SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended August 2, 2003

OR

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

For the transition period from                      to                     

Commission file number 1-8344

LIMITED BRANDS, INC.

(Exact name of registrant as specified in its charter)

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

Three Limited Parkway, P.O. Box 16000, Columbus, Ohio (Address of principal executive offices) 43216 (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  x  No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

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

Common Stock, $.50 Par Value	Outstanding at August 29, 2003
	517,985,273 Shares

LIMITED BRANDS, INC.

TABLE OF CONTENTS

	Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income Thirteen and Twenty-six Weeks Ended August 2, 2003 and August 3, 2002	4
Consolidated Balance Sheets August 2, 2003, February 1, 2003 and August 3, 2002	5
Consolidated Statements of Cash Flows Twenty-six Weeks Ended August 2, 2003 and August 3, 2002	6
Notes to Consolidated Financial Statements	7
Independent Accountants’ Review Report	14
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	29
Part II. Other Information
Item 1. Legal Proceedings	30
Item 4. Submission of Matters to a Vote of Security Holders	31
Item 6. Exhibits and Reports on Form 8-K	32

2

SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q (“Report”) or otherwise made by the Company or management of the Company involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control. Accordingly, the Company’s future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements. The following factors, among others, in some cases have affected and in the future could affect the Company’s financial performance and actual results and could cause actual results for 2003 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Report or otherwise made by the Company or management: changes in consumer spending patterns, consumer preferences and overall economic conditions; the potential impact of national and international security concerns on the retail environment, including any possible military action, terrorist attacks or other hostilities; the impact of competition and pricing; changes in weather patterns; political stability; postal rate increases and charges; paper and printing costs; risks associated with the seasonality of the retail industry; risks related to consumer acceptance of the Company’s products and the ability to develop new merchandise; the ability to retain, hire and train key personnel; risks associated with the possible inability of the Company’s manufacturers to deliver products in a timely manner; risks associated with relying on foreign sources of production including the impact in Asia and elsewhere of the recent outbreak of severe acute respiratory syndrome; and risks associated with the possible lack of availability of suitable store locations on appropriate terms. Investors should read Exhibit 99.1 to the Company’s Annual Report on Form 10-K, as well as the Company’s other filings with the Securities and Exchange Commission, for a more detailed discussion of these and other factors. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

3

PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

LIMITED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Thousands except per share amounts)

(Unaudited)

	Thirteen Weeks Ended						Twenty-six Weeks Ended
	August 2, 2003			August 3, 2002			August 2, 2003			August 3, 2002
Net sales	$	2,014,106		$	1,912,416		$	3,856,403		$	3,711,123
Costs of goods sold, buying and occupancy		(1,311,882	)		(1,239,448	)		(2,542,116	)		(2,416,494	)
Gross income		702,224			672,968			1,314,287			1,294,629
General, administrative and store operating expenses		(531,857	)		(534,295	)		(1,034,869	)		(1,027,813	)
Special item		—			—			—			(33,808	)
Operating income		170,367			138,673			279,418			233,008
Interest expense		(11,425	)		(6,155	)		(38,395	)		(15,385	)
Interest income		8,107			6,378			17,341			13,940
Other income (loss)		910			(2,135	)		(7,561	)		(2,611	)
Minority interest		—			—			—			(6,063	)
Gain on investee’s stock		—			—			79,686			—
Income from continuing operations before income taxes		167,959			136,761			330,489			222,889
Provision for income taxes		66,000			55,000			131,000			97,000
Net income from continuing operations		101,959			81,761			199,489			125,889
Income from discontinued operations, net of tax		—			1,486			—			7,216
Net income	$	101,959		$	83,247		$	199,489		$	133,105
Income per basic share:
Continuing operations	$	0.20		$	0.16		$	0.38		$	0.25
Discontinued operations		—			—			—			0.01
Net income per basic share	$	0.20		$	0.16		$	0.38		$	0.27
Income per diluted share:
Continuing operations	$	0.19		$	0.15		$	0.38		$	0.25
Discontinued operations		—			—			—			0.01
Net income per diluted share	$	0.19		$	0.16		$	0.38		$	0.26
Dividends per share	$	0.10		$	0.075		$	0.20		$	0.15

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

4

LIMITED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Thousands)

	August 2, 2003			February 1, 2003		August 3, 2002
	(Unaudited)					(Unaudited)
ASSETS
Current assets:
Cash and equivalents	$	2,239,727		$	2,261,518	$	1,311,539
Accounts receivable		105,689			150,693		81,467
Inventories		1,074,861			966,436		1,090,290
Other		219,505			227,680		233,074
Total current assets		3,639,782			3,606,327		2,716,370
Property and equipment, net		1,469,075			1,490,847		1,574,717
Goodwill		1,310,868			1,310,868		1,315,372
Trade names and other intangible assets, net		443,934			447,245		451,886
Other assets		316,563			390,516		441,791
Total assets	$	7,180,222		$	7,245,803	$	6,500,136
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	489,910		$	456,274	$	515,769
Accrued expenses		550,808			607,104		630,613
Income taxes		70,922			195,734		29,718
Total current liabilities		1,111,640			1,259,112		1,176,100
Deferred income taxes		110,102			124,862		98,249
Long-term debt		648,144			546,820		248,032
Other long-term liabilities		434,975			455,071		442,555
Shareholders’ equity:
Common stock		261,683			261,548		261,098
Paid-in capital		1,687,405			1,692,662		1,656,809
Retained earnings		3,003,289			2,905,728		2,617,293
		4,952,377			4,859,938		4,535,200
Less: treasury stock, at average cost		(77,016	)		—		—
Total shareholders’ equity		4,875,361			4,859,938		4,535,200
Total liabilities and shareholders’ equity	$	7,180,222		$	7,245,803	$	6,500,136

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

5

LIMITED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)

	Twenty-six Weeks Ended
	August 2, 2003			August 3, 2002
Operating activities:
Net income	$	199,489		$	133,105
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		141,502			140,264
Gain on sale of investee’s stock		(79,686	)		—
Special item		—			33,808
Debt extinguishment costs		5,548			—
Amortization of deferred compensation		13,597			17,223
Deferred income taxes		(15,304	)		(16,000	)
Loss on sale of joint ventures		6,921			—
Minority interest, net of dividends paid		—			600
Change in assets and liabilities:
Accounts receivable		45,004			(1,928	)
Inventories		(108,425	)		(124,221	)
Accounts payable and accrued expenses		(13,331	)		136,581
Income taxes payable		(124,436	)		(227,507	)
Other assets and liabilities		16,332			12,451
Net cash provided by operating activities		87,211			104,376
Investing activities:
Capital expenditures		(146,803	)		(141,464	)
Proceeds from sale of investee’s stock		130,673			—
Proceeds from sale of joint ventures		8,000			—
Net (expenditures) proceeds related to Easton investment		(3,298	)		2,134
Other investing activities		732			37,511
Net cash used for investing activities		(10,696	)		(101,819	)
Financing activities:
Repayment of long-term debt		(250,000	)		(150,000	)
Proceeds from issuance of long-term debt		350,000			—
Dividends paid		(104,478	)		(71,563	)
Repurchase of common stock		(98,491	)		—
Proceeds from exercise of stock options and other		4,663			35,766
Net cash used for financing activities		(98,306	)		(185,797	)
Net decrease in cash and equivalents		(21,791	)		(183,240	)
Cash and equivalents, beginning of year		2,261,518			1,494,779
Cash and equivalents, end of period	$	2,239,727		$	1,311,539

In 2002, non-cash investing and financing activities included the issuance of 88.9 million shares of Limited Brands common stock valued at $1.6 billion in exchange for all of the outstanding shares of Intimate Brands, Inc. Class A common stock.

