UNITED STATES

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 July 30, 2011

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	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  x    No  ¨

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  x    No  ¨

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	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

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 26, 2011
	298,324,674 Shares

LIMITED BRANDS, INC.

TABLE OF CONTENTS

	Page No.
Part I. Financial Information
Item 1. Financial Statements *
Consolidated Statements of Income for the Thirteen Weeks and Twenty-Six Weeks Ended July  30, 2011 and July 31, 2010 (Unaudited)		3
Consolidated Balance Sheets as of July 30, 2011 (Unaudited), January 29, 2011 and July  31, 2010 (Unaudited)		4
Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 30, 2011 and July  31, 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		46
Part II. Other Information
Item 1. Legal Proceedings		47
Item 1A. Risk Factors		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 3. Defaults Upon Senior Securities		47
Item 4. Reserved		47
Item 5. Other Information		47
Item 6. Exhibits		47
Signatures		49

* The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of 2011” and “second quarter of 2010” refer to the thirteen week periods ending July 30, 2011 and July 31, 2010, respectively. “Year-to-date 2011” and “year-to-date 2010” refer to the twenty-six week periods ending July 30, 2011 and July 31, 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)

	Second Quarter						Year-to-Date
	2011			2010			2011			2010
Net Sales	$	2,458		$	2,242		$	4,675		$	4,174
Costs of Goods Sold, Buying and Occupancy		(1,556	)		(1,464	)		(2,931	)		(2,702	)
Gross Profit		902			778			1,744			1,472
General, Administrative and Store Operating Expenses		(708	)		(542	)		(1,334	)		(1,051	)
Operating Income		194			236			410			421
Interest Expense		(64	)		(51	)		(119	)		(112	)
Other Income		146			59			234			122
Income Before Income Taxes		276			244			525			431
Provision for Income Taxes		45			66			129			140
Net Income	$	231		$	178		$	396		$	291
Net Income Per Basic Share	$	0.76		$	0.55		$	1.27		$	0.90
Net Income Per Diluted Share	$	0.73		$	0.54		$	1.23		$	0.87
Dividends Per Share	$	1.20		$	0.15		$	1.40		$	1.30

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)

	July 30, 2011			January 29, 2011			July 31, 2010
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1,035		$	1,130		$	1,300
Accounts Receivable, Net		241			232			209
Inventories		1,104			1,032			1,083
Deferred Income Taxes		30			35			32
Other		242			163			181
Total Current Assets		2,652			2,592			2,805
Property and Equipment, Net		1,583			1,610			1,641
Goodwill		1,457			1,451			1,447
Trade Names and Other Intangible Assets, Net		598			592			596
Other Assets		210			206			233
Total Assets	$	6,500		$	6,451		$	6,722
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	646		$	545		$	559
Accrued Expenses and Other		696			765			615
Income Taxes		5			194			6
Total Current Liabilities		1,347			1,504			1,180
Deferred Income Taxes		224			202			224
Long-term Debt		3,524			2,507			2,532
Other Long-term Liabilities		780			761			713
Shareholders’ Equity:
Preferred Stock - $1.00 par value; 10 shares authorized; none issued		0			0			0
Common Stock - $0.50 par value; 1,000 shares authorized; 334, 329 and 326 shares issued; 301, 321 and 323 shares outstanding, respectively		167			164			163
Paid-in Capital		252			164			63
Accumulated Other Comprehensive Income (Loss)		(2	)		1			9
Retained Earnings		1,320			1,354			1,906
Less: Treasury Stock, at Average Cost; 33, 8 and 3 shares, respectively		(1,112	)		(207	)		(68	)
Total Limited Brands, Inc. Shareholders’ Equity		625			1,476			2,073
Noncontrolling Interest		0			1			0
Total Equity		625			1,477			2,073
Total Liabilities and Equity	$	6,500		$	6,451		$	6,722

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	$	396		$	291
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Depreciation and Amortization of Long-lived Assets		196			194
Amortization of Landlord Allowances		(16	)		(17	)
Deferred Income Taxes		23			2
Share-based Compensation Expense		24			23
Excess Tax Benefits from Share-based Compensation		(34	)		(10	)
Gain on Sale of Express Common Stock		(86	)		0
Contribution of Express Common Stock to The Limited Brands Foundation		163			0
Gain on Contribution of Express Common Stock to The Limited Brands Foundation		(147	)		0
Gain on Distribution from Express		0			(49	)
Gain on Express Initial Public Offering		0			(52	)
Gain on Divestiture of Limited Stores		0			(20	)
Loss on Extinguishment of Debt		0			25
Changes in Assets and Liabilities:
Accounts Receivable		(7	)		10
Inventories		(69	)		(44	)
Accounts Payable, Accrued Expenses and Other		(12	)		(9	)
Income Taxes Payable		(155	)		(128	)
Other Assets and Liabilities		(53	)		(32	)
Net Cash Provided by Operating Activities		223			184
Investing Activities:
Capital Expenditures		(162	)		(110	)
Proceeds from Sale of Express Common Stock		99			0
Return of Capital from Express		0			49
Return of Capital from Limited Stores		0			7
Proceeds from Divestiture of Limited Stores		0			32
Proceeds from Express Initial Public Offering		0			20
Other Investing Activities		0			(1	)
Net Cash Used for Investing Activities		(63	)		(3	)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs		981			390
Payments of Long-term Debt		0			(621	)
Financing Costs		(7	)		(14	)
Repurchase of Common Stock		(890	)		(68	)
Dividends Paid		(431	)		(422	)
Excess Tax Benefits from Share-based Compensation		34			10
Proceeds From Exercise of Stock Options and Other		55			38
Net Cash Used for Financing Activities		(258	)		(687	)
Effects of Exchange Rate Changes on Cash and Cash Equivalents		3			2
Net Decrease in Cash and Cash Equivalents		(95	)		(504	)
Cash and Cash Equivalents, Beginning of Period		1,130			1,804
Cash and Cash Equivalents, End of Period	$	1,035		$	1,300

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, “second quarter of 2011” and “second quarter of 2010” refer to the thirteen week periods ending July 30, 2011 and July 31, 2010, respectively. “Year-to-date 2011” and “year-to-date 2010” refer to the twenty-six week periods ending July 30, 2011 and July 31, 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.

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.

