gain related to The Limited Brands Foundation contribution of $147 million and a pre-tax gain on the sale of Express common stock of $86 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was the seasonal increases in inventories (and related increases in accounts payable) as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year. In addition, our income taxes payable decrease was due to seasonal tax payments and the tax benefit associated with the charitable contribution to The Limited Brands Foundation.

Net cash provided by operating activities in 2010 was $81 million, including net income of $352 million. Net income included depreciation and amortization of $291 million, a gain on Express Initial Public Offering of $52 million, a gain on Distribution from Express of $49 million and a gain on divestiture of Limited Stores of $20 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant item in working capital was the seasonal increases in inventories (and related increases in accounts payable) as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year.

Investing Activities

Net cash used for investing activities in 2011 was $239 million consisting of capital expenditures of $338 million partially offset by cash proceeds from the sale of Express common stock of $99 million. The capital expenditures included $198 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.

Net cash used for investing activities in 2010 was $85 million consisting primarily of capital expenditures of $197 million, partially offset by a return of capital from both Express and Limited Stores of $49 million and $7 million, respectively, proceeds from the divestiture of Limited Stores of $32 million and proceeds from the Express initial public offering of $20 million. The capital expenditures included $131 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.

Financing Activities

Net cash used for financing activities in 2011 was $489 million consisting primarily of repurchases of common stock of $1.073 billion and quarterly and special dividend payments aggregating to $1.60 per share, or $491 million, partially offset by proceeds from the issuance of long-term debt of $981 million (net of issuance costs) and proceeds from the exercise of stock options.

Net cash used for financing activities in 2010 was $815 million consisting primarily of payment of long-term debt of $645

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million, quarterly and special dividend payments aggregating to $1.45 per share, or $471 million, and repurchases of common stock of $147 million, partially offset by proceeds from issuance of long-term debt of $390 million.

Contingent Liabilities and Contractual Obligations

In connection with the disposition of certain businesses, we have remaining guarantees of approximately $75 million related to lease payments of Express, Limited Stores, Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s), Lane Bryant and New York & Company under the current terms of noncancelable leases expiring at various dates through 2017. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the businesses. In certain instances, our guarantee may remain in effect if the term of a lease is extended.

Our guarantees related to Express, Limited Stores and New York & Company require fair value accounting in accordance with U.S. GAAP in effect at the time of these divestitures. The guaranteed lease payments related to Express, Limited Stores and New York & Company totaled $53 million as of October 29, 2011, $65 million as of January 29, 2011 and $71 million as of October 30, 2010. The estimated fair value of these guarantee obligations was $5 million as of October 29, 2011, $6 million as of January 29, 2011 and $6 million as of October 30, 2010, and is included in Other Long-term Liabilities on the Consolidated Balance Sheets.

Our guarantees related to Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s) and Lane Bryant are not subject to fair value accounting, but require that a loss be accrued when probable and reasonably estimable based on U.S. GAAP in effect at the time of these divestitures. We had no liability recorded with respect to any of the guarantee obligations as we concluded that payments under these guarantees were not probable as of October 29, 2011, January 29, 2011 and October 30, 2010.

Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since January 29, 2011, other than the issuance of the 2021 Notes. Additionally, certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations which fluctuate throughout the year as a result of the seasonal nature of our operations).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Other Comprehensive Income

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2011-05, Presentation of Comprehensive Income, which amends ASC 220, Comprehensive Income. This guidance eliminates the option to present the components of other comprehensive income as a part of the statement of shareholders’ equity and requires other comprehensive income to be presented as part of a single continuous statement of comprehensive income or in a statement of other comprehensive income immediately following the statement of income. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. This guidance will be effective beginning in fiscal 2012 and must be retrospectively applied to all reporting periods presented. The FASB has permitted early adoption. ASU 2011-05 will not have an impact on our consolidated results of operations, financial position or cash flows.

Goodwill

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which gives companies testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step one of the goodwill impairment test. If companies determine, based on qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. This guidance will be effective beginning in fiscal year 2012, however, early adoption is permitted. We are currently evaluating the provisions of this ASU.

IMPACT OF INFLATION

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on the results of operations and financial condition have been minor.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the

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date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long-lived assets, claims and contingencies, income taxes and revenue recognition. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

There have been no material changes to the critical accounting policies and estimates disclosed in our 2010 Annual Report on Form 10-K.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in foreign currency exchange rates or interest rates. We use derivative financial instruments like cross-currency swaps and interest rate swap arrangements to manage exposure to market risks. We do not use derivative financial instruments for trading purposes.