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

6

LIMITED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

Limited Brands, Inc. (the “Company” or “Limited Brands”) sells women’s and men’s apparel, women’s intimate apparel and personal care products under various trade names through its specialty retail stores and direct response (catalog and e-commerce) businesses.

The consolidated financial statements include the accounts of the Company and its subsidiaries including Intimate Brands, Inc. (“IBI” or “Intimate Brands”), an 84% owned subsidiary through March 21, 2002 and wholly-owned thereafter. On March 21, 2002, the Company completed a tax-free tender offer and merger, which resulted in the acquisition of the IBI minority interest (“IBI recombination”). The operating results of Lerner New York (“Lerner”) are reflected as discontinued operations for all periods presented through November 27, 2002 when it was sold to a third party (see Note 4). All significant intercompany balances and transactions have been eliminated in consolidation.

Investments in unconsolidated entities over which the Company exercises significant influence but does not have control are accounted for using the equity method. The Company’s share of the net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in cost of goods sold. The Company’s share of the net income or loss of all other unconsolidated entities is included in other income (loss) which amounted to $0.6 million and ($1.3) million for the thirteen and twenty-six weeks ended August 2, 2003 and ($2.6) million and ($3.7) million for the thirteen and twenty-six weeks ended August 3, 2002, respectively.

In the first quarter of 2003, Mast Industries, Inc., a subsidiary of the Company, sold its interest in certain joint ventures for $8.0 million in cash and $5.1 million in preferred notes (net of a $1.9 million fair value discount) resulting in a loss of $6.9 million which is included in other income (loss).

The consolidated financial statements as of and for the thirteen and twenty-six week periods ended August 2, 2003 and August 3, 2002 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s 2002 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 statement of the results for the interim periods.

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.

The consolidated financial statements as of and for the thirteen and twenty-six week periods ended August 2, 2003 included herein have been reviewed by the independent public accounting firm of Ernst & Young LLP and the report of such firm follows the Notes to Consolidated Financial Statements. Ernst & Young LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for its report on the consolidated financial statements because that report is not a report within the meaning of Sections 7 and 11 of that Act.

Certain prior year amounts have been reclassified to conform to the current year presentation.

7

2. Stock-Based Compensation

The Company reports stock-based compensation through the disclosure-only requirements of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment to FASB No. 123.” Compensation expense for options is measured using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under APB No. 25, because the exercise price of the Company’s employee stock options is generally equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized.

SFAS No. 123 establishes an alternative method of expense recognition for stock-based compensation awards based on fair values. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123:

	Thirteen Weeks Ended						Twenty-six Weeks Ended
(millions except per share amounts)	August 2, 2003			August 3, 2002			August 2, 2003			August 3, 2002
Net income, as reported	$	101,959		$	83,247		$	199,489		$	133,105
Add: Stock compensation cost recorded, net of tax		2,779			10,148			7,842			39,706
Deduct: Stock compensation cost calculated under SFAS No. 123, net of tax		(10,238	)		(12,315	)		(20,245	)		(24,193	)
Pro forma net income	$	94,500		$	81,080		$	187,086		$	148,618
Earnings per basic share, as reported	$	0.20		$	0.16		$	0.38		$	0.27
Earnings per basic share, pro forma	$	0.18		$	0.16		$	0.36		$	0.30
Earnings per diluted share, as reported	$	0.19		$	0.16		$	0.38		$	0.26
Earnings per diluted share, pro forma	$	0.18		$	0.15		$	0.36		$	0.29

The above stock compensation cost recorded by the Company in 2003 and 2002 primarily relates to compensation expense resulting from the exchange of both vested and unvested IBI stock awards in connection with the IBI recombination. Stock compensation expense related to the IBI recombination was recognized in accordance with Emerging Issues Task Force (“EITF”) 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44.”

3. Shareholders’ Equity and Earnings Per Share

At August 2, 2003, one billion shares of $0.50 par value common stock were authorized, 523.8 million were issued and 518.5 million were outstanding. At February 1, 2003, 523.5 million shares were issued and outstanding and at August 3, 2002, 522.3 million shares were issued and outstanding. Ten million shares of $1.00 par value preferred stock were authorized, none of which were issued. In January 2003, the Board of Directors of the Company authorized the repurchase of $150 million of the Company’s common stock. During the twenty-six weeks ended August 2, 2003, the Company repurchased approximately 6.8 million shares of its common stock for $98.5 million at an average price per share of $14.57 under that authorization.

8

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

Weighted average common shares outstanding (thousands):

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	August 2, 2003		August 3, 2002		August 2, 2003		August 3, 2002
Common shares issued	523,849		522,299		523,719		499,477
Treasury shares	(3,713	)	(787	)	(2,274	)	(1,628	)
Basic shares	520,136		521,512		521,445		497,849
Dilutive effect of stock options and restricted shares	6,212		15,331		5,245		14,135
Diluted shares	526,348		536,843		526,690		511,984

The quarterly computation of earnings per diluted share excludes options to purchase 20.3 million and 1.9 million shares of common stock at August 2, 2003 and August 3, 2002 and the year-to-date computation of earnings per diluted share excludes options to purchase 22.8 million and 4.4 million shares for 2003 and 2002, because the options’ exercise prices were greater than the average market price of the common shares during the period.

4. Discontinued Operations

In the fourth quarter of 2002, the Company sold one of its apparel businesses, Lerner New York, to an investor group led by the business unit’s President and Chief Executive Officer and affiliates of Bear Stearns Merchant Banking. Under the terms of the agreement, the Company received $79 million in cash, a $75 million subordinated note and warrants for approximately 15% of the common equity of the new company. A $26 million fair value discount was recorded on the subordinated note, which will be accreted to income over the term of the note. The subordinated note bears interest at 10% to be accrued and added to the principal balance of the note. The subordinated note and related accrued interest are due on November 26, 2009. During the first quarter of 2003, the Company received approximately $38 million in additional cash consideration based on Lerner’s net working capital at closing.