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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 July 30, 2011 and July 31, 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.

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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 second quarter and year-to-date of 2011 and 2010:

	Second Quarter						Year-to-Date
	2011			2010			2011			2010
	(in millions)
Weighted-average Common Shares:
Issued Shares		334			326			332			324
Treasury Shares		(29	)		(1	)		(21	)		0
Basic Shares		305			325			311			324
Effect of Dilutive Options and Restricted Stock		10			9			10			9
Diluted Shares		315			334			321			333
Anti-dilutive Options and Awards (a)		1			3			1			3

(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 during 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		7,750		NA	$	296	$	0
March 2011		500		13,695		NA		500		0
November 2010 (b)		200		3,431		NA		109		0
March 2010 (c)		200		NA		2,817		0		68
Total Shares Repurchased				24,876		2,817	$	905	$	68

(a) The May 2011 repurchase program had $204 million remaining as of July 30, 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, $15 million of share repurchases were reflected in Accounts Payable on the July 30, 2011 Consolidated Balance Sheet and were settled in August 2011.

Subsequent to July 30, 2011, the Company repurchased an additional 3 million shares of common stock for $113 million under the May 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

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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 January 2011, the Company’s Board of Directors declared its first quarter 2011 common stock dividend of $0.20 per share. The dividend totaling $64 million was paid on March 11, 2011. This is a $0.05 increase from the Company’s previous quarterly dividends.

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.

4. Inventories

The following table provides details of inventories as of July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Finished Goods Merchandise	$	999	$	956	$	984
Raw Materials and Merchandise Components		105		76		99
Total Inventories	$	1,104	$	1,032	$	1,083

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 July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011			January 29, 2011			July 31, 2010
	(in millions)
Property and Equipment, at Cost	$	4,227		$	4,183		$	4,082
Accumulated Depreciation and Amortization		(2,644	)		(2,573	)		(2,441	)
Property and Equipment, Net	$	1,583		$	1,610		$	1,641

Depreciation expense was $97 million and $96 million for the second quarter of 2011 and 2010, respectively. Depreciation expense was $194 million and $191 million for year-to-date 2011 and 2010, respectively.

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		6		0		6
Balance as of July 30, 2011	$	829	$	628	$	1,457

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

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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		5		0		5
Balance as of July 31, 2010	$	819	$	628	$	1,447

(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 $584 million as of July 30, 2011, $576 million as of January 29, 2011 and $571 million as of July 31, 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 $14 million as of July 30, 2011, $16 million as of January 29, 2011 and $25 million as of July 31, 2010 and are included in Trade Names and Other Intangible Assets, Net on the Consolidated Balance Sheets. Amortization expense was $1 million and $1 million for the second quarter of 2011 and 2010, respectively. Amortization expense was $2 million and $3 million for year-to-date 2011 and 2010, respectively. Estimated future annual amortization expense will be approximately $2 million for the remainder of 2011, $4 million in 2012, $3 million in both 2013 and 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 $108 million and $81 million in the second quarter of 2011 and 2010, respectively. The Company recognized merchandise sourcing revenue from Express of $192 million and $145 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 $78 million as of July 30, 2011, $74 million as of January 29, 2011 and $85 million as of July 31, 2010.

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.

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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 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 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 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 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. The Company’s investment carrying value under the equity method of accounting was $37 million as of July 31, 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 $27 million and $19 million in the second quarter of 2011 and 2010, respectively. The Company recognized merchandise sourcing revenue from Limited Stores of $52 million and $34 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 $17 million as of July 30, 2011, $9 million as of January 29, 2011 and $13 million as of July 31, 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.

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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 $68 million as of July 30, 2011, $69 million as of January 29, 2011 and $68 million as of July 31, 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 second quarter of 2011 and year-to-date 2011, the Company’s effective tax rates were 16.2% and 24.5%, respectively. The 2011 rates were 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.

For the second quarter of 2010 and year-to-date 2010, the Company’s effective tax rates were 26.8% and 32.4%, respectively. The 2010 rates were 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 $138 million and $99 million for the second quarter of 2011 and 2010, respectively. Income taxes paid approximated $353 million and $268 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 July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Senior Secured Debt
5.30% Mortgage due August 2010	$	0	$	0	$	2
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	1,000	$	0	$	0
$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)	$	711	$	699	$	703
$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)		219		215		237
6.125% Fixed Interest Rate Notes due December 2012, Less Unamortized Discount (“2012 Notes”)(c)		58		58		58
Total Senior Unsecured Debt	$	1,637	$	1,621	$	1,647
Total	$	3,524	$	2,507	$	2,534
Current Portion of Long-term Debt		0		0		(2	)
Total Long-term Debt, Net of Current Portion	$	3,524	$	2,507	$	2,532

(a) The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $12 million as of July 30, 2011, $0 million as of January 29, 2011 and $4 million as of July 31, 2010.

(b) The principal balance outstanding was $213 million as of both July 30, 2011 and January 29, 2011 and $234 million as of July 31, 2010. The balances include a fair value interest rate hedge adjustment which increased the debt balance by $7 million as of July 30, 2011, $2 million as of January 29, 2011 and $4 million as of July 31, 2010.

(c) The principal balance outstanding was $57 million as of both July 30, 2011 and January 29, 2011 and $58 million as of July 31, 2010. The balances included a fair value interest rate hedge adjustment which increased the debt balance by $1 million as of July 30, 2011, January 29, 2011 and July 31, 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 July 30, 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 July 30, 2011, January 29, 2011 and July 31, 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% and the fees related to outstanding letters of credit were reduced from 3.00% to 1.75%. 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 July 30, 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 July 30, 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 $30 million of outstanding letters of credit as of July 30, 2011 that reduce 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.

14

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 July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Other Long-term Liabilities	$	83	$	57	$	34

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 second quarter and year-to-date 2011 and 2010:

		Second Quarter						Year-to-Date
	Location	2011			2010			2011			2010
		(in millions)
Gain (Loss) Recognized in Other Comprehensive Income (Loss)	Other Comprehensive Income (Loss)	$	2		$	13		$	(26	)	$	0
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Other Income (Loss) (a)	Other Income (Loss)		(5	)		(5	)		23			18

(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 in interest expense through the maturity date of the 2012 Notes.