Foreign Exchange Rate Risk

Our foreign exchange rate translation exposure is primarily the result of the January 2007 acquisition of La Senza Corporation, whose operations are conducted primarily in Canada. To mitigate the translation risk to our earnings and the fair value of our investment in La Senza associated with fluctuations in the U.S. dollar-Canadian dollar exchange rate, we entered into a series of cross-currency swaps related to Canadian dollar denominated intercompany loans. These cross-currency swaps require the periodic exchange of fixed rate Canadian dollar interest payments for fixed rate U.S. dollar interest payments as well as exchange of Canadian dollar and U.S. dollar principal payments upon maturity. The swap arrangements mature between 2015 and 2018 at the same time as the related loans. As a result of the Canadian dollar denominated intercompany loans and the related cross-currency swaps, we do not believe there is any material translation risk to La Senza's net earnings associated with fluctuations in the U.S. dollar-Canadian dollar exchange rate.

In addition, our Canadian dollar denominated earnings are subject to U.S. dollar-Canadian dollar exchange rate risk as substantially all of our merchandise sold in Canada is sourced through U.S. dollar transactions.

Interest Rate Risk

Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities. Our investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer. The primary objective of our investment activities are the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Currently, our investment portfolio is comprised of U.S. and Canadian government obligations, AAA-rated money market funds, bank time deposits and highly-rated commercial paper. Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates.

All of our long-term debt as of October 29, 2011 has fixed interest rates. As of October 29, 2011, we have interest rate designated fair value hedges with a notional amount of $175 million related to a portion of our 2017 Notes. The effect of the interest rate swap arrangements is to convert the respective amount of debt from a fixed interest rate to a variable interest rate. The variable interest rate associated with these swap arrangements fluctuates based on changes in LIBOR.

For the balance of our long-term debt that is not subject to the interest rate swap arrangements, our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.

Fair Value of Financial Instruments

As of October 29, 2011, management believes that the carrying values of cash and cash equivalents, receivables and payables approximate fair value because of the short maturity of these financial instruments.

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The following table provides a summary of financial instruments as of October 29, 2011, January 29, 2011 and October 30, 2010:



	October 29, 2011			January 29, 2011			October 30, 2010
	(in millions)
Long-term Debt: (a)
Carrying Value	$	3,536		$	2,507		$	2,519
Fair Value, Estimated (b)	3,762			2,638			2,702
Cross-currency Swap Arrangements (c) (d)	66			57			45
Fixed-to-Floating Interest Rate Swap Arrangements (c) (e)	(10		)	(3		)	(15		)


(a)	The increase in long-term debt is related to the issuance of the March 2021 Notes.


(b)	The estimated fair value is based on quoted market prices. The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.


(c)	Swap arrangements are in an (asset) liability position.


(d)	The change in fair value of the cross-currency swap arrangements relates to the fluctuations in the U.S. dollar-Canadian dollar exchange rate.


(e)	Represents multiple interest rate swap arrangements related to various outstanding notes to effectively convert the fixed interest rate on the related debt to a variable interest rate based on three-month LIBOR plus a fixed interest rate.

We maintain cash and cash equivalents with various major financial institutions, as well as a Revolving Facility that supports our letter of credit program. We monitor the relative credit standing of these financial institutions and other entities and limit the amount of credit exposure with any one entity. We also monitor the creditworthiness of entities to which we grant credit terms in the normal course of business and counterparties to derivative instruments.

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Item 4.	CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were adequate and effective and designed to ensure that material information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred in the third quarter 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.


Item 1A.	RISK FACTORS

The risk factors that affect our business and financial results are discussed in “Item 1A: Risk Factors” in the 2010 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors” in our 2010 Annual Report on Form 10-K, and those described elsewhere in this report or other Securities and Exchange Commission filings, could cause actual results to differ materially from those stated in any forward-looking statements.


Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides our repurchases of our common stock during the third quarter of 2011:



Period	Total Number of Shares Purchased (a)	Average Price Paid Per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Programs (c)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
	(in thousands)			(in thousands)
August 2011	3,316	$	34.62	3,276	$	91,059
September 2011	1,180	38.30		1,130	47,923
October 2011	401	41.37		379	32,209
Total	4,897	36.06		4,785	32,209


(a)	The total number of shares repurchased includes shares repurchased as part of publicly announced programs, with the remainder relating to shares repurchased in connection with tax payments due upon vesting of employee restricted stock awards and the use of our stock to pay the exercise price on employee stock options.


(b)	The average price paid per share includes any broker commissions.


(c)	For additional share repurchase program information, see Note 3 to the Consolidated Financial Statements included in Item 1. Financial Statements.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	RESERVED


Item 5.	OTHER INFORMATION

Not applicable.


Item 6.	EXHIBITS

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Exhibits

15		Letter re: Unaudited Interim Financial Information re: Incorporation of Report of Independent Registered Public Accounting Firm.

31.1		Section 302 Certification of CEO.

31.2		Section 302 Certification of CFO.

32		Section 906 Certification (by CEO and CFO).

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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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.



	LIMITED BRANDS, INC.
	(Registrant)

	By:	/s/ STUART B. BURGDOERFER
		Stuart B. Burgdoerfer Executive Vice President and Chief Financial Officer *

Date: December 2, 2011


*	Mr. Burgdoerfer is the principal financial officer and the principal accounting officer and has been duly authorized to sign on behalf of the Registrant.