The transaction resulted in an after-tax loss of approximately $4 million in the fourth quarter of 2002, which reflects transaction costs and a $12 million liability for the estimated fair value of the Company’s lease guarantees. The Company’s financial statements reflect Lerner’s operating results (including the transaction loss) as a discontinued operation for all periods presented in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

The Company will continue to provide certain corporate services to Lerner under service agreements which expire at various dates through 2007.

5. Special Item

In connection with the IBI recombination, vested IBI stock options and restricted stock were exchanged for Limited Brands stock awards with substantially similar terms. In accordance with EITF No. 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,” the exchange was accounted for as a modification of a stock-based compensation arrangement. As a result, the Company recorded a pretax, non-cash special charge of $33.8 million in the first quarter of 2002.

9

6. Gain on Investee’s Stock

During the first quarter of 2003, the Company recognized a pretax gain of $79.7 million resulting from the sale of approximately one-half of its ownership in Alliance Data Systems Corp. (“ADS”) in a secondary offering. ADS is a provider of electronic transaction services, credit services and loyalty and database marketing services. Prior to the sale, the Company’s ownership interest in ADS was approximately 20%. As of August 2, 2003, the Company owns approximately 7.5 million shares of ADS common stock, representing approximately a 10% ownership interest. The Company will continue to account for its investment in ADS using the equity method as the Company has the right to nominate two Company designees for election to ADS’s Board of Directors and the Company continues to be a significant shareholder and the largest client of ADS.

7. Goodwill and Other Intangible Assets

The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” in the first quarter of 2002. Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but must be tested for impairment annually (or in interim periods if events indicate possible impairment). Other intangible assets will continue to be amortized over their useful lives.

Intangible assets, not subject to amortization, represent trade names that were recorded in connection with the IBI recombination and were $411.0 million as of August 2, 2003, February 1, 2003 and August 3, 2002.

Intellectual property assets and other intangibles, subject to amortization, were as follows (in thousands):

	August 2, 2003			February 1, 2003			August 3, 2002
Gross carrying amount	$	54,300		$	54,300		$	54,300
Accumulated amortization		(21,366	)		(18,055	)		(13,414	)
Intellectual property assets and other intangibles, net	$	32,934		$	36,245		$	40,886

The estimated annual amortization expense for intangibles is $8.0 million each year through 2006 at which time intangible assets will be fully amortized.

There were no changes in the carrying amount of goodwill for the thirteen or twenty-six weeks ended August 2, 2003.

8. Inventories

The fiscal year of the Company and its subsidiaries is comprised of two principal selling seasons: spring (the first and second quarters) and fall (the third and fourth quarters). Inventories are principally valued at the lower of average cost or market, on a weighted average cost basis, using the retail method. Inventory valuation at the end of the first and third quarters reflects adjustments for estimated inventory markdowns for the total selling season.

10

9. Property and Equipment, Net

Property and equipment, net consisted of (thousands):

	August 2, 2003			February 1, 2003			August 3, 2002
Property and equipment, at cost	$	3,687,500		$	3,630,426		$	3,904,003
Accumulated depreciation and amortization		(2,218,425	)		(2,139,579	)		(2,329,286	)
Property and equipment, net	$	1,469,075		$	1,490,847		$	1,574,717

10. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective tax rate and, for the twenty-six weeks ended August 2, 2003 and August 3, 2002, also reflects the nondeductible expense related to the exchange of vested IBI incentive stock options. Income taxes paid during the twenty-six weeks August 2, 2003 and August 3, 2002 approximated $270.9 million and $339.2 million. Income taxes payable included net current deferred tax liabilities of $55.4 million at August 2, 2003, $55.7 million at February 1, 2003 and $6.8 million at August 3, 2002.

The Company’s effective tax rate has historically reflected and continues to reflect a provision related to the undistributed earnings of foreign affiliates. The Internal Revenue Service (IRS) has assessed the Company for additional taxes and interest for the years 1992 to 1998 relating to the undistributed earnings of foreign affiliates. On September 7, 1999, the United States Tax Court sustained the position of the IRS with respect to the 1992 year. In connection with an appeal of the Tax Court judgment, in 1999 the Company made a $112 million payment of taxes and interest for the years 1992 to 1998 that reduced deferred tax liabilities.

On March 29, 2002, the U.S. Court of Appeals for the Sixth Circuit ruled in favor of the Company, reversing the previous Tax Court judgment relating to the 1992 year. This ruling will also apply to years 1993 and 1994. However, the amount of any payment the Company may receive related to the 1992 through 1994 years has not been finalized and the Company is pursuing additional actions to obtain any refunds related to the 1995 through 1998 years.

11. Long-Term Debt

Unsecured long-term debt consisted of (thousands):

	August 2, 2003		February 1, 2003		August 3, 2002
6 1/8% $300 million Notes due December 2012, less unamortized discount	$	298,805	$	298,740		—
6.95% $350 million Debentures due March 2033, less unamortized discount		349,339		—		—
7 1/2% $250 million Debentures due March 2023, less unamortized discount		—		248,080	$	248,032
	$	648,144	$	546,820	$	248,032

On February 13, 2003, the Company issued $350 million of 6.95% debentures due March 1, 2033 under a 144A private placement. In connection with a registration statement filed with the Securities and Exchange Commission (“SEC”), the Company exchanged $349.5 million of the privately held securities for $349.5 million of securities registered with the SEC with identical terms through a non-taxable exchange offer. The $0.5 million of securities that were not exchanged remain outstanding as privately held securities.

11

On March 28, 2003, the Company redeemed its 7½% debentures due 2023 at a redemption price equal to 103.16% of the principal amount, plus accrued interest through the call date. The early redemption of these securities resulted in a pretax charge of $13.4 million, comprised of the call premium and the write-off of unamortized deferred financing fees and discounts. This charge was included in interest expense in the Consolidated Statements of Income for the first quarter of 2003.

The Company currently has a $1.25 billion unsecured revolving credit facility (the “Facility”). The Facility is comprised of a $500 million 364-day agreement and a $750 million 5-year agreement. Borrowings outstanding under the Facility, if any, are due June 25, 2004 and July 13, 2006, respectively. The Facility has several borrowing and interest rate options. Fees payable under the Facility are based on the Company’s long-term credit ratings, and are currently 0.1% (for the 364-day agreement) and 0.125% (for the 5-year agreement) of the committed amount per year.

The Facility requires the Company to maintain certain specified fixed charge and debt to capital ratios. The Company was in compliance with these requirements at August 2, 2003.

The Facility supports the Company’s commercial paper and letter of credit programs, which are used from time to time to fund working capital and other general corporate requirements. The Company did not issue commercial paper or draw on the Facility during the first or second quarters of 2003. In addition, no commercial paper or amounts under the Facility were outstanding at August 2, 2003.

Interest paid during the twenty-six weeks ended August 2, 2003 and August 3, 2002 was $34.9 million and $17.4 million, respectively.