Subsequent to July 30, 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 $10 million. The settlement amount was equal to the fair value adjustment to the 2014 Notes and will be amortized in interest expense through the maturity date of the 2014 Notes.

15

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 July 30, 2011, January 29, 2011, and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Other Assets	$	19	$	3	$	9

11. Fair Value Measurements

The following table provides a summary of the carrying value and fair value of long-term debt as of July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Carrying Value	$	3,524	$	2,507	$	2,534
Fair Value (a)		3,704		2,638		2,583

(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 July 30, 2011, January 29, 2011 and July 31, 2010:

	Level 1		Level 2		Level 3		Total
	(in millions)
As of July 30, 2011
Assets:
Cash and Cash Equivalents	$	1,035	$	0	$	0	$	1,035
Interest Rate Designated Fair Value Hedges		0		19		0		19
Liabilities:
Cross-currency Cash Flow Hedges		0		83		0		83
Lease Guarantees		0		0		5		5
As of January 29, 2011
Assets:
Cash and Cash Equivalents	$	1,130	$	0	$	0	$	1,130
Interest Rate Designated Fair Value Hedges		0		3		0		3
Liabilities:
Cross-currency Cash Flow Hedges		0		57		0		57
Lease Guarantees		0		0		6		6
As of July 31, 2010
Assets:
Cash and Cash Equivalents	$	1,300	$	0	$	0	$	1,300
Interest Rate Designated Fair Value Hedges		0		9		0		9
Liabilities:
Cross-currency Cash Flow Hedges		0		34		0		34
Lease Guarantees		0		0		7		7

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 second quarter and year-to-date 2011 and 2010:

	Second Quarter						Year-to-Date
	2011			2010			2011			2010
	(in millions)
Beginning Balance	$	6		$	8		$	6		$	9
Change in Estimated Fair Value Reported in Earnings		(1	)		(1	)		(1	)		(2	)
Ending Balance	$	5		$	7		$	5		$	7

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

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12. Comprehensive Income (Loss)

The following table provides detail for other comprehensive income (loss) for second quarter and year-to-date 2011 and 2010:

	Second Quarter						Year-to-Date
	2011			2010			2011			2010
	(in millions)
Net Income	$	231		$	178		$	396		$	291
Other Comprehensive Income (Loss):
Foreign Currency Translation		1			2			(1	)		0
Unrealized Gain (Loss) on Cash Flow Hedges		2			13			(26	)		0
Reclassification of Cash Flow Hedges to Earnings		(5	)		(5	)		24			25
Total Comprehensive Income	$	229		$	188		$	393		$	316

The following table provides additional detail regarding the composition of accumulated other comprehensive income (loss) as of July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011			January 29, 2011			July 31, 2010
	(in millions)
Foreign Currency Translation	$	(9	)	$	(7	)	$	(6	)
Cash Flow Hedges		7			8			15
Total Accumulated Other Comprehensive Income (Loss)	$	(2	)	$	1		$	9

The components of other comprehensive income (loss) and accumulated other comprehensive income (loss) 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.

In April 2011, the Company made a pledge of $50 million to The Limited Brands Foundation. In July 2011, the Company contributed all of its remaining 7.2 million shares of Express to The Limited Brands Foundation which fulfilled the $50 million pledge and provided additional funding for their charitable activities. For additional information, see Note 7, “Equity Investments and Other.”

Guarantees

In connection with the disposition of certain businesses, the Company has remaining guarantees of approximately $82 million related to lease payments of Express, Limited Stores, Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s), Lane Bryant, New York & Company and Anne.x 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 $57 million as of July 30, 2011, $65 million as of January 29, 2011 and $75 million as of July 31, 2010. The estimated fair value of these guarantee obligations was $5 million as of July 30, 2011, $6 million as of January 29, 2011 and $7 million as of July 31, 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), Lane Bryant and Anne.x 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 July 30, 2011, January 29, 2011 and July 31, 2010.

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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 $12 million for the second quarter of 2011 and 2010, respectively. Total expense recognized related to the qualified plan was $27 million and $25 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 $6 million for both the second quarter of 2011 and 2010. Total expense recognized related to the non-qualified plan was $12 million for both year-to-date 2011 and 2010.

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 43 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 personal care 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 second quarter and year-to-date 2011 and 2010:

	Victoria’s Secret		Bath & Body  Works		Other			Total
	(in millions)
2011
Second Quarter:
Net Sales	$	1,571	$	563	$	324		$	2,458
Operating Income (Loss) (a)		239		70		(115	)		194
Year-to-Date:
Net Sales	$	3,014	$	1,043	$	618		$	4,675
Operating Income (Loss) (b)		479		124		(193	)		410
2010
Second Quarter:
Net Sales	$	1,448	$	537	$	257		$	2,242
Operating Income (Loss)		192		64		(20	)		236
Year-to-Date:
Net Sales	$	2,712	$	967	$	495		$	4,174
Operating Income (Loss)		359		102		(40	)		421

(a) Other includes $113 million of expense associated with the charitable contribution to The Limited Brands Foundation. For additional information, see Note 7, “Equity Investments.”

(b) 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, including direct sales shipped internationally, totaled $245 million and $175 million for second quarter of 2011 and 2010, respectively. The Company’s international sales totaled $435 million and $321 million for year-to-date 2011 and 2010, respectively.

16. Subsequent Events

Subsequent to July 30, 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 $10 million. For additional information, see Note 10, “Derivative Instruments.”

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 July 30, 2011, January 29, 2011 and July 31, 2010 and the Condensed Consolidating Statements of Income and Cash Flows for the periods ended July 30, 2011 and July 31, 2010.