12. Guarantees

In connection with the disposition of certain subsidiaries, the Company has remaining guarantees of approximately $574 million related to lease payments of Abercrombie & Fitch, Limited Too, Galyan’s, Lane Bryant and Lerner under the current terms of noncancelable leases expiring at various dates through 2018, unless extended or renewed. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate only to leases that commenced prior to the disposition of the subsidiaries. In certain instances, the Company’s guarantee may remain in effect if the term of a lease is extended. Except as discussed below, the Company believes the likelihood of material liability being triggered under these guarantees, with respect to existing and extended leases, is remote.

In conjunction with the sale of Lerner, the Company recognized a liability of $12 million representing the estimated fair value of the Company’s obligation as guarantor in accordance with the provisions of SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” effective for guarantees issued after May 15, 2002.

Also, in connection with the Company’s investment in Easton Town Center, LLC (“ETC”), the Company has guaranteed $25 million of ETC’s $210 million secured bank loan.

Additionally, the Company has issued a $30 million standby letter of credit, on which the City of Columbus, Ohio (the “City”) can draw solely to pay principal and interest on public bonds issued by the City for infrastructure development at Easton. The Company does not currently anticipate that the City will be required to draw funds under the letter of credit.

12

13. Segment Information

The Victoria’s Secret segment derives its revenues from sales of women’s intimate and other apparel, personal care products and accessories marketed under the Victoria’s Secret brand name. Victoria’s Secret merchandise is sold through its stores and direct response (catalog and e-commerce) businesses. The Bath & Body Works segment derives its revenues from the sale of personal care products and accessories and home fragrance products marketed under the Bath & Body Works and White Barn Candle Company brand names. The Apparel segment derives its revenues from sales of women’s and men’s apparel through Express and Limited Stores.

Segment information as of and for the thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002 follows (in thousands):

2003	Victoria’s Secret		Bath & Body Works		Apparel			Other(a)			Reconciling Items			Total
Thirteen weeks:
Net sales	$	929,312	$	393,303	$	588,921		$	390,018		$	(287,448	)(b)	$	2,014,106
Operating income (loss)		174,945		52,222		(2,836	)		(53,964	)		—			170,367
Twenty-six weeks:
Net sales	$	1,720,572	$	714,657	$	1,204,534		$	750,610		$	(533,970	)(b)	$	3,856,403
Operating income (loss)		285,888		68,704		11,634			(86,808	)		—			279,418
Total assets		2,032,691		1,457,277		735,096			2,955,158			—			7,180,222

2002	Victoria’s Secret		Bath & Body Works		Apparel		Other(a)			Reconciling Items			Total
Thirteen weeks:
Net sales	$	864,455	$	374,287	$	591,111	$	364,193		$	(281,630	)(b)	$	1,912,416
Operating income (loss)		144,926		31,373		3,316		(40,942	)		—			138,673
Twenty-six weeks:
Net sales	$	1,626,497	$	694,564	$	1,229,080	$	685,573		$	(524,591	)(b)	$	3,711,123
Operating income (loss)		245,390		59,030		37,708		(75,312	)		(33,808	)(c)		233,008
Total assets		1,930,893		1,489,267		724,276		2,355,700			—			6,500,136

(a) Includes Corporate (including non-core real estate and equity investments), Mast and Henri Bendel. In 2002, total assets included Lerner.

(b) Represents the elimination of Mast sales to the Victoria’s Secret and Apparel segments.

(c) Represents a non-cash charge for the exchange of vested stock awards related to the IBI recombination.

14. Recently Issued Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Instruments,” establishes standards for determining under what circumstances a variable interest entity should be consolidated with its primary beneficiary. FIN 46 applies immediately to variable interest entities created after January 31, 2003. For variable interest entities acquired before February 1, 2003, this interpretation is effective in the third quarter of 2003. The Company is currently evaluating the effect of adopting FIN 46, but does not anticipate that the adoption will have a material impact on its results of operations, financial position and cash flows.

13

Independent Accountants’ Review Report

To the Board of Directors and Shareholders

of Limited Brands, Inc.:

We have reviewed the accompanying consolidated balance sheet of Limited Brands, Inc. and its subsidiaries (the “Company”) as of August 2, 2003, the consolidated statements of income for the thirteen and twenty-six week periods ended August 2, 2003 and the consolidated statement of cash flows for the twenty-six week period ended August 2, 2003. These financial statements are the responsibility of the Company’s management. The consolidated balance sheet of the Company as of August 3, 2002, the consolidated statements of income for the thirteen and twenty-six week periods ended August 3, 2002 and the consolidated statement of cash flows for the twenty-six week period ended August 3, 2002 were reviewed by other accountants whose report dated August 22, 2002 stated that they were not aware of any material modifications that should be made to those statements for them to be in conformity with accounting principles generally accepted in the United States.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing 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 accompanying consolidated financial statements at August 2, 2003, and for the thirteen and twenty-six week periods then ended for them to be in conformity with accounting principles generally accepted in the United States.

The consolidated balance sheet of Limited Brands, Inc. as of February 1, 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein) were audited by other accountants, and in their report dated February 27, 2003, they expressed an unqualified opinion on those consolidated financial statements. Based on our review and reliance upon the report of other auditors, the accompanying consolidated balance sheet as of February 1, 2003, 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

August 19, 2003

14

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

RESULTS OF OPERATIONS

Net sales for the second quarter of 2003 increased 5% to $2.014 billion from $1.912 billion for the second quarter of 2002. Comparable store sales increased 3% for the quarter. Operating income increased to $170.4 million from $138.7 million in 2002, net income increased 23% to $102.0 million from $83.2 million in 2002 and diluted earnings per share increased to $0.19 from $0.16 in 2002.

Net sales for the twenty-six weeks ended August 2, 2003 increased 4% to $3.856 billion from $3.711 billion in 2002. Comparable store sales increased 1% in the first half of 2003. Operating income increased to $279.4 million from $233.0 million in 2002. Net income increased 50% to $199.5 million from $133.1 million in 2002, and diluted earnings per share increased to $0.38 from $0.26 in 2002.

There were a number of items that impact the comparability of the Company’s reported results. See “Note 1 to the Consolidated Financial Statements (Unaudited),” the “Special Item,” “Gain on Investee’s Stock” and “Adjusted Data” sections for a discussion of these items and the impact on 2003 and 2002 earnings.

15

Financial Summary

The following summarized financial and statistical data compares reported results for the thirteen week and twenty-six week periods ended August 2, 2003 and August 3, 2002:

	Second Quarter								Year-to-Date
	2003			2002			Change		2003			2002			Change
Net Sales (millions):
Victoria’s Secret Stores	$	669		$	615		9	%	$	1,231		$	1,151		7	%
Victoria’s Secret Direct		260			249		4	%		489			475		3	%
Total Victoria’s Secret	$	929		$	864		8	%	$	1,720		$	1,626		6	%
Bath & Body Works	$	393		$	374		5	%	$	715		$	695		3	%
Express	$	455		$	449		1	%	$	927		$	932		(1	%)
Limited Stores		134			142		(6	%)		277			297		(7	%)
Total apparel businesses	$	589		$	591		0	%	$	1,204		$	1,229		(2	%)
Other (a)	$	103		$	83		24	%	$	217		$	161		35	%
Total net sales	$	2,014		$	1,912		5	%	$	3,856		$	3,711		4	%
Segment Operating Income (millions):
Victoria’s Secret	$	175		$	145		21	%	$	286		$	245		17	%
Bath & Body Works		52			31		68	%		69			59		17	%
Apparel		(3	)		3		(200	%)		11			38		(71	%)
Other (a)		(54	)		(40	)	(35	%)		(87	)		(75	)	(16	%)
Sub-total	$	170		$	139		22	%	$	279		$	267		4	%
Special item (b)		—			—		—			—			(34	)	N/M
Total operating income	$	170		$	139		22	%	$	279		$	233		20	%

N/M – not meaningful

(a) Other includes Corporate, Mast third party sales and Henri Bendel.

(b) Represents a non-cash charge for the exchange of vested stock awards related to the IBI recombination.

16

	Second Quarter				Year-to-Date
	2003		2002		2003		2002
Comparable Store Sales (a):
Victoria’s Secret	6	%	5	%	4	%	6	%
Bath & Body Works	4	%	(2	%)	1	%	(5	%)
Express	1	%	5	%	(1	%)	6	%
Limited Stores	(4	%)	13	%	(4	%)	11	%
Total apparel businesses	0	%	7	%	(1	%)	7	%
Henri Bendel	7	%	3	%	2	%	2	%
Total comparable store sales increase	3	%	4	%	1	%	4	%

	Second Quarter						Year-to-Date
	2003		2002		Change		2003		2002		Change
Segment Store Data:
Retail sales per average selling square foot:
Victoria’s Secret	$	144	$	136	6	%	$	264	$	256	3	%
Bath & Body Works	$	111	$	107	4	%	$	201	$	199	1	%
Apparel	$	75	$	73	3	%	$	152	$	149	2	%
Retail sales per average store (thousands):
Victoria’s Secret	$	663	$	611	9	%	$	1,217	$	1,145	6	%
Bath & Body Works	$	242	$	230	5	%	$	438	$	428	2	%
Apparel	$	435	$	412	6	%	$	885	$	851	4	%
Average store size at end of quarter (selling square feet):
Victoria’s Secret		4,629		4,497	3	%
Bath & Body Works		2,188		2,152	2	%
Apparel		5,801		5,717	1	%
Selling square feet at end of quarter (thousands):
Victoria’s Secret		4,666		4,537	3	%
Bath & Body Works		3,551		3,505	1	%
Apparel		7,773		8,078	(4	%)

(a) A store is typically included in the calculation of comparable store sales when it has been open 12 months or more and it has not had a change in selling square footage of 20% or more. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store.

17

Number of Stores:

	Second Quarter				Year-to-Date
	2003		2002		2003		2002
Victoria’s Secret
Beginning of period	1,011		1,006		1,014		1,002
Opened	1		9		2		15
Closed	(4	)	(6	)	(8	)	(8	)
End of period	1,008		1,009		1,008		1,009
Bath & Body Works
Beginning of period	1,630		1,625		1,639		1,615
Opened	1		11		2		26
Closed	(8	)	(7	)	(18	)	(12	)
End of period	1,623		1,629		1,623		1,629
Apparel
Beginning of period	1,369		1,454		1,382		1,474
Opened	1		3		1		5
Closed	(30	)	(44	)	(43	)	(66	)
End of period	1,340		1,413		1,340		1,413

	Number of Stores				Selling Sq. Ft. (thousands)
	August 2, 2003	August 3, 2002	Change		August 2, 2003	August 3, 2002	Change
Victoria’s Secret	1,008	1,009	(1	)	4,666	4,537	129
Bath & Body Works	1,623	1,629	(6	)	3,551	3,505	46
Express Women’s	602	644	(42	)	3,730	4,032	(302	)
Express Men’s	326	386	(60	)	1,320	1,565	(245	)
Express Dual Gender	65	23	42		597	270	327
Total Express	993	1,053	(60	)	5,647	5,867	(220	)
Limited Stores	347	360	(13	)	2,126	2,211	(85	)
Total apparel	1,340	1,413	(73	)	7,773	8,078	(305	)
Henri Bendel	1	1	—		35	35	—
Total stores and selling sq. ft.	3,972	4,052	(80	)	16,025	16,155	(130	)

18

Net Sales

Net sales for the second quarter of 2003 increased 5% to $2.014 billion from $1.912 billion for the second quarter of 2002. The increase in sales was driven by Victoria’s Secret, Bath & Body Works and Mast. Apparel net sales were about flat for the quarter.

At Victoria’s Secret, net sales for the second quarter of 2003 increased 7% to $929.3 million from $864.5 million in 2002. The net sales increase was primarily driven by an increase in comparable store sales of 6% or $32.7 million and the net increase in sales associated with new, closed and non-comparable remodeled stores of $21.0 million. The increase in comparable store sales resulted from improved performance in the bra, panty and beauty categories as well as a successful semi-annual sale. Net sales at Victoria’s Secret Direct increased 4% or $11.1 million driven by sales increases in panty, sleepwear and accessory categories.

At Bath & Body Works, net sales for the second quarter of 2003 increased 5% to $393.3 million from $374.3 million for the second quarter of 2002. The net sales increase was driven by an increase in comparable store sales of 4% or $13.4 million and an increase in sales associated with new, closed and non-comparable remodeled stores of $5.6 million. The increase in comparable store sales was primarily driven by incremental direct mail promotional campaigns and a successful semi-annual sale. Growth in the True Blue Spa product line and home fragrance category also drove the increase in sales. The core bath products line was flat to last year, an improvement in trend over the past two quarters.

The net sales increase at Mast was primarily driven by sales to Lerner, which became a third party customer upon its disposition in November 2002.

At the apparel businesses, net sales of $588.9 million for the second quarter of 2003 were about flat to last year’s net sales of $591.1 million. Comparable store sales were flat for the quarter. A slight increase in sales at Express was more than offset by declines at Limited Stores. Comparable store sales at Express increased 1% or $3.4 million driven primarily by the men’s business, where growth in knit tops, denim and woven shirts was partially offset by declines in shorts. Comparable stores sales at Limited Stores decreased 4% or $4.6 million, as growth in jackets and wear to work pants was more than offset by declines in casual pants and tops.

Year-to-date net sales increased 4% to $3.856 billion from $3.711 billion in 2002. The increase in sales was driven by Victoria’s Secret, Mast and Bath & Body Works. Declines at the apparel businesses partially offset these gains.