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LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)

(Unaudited)

	July 30, 2011
	Limited Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	0		$	565	$	470		$	0		$	1,035
Accounts Receivable, Net		2			194		45			0			241
Inventories		0			911		193			0			1,104
Deferred Income Taxes		0			31		(1	)		0			30
Other		(2	)		160		84			0			242
Total Current Assets		0			1,861		791			0			2,652
Property and Equipment, Net		0			903		680			0			1,583
Goodwill		0			1,318		139			0			1,457
Trade Names and Other Intangible Assets, Net		0			411		187			0			598
Net Investments in and Advances to/from Consolidated Affiliates		4,011			16,110		3,205			(23,326	)		0
Other Assets		210			45		602			(647	)		210
Total Assets	$	4,221		$	20,648	$	5,604		$	(23,973	)	$	6,500
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	15		$	321	$	310		$	0		$	646
Accrued Expenses and Other		52			384		260			0			696
Income Taxes		0			0		5			0			5
Total Current Liabilities		67			705		575			0			1,347
Deferred Income Taxes		(5	)		41		188			0			224
Long-term Debt		3,524			597		36			(633	)		3,524
Other Long-term Liabilities		10			564		218			(12	)		780
Total Equity		625			18,741		4,587			(23,328	)		625
Total Liabilities and Equity	$	4,221		$	20,648	$	5,604		$	(23,973	)	$	6,500

21

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	$	0		$	701	$	429	$	0		$	1,130
Accounts Receivable, Net		1			189		42		0			232
Inventories		0			830		202		0			1,032
Deferred Income Taxes		0			30		5		0			35
Other		0			117		47		(1	)		163
Total Current Assets		1			1,867		725		(1	)		2,592
Property and Equipment, Net		0			936		674		0			1,610
Goodwill		0			1,318		133		0			1,451
Trade Names and Other Intangible Assets, Net		0			411		181		0			592
Net Investments in and Advances to/from Consolidated Affiliates		11,835			28,045		14,486		(54,366	)		0
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	$	0		$	312	$	233	$	0		$	545
Accrued Expenses and Other		29			420		316		0			765
Income Taxes		(3	)		167		30		0			194
Total Current Liabilities		26			899		579		0			1,504
Deferred Income Taxes		(6	)		28		180		0			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

22

LIMITED BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions)

(Unaudited)

	July 31, 2010
	Limited Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	0		$	876	$	424		$	0		$	1,300
Accounts Receivable, Net		1			172		36			0			209
Inventories		0			923		160			0			1,083
Deferred Income Taxes		0			35		(3	)		0			32
Other		1			77		103			0			181
Total Current Assets		2			2,083		720			0			2,805
Property and Equipment, Net		0			997		644			0			1,641
Goodwill		0			1,318		129			0			1,447
Trade Names and Other Intangible Assets, Net		0			418		178			0			596
Net Investments in and Advances to/from Consolidated Affiliates		11,996			12,754		6,315			(31,065	)		0
Other Assets		64			90		785			(706	)		233
Total Assets	$	12,062		$	17,660	$	8,771		$	(31,771	)	$	6,722
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	2		$	366	$	191		$	0		$	559
Accrued Expenses and Other		30			337		248			0			615
Income Taxes		0			0		6			0			6
Total Current Liabilities		32			703		445			0			1,180
Deferred Income Taxes		(9	)		35		198			0			224
Long-term Debt		2,532			608		82			(690	)		2,532
Other Long-term Liabilities		13			555		159			(14	)		713
Total Equity		9,494			15,759		7,887			(31,067	)		2,073
Total Liabilities and Equity	$	12,062		$	17,660	$	8,771		$	(31,771	)	$	6,722

23

LIMITED BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions)

(Unaudited)

	Second Quarter 2011
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	0		$	2,254		$	842		$	(638	)	$	2,458
Costs of Goods Sold, Buying and Occupancy		0			(1,446	)		(724	)		614			(1,556	)
Gross Profit		0			808			118			(24	)		902
General, Administrative and Store Operating Expenses		(2	)		(486	)		(250	)		30			(708	)
Operating Income (Loss)		(2	)		322			(132	)		6			194
Interest Expense		(64	)		0			(3	)		3			(64	)
Other Income (Expense)		0			3			146			(3	)		146
Income (Loss) Before Income Taxes		(66	)		325			11			6			276
Provision (Benefit) for Income Taxes		0			43			2			0			45
Equity in Earnings, Net of Tax		297			94			(157	)		(234	)		0
Net Income (Loss)	$	231		$	376		$	(148	)	$	(228	)	$	231
	Second Quarter 2010
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	0		$	2,106		$	599		$	(463	)	$	2,242
Costs of Goods Sold, Buying and Occupancy		0			(1,384	)		(520	)		440			(1,464	)
Gross Profit		0			722			79			(23	)		778
General, Administrative and Store Operating Expenses		(1	)		(512	)		(58	)		29			(542	)
Operating Income (Loss)		(1	)		210			21			6			236
Interest Expense		(51	)		0			(3	)		3			(51	)
Other Income (Expense)		(25	)		3			83			(2	)		59
Income (Loss) Before Income Taxes		(77	)		213			101			7			244
Provision (Benefit) for Income Taxes		(9	)		66			9			0			66
Equity in Earnings, Net of Tax		246			119			(53	)		(312	)		0
Net Income (Loss)	$	178		$	266		$	39		$	(305	)	$	178

24

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	$	0		$	4,315		$	1,567		$	(1,207	)	$	4,675
Costs of Goods Sold, Buying and Occupancy		0			(2,731	)		(1,350	)		1,150			(2,931	)
Gross Profit		0			1,584			217			(57	)		1,744
General, Administrative and Store Operating Expenses		(4	)		(1,065	)		(326	)		61			(1,334	)
Operating Income (Loss)		(4	)		519			(109	)		4			410
Interest Expense		(118	)		(9	)		(6	)		14			(119	)
Other Income (Expense)		0			7			231			(4	)		234
Income (Loss) Before Income Taxes		(122	)		517			116			14			525
Provision (Benefit) for Income Taxes		0			82			47			0			129
Equity in Earnings, Net of Tax		518			408			149			(1,075	)		0
Net Income (Loss)	$	396		$	843		$	218		$	(1,061	)	$	396
	Year-to-Date 2010
	Limited Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated Limited Brands, Inc.
Net Sales	$	0		$	3,945		$	1,127		$	(898	)	$	4,174
Costs of Goods Sold, Buying and Occupancy		0			(2,597	)		(946	)		841			(2,702	)
Gross Profit		0			1,348			181			(57	)		1,472
General, Administrative and Store Operating Expenses		(2	)		(993	)		(123	)		67			(1,051	)
Net Gain on Joint Ventures		0			0			0			0			0
Operating Income (Loss)		(2	)		355			58			10			421
Interest Expense		(111	)		0			(6	)		5			(112	)
Other Income (Expense)		(25	)		6			145			(4	)		122
Income (Loss) Before Income Taxes		(138	)		361			197			11			431
Provision (Benefit) for Income Taxes		(9	)		97			52			0			140
Equity in Earnings, Net of Tax		420			261			(31	)		(650	)		0
Net Income (Loss)	$	291		$	525		$	114		$	(639	)	$	291