At Victoria’s Secret, net sales for the first half of 2003 increased 6% to $1.720 billion from $1.626 billion in the first half of 2002. The increase was driven by the net increase in sales associated with new, closed and non-comparable remodeled stores of $41.0 million and an increase in comparable store sales of 4% or $38.3 million, driven primarily by the factors described above. Net sales at Victoria’s Secret Direct increased 3% or $14.8 million driven by sales increases in panty, sleepwear and accessory categories throughout the first half of 2003.

At Bath & Body Works, net sales for the first half of 2003 increased 3% to $714.7 million from $694.6 million in the first half of 2002. The increase was driven by the net increase in sales associated with new, closed and non-comparable remodeled stores of $12.4 million and an increase in comparable store sales of 1% or $7.7 million, driven by the factors described above.

19

At the apparel businesses, net sales for the first half of 2003 decreased 2% to $1.204 billion from $1.229 billion in the first half of 2002. The decline resulted primarily from a decrease in comparable store sales of 1% or $16.3 million and the net decrease in sales associated with closed, new and non-comparable remodeled stores of $8.2 million. The decrease in comparable store sales was primarily driven by Limited Stores, where comparable store sales decreased 4% or $11.9 million in the first half of 2003 driven by declines in sweaters and casual pants that more than offset growth in jackets and wear to work pants. Comparable store sales at Express decreased 1% or $4.4 million as the improvement in the men’s business described above was more than offset by declines in sweaters and woven pants in the women’s business.

The net sales increase at Mast was primarily driven by sales to Lerner, which became a third party customer upon its disposition in November 2002.

Gross Income

For the second quarter of 2003, the gross income rate (expressed as a percentage of net sales) decreased to 34.9% from 35.2% for the same period in 2002. The slight decrease in the gross income rate was principally the result of a decrease in merchandise margin rates at the apparel businesses, partially offset by leverage on buying and occupancy costs.

The gross income rate at Victoria’s Secret was up slightly for the quarter. The significant increase in the gross income rate at Bath & Body Works was the result of an increase in the merchandise margin rate and a decrease in the buying and occupancy expense rate. The increase in the merchandise margin rate was due to fewer markdowns in 2003 as higher markdowns were recorded in 2002 resulting from the exit of Imagine fragrance, Beautiful by Nature cosmetics and certain candles. The decrease in the buying and occupancy expense rate primarily resulted from the ability to achieve leverage on a comparable store sales increase of 4%.

The decline in the gross income rate at the apparel businesses was primarily due to a decrease in the merchandise margin rate driven by higher promotional activity and markdowns to clear Spring merchandise.

The year-to-date gross income rate decreased to 34.1% from 34.9% in 2002. In addition to the factors described above, the decrease in the gross income rate was also driven by a decline at Mast, primarily due to a decrease in income from joint ventures which have been sold in the last twelve months.

General, Administrative and Store Operating Expenses

For the second quarter of 2003, the general, administrative and store operating expense rate (expressed as a percentage of net sales) decreased to 26.4% from 27.9% last year. The rate improvement was driven by expense leverage on store selling costs and a decrease in incentive compensation.

The year-to-date general, administrative and store operating expense rate decreased to 26.8% from 27.7% in 2002 primarily due to the factors described above.

20

Special Item

In connection with the IBI recombination in March of 2002, vested IBI stock options and restricted stock were exchanged for Limited Brands stock awards with substantially similar terms. In accordance with Emerging Issues Task Force Issue No. 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44,” the exchange was accounted for as a modification of a stock-based compensation arrangement. As a result, the Company recorded a pretax, non-cash special charge of $33.8 million in the first quarter of 2002.

Operating Income

The operating income rate in the second quarter of 2003 (expressed as a percentage of net sales) increased to 8.5% compared to 7.3% in 2002. The increase was primarily the result of the 1.5% decrease in the general, administrative and store operating expense rate, partially offset by a 0.3% decrease in the gross income rate.

The year-to-date operating income rate increased to 7.2% from 6.3% in 2002. Excluding the special item in 2002, the operating income rate was flat to last year as a decline in the gross income rate was offset by an improvement in the general, administrative and store operating expense rate.

Interest Expense

	Second Quarter						Year-to-Date
	2003			2002			2003			2002
Average borrowings (millions)	$	650.0		$	266.5		$	732.6		$	333.2
Average effective interest rate		6.51	%		7.56	%		6.69	%		7.58	%

The Company incurred $11.4 million in interest expense for the second quarter of 2003 compared to $6.2 million for the same period in 2002. The increase in interest expense was primarily due to an increase in average daily borrowings, partially offset by a decrease in average borrowing rates.

Year-to-date interest expense increased to $38.4 million in 2003 from $15.4 million in 2002. The increase was primarily due to costs of $13 million associated with the retirement of the Company’s $250 million 7 ½% notes due in 2023, which included the payment of a call premium and the write-off of unamortized discounts and fees. An increase in average daily borrowings, partially offset by a decrease in average borrowing rates, also contributed to the increase.

Other Non-operating Items

For the second quarter of 2003, interest income increased to $8.1 million from $6.4 million in 2002. Year-to-date interest income increased to $17.3 million from $13.9 million in 2002. These increases were primarily driven by an increase in average invested cash balances, partially offset by a decrease in average effective interest rates.

21

For the second quarter of 2003, other income (loss) was $0.9 million compared to ($2.1) million for the second quarter of 2002. The other income (loss) in both periods is primarily driven by the results of the Company’s unconsolidated entities. Year-to-date other income (loss) was ($7.6) million compared to ($2.6) million in 2002. The increased loss in 2003 was driven by a $6.9 million loss on the sale of certain Mast joint ventures.

Gains on Investee’s Stock

During the first quarter of 2003, the Company recognized a pretax gain of $79.7 million resulting from the sale of approximately one-half of its ownership in Alliance Data Systems Corp. (“ADS”) in a secondary offering. ADS is a provider of electronic transaction services, credit services and loyalty and database marketing services. Prior to the sale, the Company’s ownership interest in ADS was approximately 20%. As of August 2, 2003, the Company owns approximately 7.5 million shares of ADS common stock, representing approximately a 10% ownership interest.

22

Adjusted Data

The adjusted income information provides non-GAAP financial measures and gives effect to the significant transactions and events that impact the comparability of the Company’s results in 2003 and 2002. The following table adjusts net income for such transactions and events (as described below) to determine the adjusted results, and reconciles the adjusted results to net income reported in accordance with accounting principles generally accepted in the United States of America.

The gain on investee’s stock in 2003 resulted from a transaction that does not relate to the performance of the Company’s core business. The IBI recombination and sale of Lerner are transactions that occurred in prior periods and, therefore, affect the comparability of current period results and also do not relate to the core performance of the Company’s business.

Management believes that the adjusted results provide useful information as to the Company’s underlying business performance and assessment of ongoing operations. The adjusted income information should not be construed as an alternative to the reported results determined in accordance with generally accepted accounting principles. Further, the Company’s definition of adjusted income information may differ from similarly titled measures used by other companies.

23

Reconciliation of Adjusted Income Information (thousands except per share amounts):

	Thirteen Weeks Ended
	August 2, 2003			August 3, 2002
	Reported			Reported			Adjustments			Adjusted
Net sales	$	2,014,106		$	1,912,416			—		$	1,912,416
Gross income		702,224			672,968			—			672,968
General, administrative and store operating expenses		(531,857	)		(534,295	)		—			(534,295	)
Operating income		170,367			138,673			—			138,673
Interest expense		(11,425	)		(6,155	)		—			(6,155	)
Interest income		8,107			6,378			1,875	(A)		8,253
Other income (loss)		910			(2,135	)		—			(2,135	)
Income from continuing operations before income taxes		167,959			136,761			1,875			138,636
Provision for income taxes		66,000			55,000			—			55,000
Net income from continuing operations		101,959			81,761			1,875			83,636
Income from discontinued operations, net of tax		—			1,486			(1,486	)(A)		—
Net income	$	101,959		$	83,247		$	389		$	83,636
Income per diluted share:
Continuing operations	$	0.19		$	0.15					$	0.16
Discontinued operations		—			—						—
Net income per diluted share	$	0.19		$	0.16					$	0.16
Weighted average shares outstanding		526,348			536,843						536,843

See Notes to Reconciliation of Adjusted Income Information on next page.

24

	Twenty-six Weeks Ended
	August 2, 2003									August 3, 2002
	Reported			Adjustments			Adjusted			Reported			Adjustments			Adjusted
Net sales	$	3,856,403			—		$	3,856,403		$	3,711,123			—		$	3,711,123
Gross income		1,314,287			—			1,314,287			1,294,629			—			1,294,629
General, administrative and store operating expenses		(1,034,869	)		—			(1,034,869	)		(1,027,813	)		—			(1,027,813	)
Special item		—			—			—			(33,808	)	$	33,808	(C)		—
Operating income		279,418			—			279,418			233,008			33,808			266,816
Interest expense		(38,395	)		—			(38,395	)		(15,385	)		—			(15,385	)
Interest income		17,341			—			17,341			13,940			3,750	(A)		17,690
Other loss		(7,561	)		—			(7,561	)		(2,611	)		—			(2,611	)
Minority interest		—			—			—			(6,063	)		6,063	(B)		—
Gain on investee’s stock		79,686		$	(79,686	)(D)		—			—			—			—
Income from continuing operations before income tax		330,489			(79,686	)		250,803			222,889			43,621			266,510
Provision for income taxes		131,000			(32,000	)		99,000			97,000			9,000			106,000
Net income from continuing operations		199,489			(47,686	)		151,803			125,889			34,621			160,510
Income from discontinued operations, net of tax		—			—			—			7,216			(7,216	)(A)		—
Net income	$	199,489		$	(47,686	)	$	151,803		$	133,105		$	27,405		$	160,510
Income per diluted share:
Continuing operations	$	0.38					$	0.29		$	0.25					$	0.30
Discontinued operations		—						—			0.01						—
Net income per diluted share	$	0.38					$	0.29		$	0.26					$	0.30
Weighted average shares outstanding		526,690			—			526,690			511,984			23,636	(B)		535,620

Notes to Reconciliation of Adjusted Income Information:

(A) Excluded business:

As a result of its sale on November 27, 2002, Lerner’s results have been reflected in discontinued operations and were excluded in determining adjusted results for 2002 (see Note 4 to the Consolidated Financial Statements). In addition, the adjusted results reflect the addition of interest income, which would have been earned on the $75 million note received from Lerner in connection with the sale.

(B) Offer and merger:

On March 21, 2002, the Company completed a tender offer and merger that resulted in the acquisition of the IBI minority interest. The adjusted results:

— Eliminate the minority interest in earnings of Intimate Brands, Inc.; and

— Increase total weighted average Class A common stock outstanding, using the exchange rate of 1.1 share of Limited Brands common stock for each share of IBI Class A common stock.

(C) Special item (see Note 5 to the Consolidated Financial Statements):

The 2002 adjusted results exclude a $33.8 million non-cash charge for vested stock awards related to the IBI recombination.

(D) Gain on investee’s stock (see Note 6 to the Consolidated Financial Statements):

The 2003 adjusted results exclude a $79.7 million pre-tax, non-operating gain resulting from the sale of approximately one-half of the Company’s investment in Alliance Data Systems Corporation.

25

FINANCIAL CONDITION

Liquidity and Capital Resources

Cash provided by operating activities and funds available from commercial paper backed by bank credit agreements provide the resources to support current operations, projected growth, seasonal funding requirements and capital expenditures. Changes in consumer spending patterns, consumer preferences and overall economic conditions could impact the availability of future operating cash flows.

A summary of the Company’s working capital position and capitalization follows (millions):

	August 2, 2003		February 1, 2003		August 3, 2002
Working capital	$	2,528	$	2,347	$	1,540
Capitalization:
Long-term debt	$	648	$	547	$	248
Shareholders’ equity		4,875		4,860		4,535
Total capitalization	$	5,523	$	5,407	$	4,783
Additional amounts available under credit agreements	$	1,250	$	1,250	$	1,250

The Company’s operations are seasonal in nature, leading to significant fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods. Consequently, the Company believes the most meaningful analysis of operating cash flows is one that compares the current interim period changes to the prior interim period changes.

Net cash provided by operating activities was $87.2 million for the twenty-six weeks ended August 2, 2003 versus $104.4 million provided by operating activities for the same period in 2002. The primary differences in cash provided by operating activities between the first half of 2003 and 2002 were due to a decrease in net income, excluding the gain on sale of investee’s stock in 2003, working capital and income taxes. The cash used for income taxes was higher in 2002 versus the same period in 2003 due to increased pretax income in 2001 which includes the gain from the sale of Lane Bryant, and the timing of payments.

In 2003, investing activities primarily included $146.8 million in capital expenditures, partially offset by cash inflows of $130.7 million from the sale of approximately one-half of the Company’s investment in ADS. Investing activities in 2002 primarily included capital expenditures of $141.5 million and cash inflows primarily resulting from the collection of a long-term note receivable.

26

Financing activities in 2003 consisted of the issuance of $350 million in long-term debt substantially offset by the redemption of $250 million in debentures, quarterly dividend payments of $0.10 per share or $104.5 million and the repurchase of 6.8 million shares of common stock for $98.5 million. Financing activities in 2002 included the repayment of $150 million in long-term debt and quarterly dividend payments of $0.075 per share or $71.6 million, partially offset by proceeds from the exercise of stock options.

On May 22, 2003, the Company filed a shelf registration statement, under which up to $500 million of debt securities, common and preferred stock, and other securities may be issued.

Capital Expenditures

Capital expenditures amounted to $146.8 million for the twenty-six weeks ended August 2, 2003 compared to $141.5 million for the same period in 2002. The Company anticipates capital spending to be $310 million or less in 2003, the majority of which will be for the remodeling of and improvements to existing stores and for new stores. Remaining capital expenditures are primarily related to information technology and distribution center projects. The Company expects that 2003 capital expenditures will be funded principally by net cash provided by operating activities.