25

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	$	(94	)	$	205		$	112		$	0	$	223
Investing Activities:
Capital Expenditures		0			(88	)		(74	)		0		(162	)
Proceeds from Sale of Express Common Stock		0			0			99			0		99
Net Cash Provided by (Used for) Investing Activities		0			(88	)		25			0		(63	)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs		981			0			0			0		981
Financing Costs		(7	)										(7	)
Repurchase of Common Stock		(890	)		0			0			0		(890	)
Dividends Paid		(431	)		0			0			0		(431	)
Excess Tax Benefits from Share-based Compensation		0			28			6			0		34
Net Financing Activities and Advances to/from Consolidated Affiliates		386			(281	)		(105	)		0		0
Proceeds from Exercise of Stock Options and Other		55			0			0			0		55
Net Cash Provided by (Used for) Financing Activities		94			(253	)		(99	)		0		(258	)
Effects of Exchange Rate Changes on Cash and Cash Equivalents		0			0			3			0		3
Net Increase (Decrease) in Cash and Cash Equivalents		0			(136	)		41			0		(95	)
Cash and Cash Equivalents, Beginning of Period		0			701			429			0		1,130
Cash and Cash Equivalents, End of Period	$	0		$	565		$	470		$	0	$	1,035

26

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	$	(123	)	$	277		$	30		$	0	$	184
Investing Activities:
Capital Expenditures		0			(71	)		(39	)		0		(110	)
Return of Capital from Express		0			0			49			0		49
Return of Capital from Limited Stores		0			0			7			0		7
Proceeds from Divestiture of Limited Stores		0			0			32			0		32
Proceeds from Express Initial Public Offering		0			0			20			0		20
Net Investments in Consolidated Affiliates		0			0			0			0		0
Other Investing Activities		0			0			(1	)		0		(1	)
Net Cash Provided by (Used for) Investing Activities		0			(71	)		68			0		(3	)
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs		390			0			0			0		390
Payment of Long-term Debt		(621	)		0			0			0		(621	)
Financing Costs		(14	)		0			0			0		(14	)
Repurchase of Common Stock		(68	)		0			0			0		(68	)
Dividends Paid		(422	)		0			0			0		(422	)
Excess Tax Benefits from Share-based Compensation		0			8			2			0		10
Net Financing Activities and Advances to/from Consolidated Affiliates		820			(779	)		(41	)		0		0
Proceeds from Exercise of Stock Options and Other		38			0			0			0		38
Net Cash Provided by (Used for) Financing Activities		123			(771	)		(39	)		0		(687	)
Effects of Exchange Rate Changes on Cash and Cash Equivalents		0			0			2			0		2
Net Increase (Decrease) in Cash and Cash Equivalents		0			(565	)		61			0		(504	)
Cash and Cash Equivalents, Beginning of Period		0			1,441			363			0		1,804
Cash and Cash Equivalents, End of Period	$	0		$	876		$	424		$	0	$	1,300

27

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 July 30, 2011 and July 31, 2010, and the related consolidated statements of income for the thirteen and twenty-six week periods ending July 30, 2011 and July 31, 2010, and the consolidated statements of cash flows for the twenty-six week periods ended July 30, 2011 and July 31, 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

August 31, 2011

28

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.

29

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 second quarter of 2011 despite a retail environment that continues to be uncertain. Our net sales increased $216 million to $2.458 billion driven by a comparable store sales increase of 9%. Our net income increased by $53 million to $231 million. Our 2011 net income included a non-taxable gain of $147 million related to the charitable contribution of all of our remaining shares of Express common stock to The Limited Brands Foundation and the related pre-tax contribution expense of $113 million. Our 2010 net income included a pre-tax gain of $52 million related to the Express IPO, a pre-tax gain of $20 million related to the divestiture of our remaining 25% ownership interest in Limited Stores and a pre-tax loss of $25 million related to the repurchase of a portion of our 2012 and 2014 Notes. As a result of the 2011 expense of $113 million associated with our charitable contribution, our operating income decreased $42 million to $194 million. For additional information related to our second quarter 2011 financial performance, see “Results of Operations.”

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.

30

Store Data

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

	Second Quarter							Year-to-Date
Sales Per Average Selling Square Foot	2011		2010		% Change			2011		2010		% Change
Victoria’s Secret Stores U.S.	$	177	$	157		13	%	$	340	$	294		16	%
Bath & Body Works U.S.		138		132		5	%		256		238		8	%
La Senza Canada (a)		107		103		4	%		189		188		1	%
Sales Per Average Store (in thousands)
Victoria’s Secret Stores U.S.	$	1,043	$	920		14	%	$	2,004	$	1,716		17	%
Bath & Body Works U.S.		328		312		5	%		607		563		8	%
La Senza Canada (a)		356		347		3	%		630		632		0	%
Average Store Size (selling square feet)
Victoria’s Secret Stores U.S.		5,913		5,855		1	%
Bath & Body Works U.S.		2,375		2,368		0	%
La Senza Canada		3,319		3,360		(1	%)
Total Selling Square Feet (in thousands)
Victoria’s Secret Stores U.S.		6,019		6,084		(1	%)
Bath & Body Works U.S.		3,790		3,834		(1	%)
La Senza Canada		826		857		(4	%)

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

31

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

	Second Quarter						Year-to-Date
	2011			2010			2011			2010
Number of Stores (a)
Victoria’s Secret
Beginning of Period		1,021			1,040			1,028			1,040
Opened		0			1			1			4
Closed		(3	)		(2	)		(11	)		(5	)
End of Period		1,018			1,039			1,018			1,039
Bath & Body Works
Beginning of Period		1,603			1,621			1,606			1,627
Opened		1			0			1			2
Closed		(8	)		(2	)		(11	)		(10	)
End of Period		1,596			1,619			1,596			1,619
La Senza Canada
Beginning of Period		250			257			252			258
Opened		0			0			0			0
Closed		(1	)		(2	)		(3	)		(3	)
End of Period		249			255			249			255
Bath & Body Works Canada
Beginning of Period		59			36			59			31
Opened		3			3			3			8
Closed		0			0			0			0
End of Period		62			39			62			39
Victoria’s Secret Canada
Beginning of Period		12			4			12			4
Opened		2			2			2			2
Closed		0			0			0			0
End of Period		14			6			14			6
Henri Bendel
Beginning of Period		11			11			11			11
Opened		1			0			1			0
Closed		0			0			0			0
End of Period		12			11			12			11
Total
Beginning of Period		2,956			2,969			2,968			2,971
Opened		7			6			8			16
Closed		(12	)		(6	)		(25	)		(18	)
End of Period		2,951			2,969			2,951			2,969