Impact of Inflation

The Company’s results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, the Company believes the effects of inflation, if any, on the results of operations and financial condition have been minor.

27

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an on-going basis, management evaluates its estimates and judgments, including those related to inventories, long-lived assets, and contingencies. 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. Management believes the following assumptions and estimates are most significant to reporting our results of operations and financial position.

• Inventories—Inventories are valued at the lower of average cost or market, on a weighted average cost basis, using the retail method. The Company records a charge to cost of goods sold for all inventory on hand when a permanent retail price reduction is reflected in its stores. In addition, management makes estimates and judgments regarding, among other things, initial markup, markdowns, future demand and market conditions, all of which significantly impact the ending inventory valuation. Inventory valuation at the end of the first and third quarters reflects adjustments for estimated inventory markdowns for the spring (the first and second quarters) and fall (the third and fourth quarters) selling seasons. If actual future demand or market conditions are different than those projected by management, future period merchandise margin rates may be unfavorably or favorably affected. Other significant estimates related to inventory include shrink and obsolete and excess inventory which are also based on historical results and management’s operating projections.

• Valuation of Long-Lived Assets and Goodwill—Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Trademarks are reviewed for impairment annually by comparing the fair value to the carrying value. Goodwill is reviewed annually for impairment by comparing each reporting unit’s carrying value to its fair value. Factors used in the valuation of long-lived assets, trademarks and goodwill include, but are not limited to, management’s plans for future operations, brand initiatives, recent operating results and projected cash flows. If future economic conditions are different than those projected by management, additional impairment charges may be required.

• Claims and Contingencies—The Company is subject to various claims and contingencies related to lawsuits, income taxes, insurance and other matters arising out of the normal course of business. The Company’s determination of the treatment of claims and contingencies in the financial statements is based on management’s view of the expected outcome of the applicable claim or contingency. The Company consults with legal counsel on matters related to litigation and seeks input from other experts both within and outside the Company with respect to matters in the ordinary course of business. The Company accrues a liability if the likelihood of an adverse outcome is probable and the amount is estimable. If the likelihood of an adverse outcome is only reasonably possible (as opposed to probable), or if an estimate is not determinable, disclosure of a material claim or contingency is made in the notes to the financial statements.

• Revenue Recognition—While the Company’s recognition of revenue does not involve significant judgment, revenue recognition represents an important accounting policy of the Company. The Company recognizes revenue upon customer receipt of the merchandise and provides a reserve for projected merchandise returns based on prior experience.

28

Item  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk of the Company’s financial instruments as of August 2, 2003 has not significantly changed since February 1, 2003. Information regarding the Company’s financial instruments and market risk as of February 1, 2003 is disclosed in the Company’s 2002 Annual Report on Form 10-K.

Item  4. CONTROLS AND PROCEDURES

Explanation of disclosure controls and procedures. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred in the second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

29

PART II—OTHER INFORMATION

Item  1. LEGAL PROCEEDINGS

The Company is a defendant in a variety of lawsuits arising in the ordinary course of business.

In May and June 1999, purported shareholders of the Company filed three derivative actions in the Court of Chancery of the State of Delaware, naming as defendants the members of the Company’s board of directors and the Company, as nominal defendant. The actions thereafter were consolidated. The operative complaint generally alleged that the rescission of the Contingent Stock Redemption Agreement previously entered into by the Company with Leslie H. Wexner and The Wexner Children’s Trust (the “Contingent Stock Redemption Agreement”) constituted a waste of corporate assets and a breach of the board members’ fiduciary duties, and that the issuer tender offer completed on June 3, 1999 was a “wasteful transaction in its own right.” On February 16, 2000, plaintiffs filed a first amended consolidated derivative complaint (the “amended complaint”), which made allegations similar to the first complaint but added allegations apparently intended to show that certain directors were not disinterested in those decisions. Defendants moved to dismiss the amended complaint on April 14, 2000 and oral argument was heard on March 28, 2001. On March 27, 2002, the Court granted the motion in part and denied the motion in part. On May 10, 2002, the Company’s board of directors appointed a special litigation committee composed of directors Donald B. Shackelford and Raymond Zimmerman and granted that committee the authority to investigate the claims asserted in the amended complaint and to determine the Company’s response to them. On October 31, 2002, the special litigation committee filed a motion on behalf of the Company to dismiss the action on the basis that pursuit of the claims was not in the best interests of the Company. The individual defendants also filed motions to dismiss on the basis of the Company’s motion. The motions in this matter are still pending before the Court.

Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the foregoing proceedings are not expected to have a material adverse effect on the Company’s financial position or results of operations.

30

Item  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its Annual Meeting of Stockholders on May 19, 2003. The matters voted upon and the results of the voting were as follows:

a) E. Gordon Gee, James L. Heskett, Allan R. Tessler and Abigail S. Wexner were elected to the Board of Directors for a term of three years. Of the 467,740,849 shares present in person or represented by proxy at the meeting, the number of shares voted for and the number of shares as to which authority to vote in the election was withheld were as follows, with respect to each of the nominees:

Name	Shares Voted For Election	Shares as to Which Voting Authority Withheld
E. Gordon Gee	462,945,062	4,795,729
James L. Heskett	463,325,930	4,414,861
Allan R. Tessler	448,225,931	19,514,860
Abigail S. Wexner	463,208,614	4,532,177

In addition, directors whose term of office continued after the Annual Meeting were: Eugene M. Freedman, V. Ann Hailey, Donna James, David T. Kollat, Leonard A. Schlesinger, Donald B. Shackelford, Leslie H. Wexner and Raymond Zimmerman.

b) The shareholders were asked to consider and vote upon a proposal to adopt the 2003 Stock Award and Deferred Compensation Plan for Non-Associate Directors. Of the 467,740,849 shares present in person or represented by proxy at the meeting, 456,361,420 shares were voted for the proposal, 6,258,918 shares were voted against the proposal, and 5,119,955 shares abstained from voting with respect to the proposal.

31

Item  6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

4.	364-day revolving credit agreement dated as of June 27, 2003 among the Company, JPMorgan Chase Bank and the lenders listed therein
10.	Employment agreement dated July 31, 2003, by and between Limited Brands, Inc. and Leonard A. Schlesinger
15.	Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Report of Independent Accountants.
31.1	Section 302 Certification of CEO
31.2	Section 302 Certification of CFO
32.	Section 906 Certification

(b) Reports on Form 8-K.

1. Form 8-K dated May 19, 2003: The Company issued a press release setting forth its first quarter 2003 earnings.

32

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/    V. ANN HAILEY
	V. Ann Hailey Executive Vice President and Chief Financial Officer*

Date: September 12, 2003

*Ms. Hailey is the principal financial officer and has been duly authorized to sign on behalf of the Registrant.

33