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

32

Results of Operations

Second Quarter of 2011 Compared to Second 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 second quarter of 2011 in comparison to the second quarter of 2010:

							Operating Income Rate
	2011			2010			2011			2010
Second Quarter	(in millions)
Victoria’s Secret	$	239		$	192			15.2	%		13.2	%
Bath & Body Works		70			64			12.5	%		12.0	%
Other (a) (b)		(115	)		(20	)		(35.6	%)		(7.6	%)
Total Operating Income	$	194		$	236			7.9	%		10.5	%

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

(b) Includes $113 million of expense associated with the charitable contribution of shares of Express to The Limited Brands Foundation. For additional information, see Note 7, “Equity Investments.”

For the second quarter of 2011, operating income decreased $42 million to $194 million and the operating income rate decreased to 7.9% from 10.5%. The drivers of the operating income results are discussed in the following sections.

Net Sales

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

	2011		2010		% Change
Second Quarter	(in millions)
Victoria’s Secret Stores	$	1,064	$	956		11	%
La Senza		114		101		14	%
Victoria’s Secret Direct		393		391		1	%
Total Victoria’s Secret		1,571		1,448		8	%
Bath & Body Works		563		537		5	%
Other (a)		324		257		26	%
Total Net Sales	$	2,458	$	2,242		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 second quarter of 2011 to the second quarter of 2010:

	Victoria’s Secret		Bath & Body Works			Other		Total
Second Quarter	(in millions)
2010 Net Sales	$	1,448	$	537		$	257	$	2,242
Comparable Store Sales		108		20			1		129
Sales Associated with New, Closed, and Non-comparable Remodeled Stores, Net		5		(2	)		33		36
Foreign Currency Translation		8		0			5		13
Direct Channels		2		8			0		10
Mast Global Third-party Sales and Other		0		0			28		28
2011 Net Sales	$	1,571	$	563		$	324	$	2,458

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

Second Quarter	2011			2010
Victoria’s Secret Stores		12	%		13	%
La Senza		1	%		0	%
Total Victoria’s Secret		11	%		12	%
Bath & Body Works		4	%		0	%
Total Comparable Store Sales (a)		9	%		7	%

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

For the second quarter of 2011, our net sales increased $216 million to $2.458 billion and comparable store sales increased 9%. The increase in our net sales was primarily driven by the following:

Victoria’s Secret

For the second quarter of 2011, net sales increased $123 million to $1.571 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, swimwear and beauty driven by a compelling merchandise assortment that incorporated newness, innovation and fashion;

• At Victoria’s Secret Direct, net sales increased 1% related to increases in Pink and swimwear offset by decreases in core lingerie and apparel. Victoria’s Secret Direct sales were negatively impacted by a reduction in Semi-annual sale days; and

• At La Senza, net sales increased primarily due to favorable currency translation and an increase in the international franchise business.

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

Bath & Body Works

For the second quarter of 2011, net sales increased $26 million to $563 million and comparable store sales increased 4%. From a merchandise category perspective, net sales were driven by growth in the Signature Collection, home fragrance and antibacterial categories which all incorporated newness and innovation. The increase in comparable store sales was driven by an increase in total transactions partially offset by a slight decrease in average dollar sales.

Other

For the second quarter of 2011, net sales increased $67 million to $324 million primarily related to new Victoria’s Secret and Bath & Body Works stores in Canada and an increase in third-party sales at Mast Global due to recognizing 100% of gross merchandise sourcing revenue to Express and Limited Stores in the second quarter of 2011. For additional information, see Note 7, “Equity Investments and Other.”

Gross Profit

For the second quarter of 2011, our gross profit increased $124 million to $902 million and our gross profit rate (expressed as a percentage of net sales) increased to 36.7% from 34.7%, primarily driven by the following:

Victoria’s Secret

For the second quarter of 2011, the increase in gross profit 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 a decrease in promotional activity and a decrease in buying and occupancy expense primarily related to lower fulfillment costs.

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

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Bath & Body Works

For the second quarter of 2011, the increase in gross profit 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 increase in the gross profit rate was driven by an increase in merchandise margin rate.

Other

For the second quarter of 2011, the gross profit increase was primarily driven by net sales increases in our Canadian Victoria’s Secret and Bath & Body Works stores. The gross profit rate increased due to our increase in net sales of our international businesses partially offset by the recognition of 100% of Mast Global’s sales to Express and Limited Stores in the second quarter of 2011.

General, Administrative and Store Operating Expenses

For the second quarter of 2011, our general, administrative and store operating expenses increased $166 million to $708 million primarily driven by $113 million of expense associated with the charitable contribution of shares of Express to The Limited Brands Foundation and 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 increased to 28.8% from 24.1% due to deleverage associated with the charitable 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 the second quarter of 2011 and 2010:

Second Quarter	2011			2010
Average daily borrowings (in millions)	$	3,561		$	2,624
Average borrowing rate (in percentages)		6.54	%		6.87	%

For the second quarter of 2011, our interest expense increased $13 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.

Other Income

For the second quarter of 2011, our other income increased $87 million to $146 million driven by a $147 million gain on the contribution of our remaining shares of Express to The Limited Brands Foundation. In the second quarter of 2010, we recorded a $52 million gain related to the Express IPO, a $20 million gain related to the divestiture of the remaining 25% ownership in Limited Stores and recognized equity method income from Express.

Provision for Income Taxes

For the second quarter of 2011, our effective tax rate was 16.2% as compared to 26.8% in the second quarter of 2010. The 2011 rate was lower than our combined estimated federal and state rate of 38.5% primarily due to tax benefits associated with the charitable contribution of Express shares to The Limited Brands Foundation. The 2010 rate was lower than our combined federal and state statutory 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 ownership in Limited Stores.

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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	$	479		$	359			15.9	%		13.2	%
Bath & Body Works		124			102			11.9	%		10.6	%
Other (a) (b)		(193	)		(40	)		(31.2	%)		(8.0	)%
Total Operating Income	$	410		$	421			8.8	%		10.1	%

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

(b) 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 decreased $11 million to $410 million and the operating income rate decreased to 8.8% from 10.1%. 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	$	2,050	$	1,784		15	%
La Senza		202		187		8	%
Victoria’s Secret Direct		762		741		3	%
Total Victoria’s Secret		3,014		2,712		11	%
Bath & Body Works		1,043		967		8	%
Other (a)		618		495		25	%
Total Net Sales	$	4,675	$	4,174		12	%

(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	$	2,712	$	967		$	495	$	4,174
Comparable Store Sales		257		63			2		322
Sales Associated With New, Closed and Non-comparable Remodeled Stores, Net		12		(6	)		58		64
Foreign Currency Translation		12		0			7		19
Direct Channels		21		19			0		40
Mast Third-party Sales and Other		0		0			56		56
2011 Net Sales	$	3,014	$	1,043		$	618	$	4,675

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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	%		12	%
La Senza		(1	%)		1	%
Total Victoria’s Secret		14	%		12	%
Bath & Body Works		7	%		3	%
Total Comparable Store Sales (a)		12	%		8	%

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

For year-to-date 2011, our net sales increased $501 million to $4.675 billion and comparable store sales increased 12%. The increase in our net sales was primarily driven by the following:

Victoria’s Secret

For year-to-date 2011, net sales increased $302 million to $3.014 billion and comparable store sales increased 14%. 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;

• At Victoria’s Secret Direct, net sales increased 3% with increases across most categories including core lingerie, swimwear 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.

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 $76 million to $1.043 billion and comparable store sales increased 7%. 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 $123 million to $618 million primarily related to new Victoria’s Secret and Bath & Body Works stores in Canada and an increase in third-party sales at Mast Global due to recognizing 100% of gross merchandise sourcing revenue to Express and Limited Stores in 2011. For additional information, see Note 7, “Equity Investments and Other.”

Gross Profit

For year-to-date 2011, our gross profit increased $272 million to $1.744 billion and our gross profit rate (expressed as a percentage of net sales) increased to 37.3% from 35.3% primarily driven by the following:

Victoria’s Secret

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

• At Victoria’s Secret Stores, gross profit increased driven by 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 driven by higher merchandise margin dollars as a result of the increase in net sales and decreased promotional activity and a decrease in buying and occupancy expense primarily related to lower fulfillment costs.

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

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Bath & Body Works

For year-to-date 2011, the increase in gross profit 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 increase in the gross profit rate was driven by an increase in merchandise margin rate and leverage on buying and occupancy expense from the increase in net sales.

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. The gross profit rate increased due to an increase in net sales of our international businesses partially offset by the recognition of 100% of Mast Global’s sales to Express and Limited Stores in 2011.

General, Administrative and Store Operating Expenses

For year-to-date 2011, our general, administrative and store operating expenses increased $283 million to $1.334 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 28.5% from 25.2% 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)	$	3,257		$	2,642
Average borrowing rate (in percentages)		6.55	%		6.81	%

For year-to-date 2011, our interest expense increased $7 million to $119 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.

Other Income

For year-to-date 2011, our other income (loss) increased from $122 million to $234 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. We ceased recognition of equity method income from Express beginning in the third quarter of 2010 as a result of a change in accounting methodologies and we ceased recognition of equity method income from Limited Stores beginning in the second quarter of 2010 in conjunction with the divestiture of our remaining ownership interest.

Provision for Income Taxes

For year-to-date 2011, our effective tax rate was 24.5% as compared to 32.4% in 2010. The 2011 rate was lower than our combined estimated federal and state rate of 38.5% primarily due to tax benefits associated with the charitable contribution of Express shares to The Limited Brands Foundation. The 2010 rate was lower than our combined federal and state statutory 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 ownership in Limited Stores.

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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 $395 million as of July 30, 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 July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Senior Secured Debt
5.30% Mortgage due August 2010	$	0	$	0	$	2
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	$	1,000	$	0	$	0
$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)	$	711	$	699	$	703
$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)		219		215		237
6.125% Fixed Interest Rate Notes due December 2012, Less Unamortized Discount (“2012 Notes”)(c)		58		58		58
Total Senior Unsecured Debt	$	1,637	$	1,621	$	1,647
Total	$	3,524	$	2,507	$	2,534
Current Portion of Long-term Debt		0		0		(2	)
Total Long-term Debt, Net of Current Portion	$	3,524	$	2,507	$	2,532

(a) The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $12 million as of July 30, 2011, $0 million as of January 29, 2011 and $4 million as of July 31, 2010.

(b) The principal balance outstanding was $213 million as of both July 30, 2011 and January 29, 2011 and $234 million as of July 31, 2010. The balances include a fair value interest rate hedge adjustment which increased the debt balance by $7 million as of July 30, 2011, $2 million as of January 29, 2011 and $4 million as of July 31, 2010.

(c) The principal balance outstanding was $57 million as of both July 30, 2011 and January 29, 2011 and $58 million as of July 31, 2010. The balances included a fair value interest rate hedge adjustment which increased the debt balance by $1 million as of July 30, 2011, January 29, 2011 and July 31, 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 our 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 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% and the fees related to outstanding letters of credit were reduced from 3.00% to 1.75%. 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. The fees associated with the Amendment 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 July 30, 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 July 30, 2011, there were no borrowings outstanding under the Revolving Facility.

Letters of Credit

The Revolving Facility supports our letter of credit program. We had $30 million of outstanding letters of credit as of July 30, 2011 that reduce our remaining availability under our credit agreements.

Term Loan and Participating Interest Rate Swap Arrangements

In March 2010, we prepaid a $200 million term loan. In conjunction with the term loan, we terminated participating interest rate swap arrangements totaling $200 million.

Fair Value Interest Rate Swap Arrangements

In June 2010, we entered into multiple fair value interest rate swap arrangements to effectively convert all of our outstanding 2012 Notes, all of our outstanding 2014 Notes and $175 million of our outstanding 2017 Notes from a fixed interest rate to a variable 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.

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In January 2011, we entered into a series of interest rate swap arrangements to effectively convert an additional $150 million of our 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.

Subsequent to July 30, 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 $10 million.

For additional information, see Note 10, “Derivative Instruments.”

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 July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011		January 29, 2011		July 31, 2010
	(in millions)
Cash Provided by Operating Activities (a)	$	223	$	1,284	$	184
Capital Expenditures (a)		162		274		110
Working Capital		1,305		1,088		1,625
Capitalization:
Long-term Debt		3,524		2,507		2,532
Shareholders’ Equity		625		1,476		2,073
Total Capitalization		4,149		3,983		4,605
Remaining Amounts Available Under Credit Agreements (b)		970		755		724

(a) The January 29, 2011 amounts represent a twelve-month period and the July 30, 2011 and July 31, 2010 amounts represent six-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 $30 million as of July 30, 2011, $45 million as of January 29, 2011 and $76 million as of July 31, 2010.

Credit Ratings

The following table provides our credit ratings as of July 30, 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	Negative	Stable

Our borrowing costs under our Revolving Facility are linked to our credit ratings at S&P, Moody’s and Fitch, and 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.

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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		7,750		NA	$	296	$	0
March 2011		500		13,695		NA		500		0
November 2010 (b)		200		3,431		NA		109		0
March 2010 (c)		200		NA		2,817		0		68
Total Shares Repurchased				24,876		2,817	$	905	$	68

(a) The May 2011 repurchase program had $204 million remaining as of July 30, 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 July 30, 2011, we repurchased an additional 3 million shares of common stock for $113 million under the May 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.

Our Board of Directors will determine future dividends after giving consideration to our levels of profit and cash flow, capital 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		223			184
Net Cash Flows Used for Investing Activities		(63	)		(3	)
Net Cash Flows Used for Financing Activities		(258	)		(687	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		3			2
Net Decrease in Cash and Cash Equivalents		(95	)		(504	)
Cash and Cash Equivalents, End of Period	$	1,035		$	1,300

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Operating Activities

Net cash provided by operating activities in 2011 was $223 million, including net income of $396 million. Net income included depreciation and amortization of $196 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 a decrease in Income Taxes Payable due to seasonal tax payments and the charitable contribution to The Limited Brands Foundation.

Net cash provided by operating activities in 2010 was $184 million, including net income of $291 million. Net income included depreciation and amortization of $194 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 a decrease in Income Taxes Payable due to seasonal tax payments.

Investing Activities

Net cash used for investing activities in 2011 was $63 million consisting of capital expenditures of $162 million partially offset by cash proceeds from the sale of Express common stock of $99 million. The capital expenditures included $96 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 $3 million consisting primarily of capital expenditures of $110 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 $62 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 $258 million consisting primarily of repurchase of common stock of $890 million and quarterly and special dividend payments aggregating to $1.40 per share, or $431 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 $687 million consisting primarily of payments of long-term debt of $621 million, quarterly and special dividend payments aggregating to $1.30 per share, or $422 million, and repurchase of common stock of $68 million, partially offset by proceeds from the 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 $82 million related to lease payments of Express, Limited Stores, Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s), Lane Bryant, New York & Company and Anne.x 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 $57 million as of July 30, 2011, $65 million as of January 29, 2011 and $75 million as of July 31, 2010. The estimated fair value of these guarantee obligations was $5 million as of July 30, 2011, $6 million as of January 29, 2011 and $7 million as of July 31, 2010 and is included in Other Long-term Liabilities on our Consolidated Balance Sheets.

Our guarantees related to Abercrombie & Fitch, Dick’s Sporting Goods (formerly Galyan’s), Lane Bryant and Anne.x 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 July 30, 2011, January 29, 2011 and July 31, 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 other 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).

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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.

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 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.

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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 the participating interest rate swap arrangement 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 July 30, 2011 has fixed interest rates. In June 2010, we entered into a series of interest rate swap arrangements related to all of our outstanding 2012 Notes, all of our outstanding 2014 Notes and $175 million of our outstanding 2017 Notes. In August 2010, we terminated $21 million of these interest rate swap arrangements in conjunction with the repurchase of $20 million and $1 million of 2014 Notes and 2012 Notes, respectively. In January 2011, we entered into a series of interest rate swap arrangements related to an additional $150 million of our outstanding 2017 Notes. In July 2011, we terminated interest rate designated fair value hedges related to the 2012 Notes with a notional amount of $57 million. 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.

Subsequent to July 30, 2011, we terminated interest rate designated fair value hedges related to the 2014 Notes with a notional amount of $213 million.

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.

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Fair Value of Financial Instruments

As of July 30, 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.

The following table provides a summary of financial instruments as of July 30, 2011, January 29, 2011 and July 31, 2010:

	July 30, 2011			January 29, 2011			July 31, 2010
	(in millions)
Long-term Debt: (a)
Carrying Value	$	3,524		$	2,507		$	2,534
Fair Value, Estimated (b)		3,704			2,638			2,583
Cross-currency Swap Arrangements (c) (d)		83			57			34
Fixed-to-Floating Interest Rate Swap Arrangements (c) (e)		(19	)		(3	)		(9	)

(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 entered into during fiscal 2010 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.

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 second 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 second 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)
May 2011		1,843	$	40.72		1,837	$	443,829
June 2011		4,813		37.10		4,811		265,341
July 2011		1,568		39.19		1,556		204,367
Total		8,224		38.31		8,204		204,367

(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

Exhibits
4.1	Amendment and Restatement Agreement, dated as of July 15, 2011, among Limited Brands, Inc., the Lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, under the Amended and Restated Five-Year Revolving Credit Agreement dated as of March 8, 2010 and as Collateral Agent under the loan documents.
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.

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Exhibits
32	Section 906 Certification (by CEO and CFO).
99.1	Amendment to Schedule 13G regarding common stock of Express, Inc., dated as of July 28, 2011, jointly filed by each of Limited Brands, Inc., Intimate Brands, Inc., Intimate Brands Holding, LLC, Limited Brands Store Operations, Inc., EXP Investments, Inc., and American Apparel Investment.
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: August 31, 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.

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