| • QUARTERLY REPORT • SIXTH SUPPLEMENTAL INDENTURE • LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION RE: INCORPORATION OF REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM • SECTION 302 CERTIFICATION OF CEO • SECTION 302 CERTIFICATION OF CFO • SECTION 906 CERTIFICATION BY CEO AND CFO • PDF OF ENTIRE SUBMISSION • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________________ FORM 10-Q _________________________________
For the quarterly period ended April 28, 2012 OR
For the transition period from to Commission file number 1-8344 _________________________________ LIMITED BRANDS, INC. (Exact name of registrant as specified in its charter) _________________________________
Registrant’s telephone number, including area code (614) 415-7000 _________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No ý Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
LIMITED BRANDS, INC. TABLE OF CONTENTS
2 PART I—FINANCIAL INFORMATION
LIMITED BRANDS, INC. CONSOLIDATED STATEMENTS OF INCOME (in millions except per share amounts) (Unaudited)
LIMITED BRANDS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) (Unaudited)
The accompanying Notes are an integral part of these Consolidated Financial Statements. 3 LIMITED BRANDS, INC. CONSOLIDATED BALANCE SHEETS (in millions except per share amounts)
The accompanying Notes are an integral part of these Consolidated Financial Statements. 4 LIMITED BRANDS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (Unaudited)
The accompanying Notes are an integral part of these Consolidated Financial Statements. 5 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 company-owned specialty retail stores in the United States (“U.S.”) and Canada, which are primarily mall-based, and through its websites, catalogue and other channels. The Company's international operations outside of Canada are primarily through franchise, license and wholesale partners. The Company currently operates the following retail brands:
Fiscal Year The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2012” and “first quarter of 2011” refer to the thirteen week periods ending April 28, 2012 and April 30, 2011, 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. Third-party Apparel Sourcing Business On October 31, 2011, the Company divested 51% of its ownership interest in its third-party apparel sourcing business to affiliates of Sycamore Partners. The Company is accounting for its continuing investment under the equity method of accounting. For additional information, see Note 8, “Equity Investments and Other.” Express 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 changed its accounting for its investment in Express from the cost method to the available-for-sale method of accounting in the first quarter of 2011. In July 2011, the Company contributed all of its remaining shares of common stock in Express to The Limited Brands Foundation. For additional information, see Note 8, “Equity Investments and Other.” Interim Financial Statements The Consolidated Financial Statements as of and for the quarter ended April 28, 2012 and April 30, 2011 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated 6 Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2011 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 and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. Currently, the Company’s investment portfolio is comprised of U.S. and Canadian government obligations, U.S. Treasury and AAA-rated money market funds, bank time deposits and highly rated commercial paper. The Company also monitors the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates and the Company revises its estimates and assumptions as new information becomes available. 2. New Accounting Pronouncements Fair Value In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) - Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 was effective for the Company in the first quarter of 2012. The measurement provisions of this ASU did not impact the Company's consolidated results of operations, financial position or cash flows and all necessary disclosures in this Form 10-Q comply with this standard. Goodwill In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment, which gives companies testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step one of the goodwill impairment test. If companies determine, based on qualitative factors, that the fair value of a reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. Otherwise, further testing would not be needed. The Company adopted this guidance in the first quarter of 2012. The application of ASU 2011-08 did not have an impact on the Company's consolidated results of operations, financial position or cash flows. 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. 7 The following table provides shares utilized for the calculation of basic and diluted earnings per share for the first quarter of 2012 and 2011:
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Shareholders’ Equity Common Stock 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 the first quarter of 2012 and 2011:
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For the February 2012 repurchase program, $9 million of share repurchases were reflected in Accounts Payable on the April 28, 2012 Consolidated Balance Sheet and were settled in May 2012. Subsequent to April 28, 2012, the Company repurchased an additional 1.2 million shares of common stock for $59 million under the February 2012 repurchase program. Dividends Under the authority and declaration of the Board of Directors, the Company paid the following dividends during the first quarter of 2012 and 2011:
8 4. Restructuring Activities During the fourth quarter of 2011, the Company initiated a restructuring program designed to resize a portion of La Senza's store fleet and relocate its home office from Montreal, Canada to Columbus, Ohio. The Company recognized a pre-tax charge consisting of contract termination costs, severance and other costs of $24 million, including non-cash charges of $5 million, in the fourth quarter of 2011. The Company anticipates that the majority of costs incurred related to this restructuring program will be paid out in 2012. During the first quarter of 2012, the Company made cash payments of $2 million related to this restructuring program. The remaining balance of $17 million is included in Accrued Expenses and Other on the Consolidated Balance Sheet as of April 28, 2012. 5. Inventories The following table provides details of inventories as of April 28, 2012, January 28, 2012 and April 30, 2011:
Inventories are principally valued at the lower of cost, as determined by the weighted-average cost method, or market. 6. Property and Equipment, Net The following table provides details of property and equipment, net as of April 28, 2012, January 28, 2012 and April 30, 2011:
Depreciation expense was $94 million and $97 million for the first quarter of 2012 and 2011, respectively. 7. Goodwill, Trade Names and Other Intangible Assets, Net Goodwill The following table provides the rollforward of goodwill for the first quarter 2012:
9 The following table provides the rollforward of goodwill for the first quarter 2011:
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 $486 million as of April 28, 2012 and January 28, 2012 and $586 million as of April 30, 2011 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 certain trademarks and customer relationships. These assets totaled $9 million as of April 28, 2012 and January 28, 2012 and $15 million as of April 30, 2011 and are included in Trade Names and Other Intangible Assets, Net on the Consolidated Balance Sheets. Amortization expense was $1 million for both the first quarter of 2012 and 2011. Estimated future annual amortization expense will be approximately $2 million for the remainder of 2012, $3 million in 2013 and $2 million in both 2014 and 2015. 8. Equity Investments and Other Third-party Apparel Sourcing Business On October 31, 2011, the Company divested 51% of its ownership interest in its third-party apparel sourcing business to affiliates of Sycamore Partners for pre-tax cash proceeds of $124 million. The Company's remaining 49% ownership interest is accounted for under the equity method of accounting. The Company recorded a pre-tax gain on the divestiture of $111 million in the fourth quarter of 2011. In the first quarter of 2012, the Company received additional pre-tax cash proceeds of $11 million as settlement of a working capital adjustment. The proceeds are included in Other Investing Activities within the Investing Activities section of the 2012 Consolidated Statement of Cash Flows. In conjunction with the transaction, the Company entered into transition services agreements whereby the Company is providing support in various operational areas including logistics, technology and finance. The terms of these transition services arrangements vary and range from two months to three years. The Company's carrying value for this investment was $69 million as of April 28, 2012 and $72 million as of January 28, 2012 and is included in Other Assets on the April 28, 2012 and January 28, 2012 Consolidated Balance Sheets. The Company's share of net income (loss) from this investment is included in Other Income (Loss) on the 2012 Consolidated Statements of Income. Express 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 to 8% and the Company recognized a pre-tax gain of $86 million, which is included in Other Income on the 2011 Consolidated Statement of Income. On April 21, 2011, the Company formally renounced its rights to its Express Board of Directors’ seat. As a result, the Company commenced accounting for its investment in Express using the available-for-sale method of accounting in the first quarter of 2011. In July 2011, the Company contributed all of its remaining 7.2 million shares of Express, valued at $163 million, 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. 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. 10 The Company’s investment carrying value under the available-for-sale method of accounting was $156 million as of April 30, 2011 and is included in Other Current Assets on the April 30, 2011 Consolidated Balance Sheet. The unrealized gain recognized under the available-for-sale method of accounting of $140 million is included in Accumulated Other Comprehensive Income on the April 30, 2011 Consolidated Balance Sheet. The Company maintains agreements with Express whereby the Company continues to provide logistics services and lease office space. The Company's third-party apparel sourcing business, which the Company divested in the fourth quarter of 2011, also continues to provide merchandise sourcing services to Express. The Company recognized merchandise sourcing revenue from Express of $84 million in the first quarter of 2011. The Company’s accounts receivable from Express for merchandise sourcing and other services provided totaled $62 million as of April 30, 2011. 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 $71 million as of April 28, 2012 and $70 million as of January 28, 2012 and April 30, 2011 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. 9. 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 first quarter of 2012, the Company’s effective tax rate was 41.6% as compared to 33.6% in the first quarter of 2011. The first quarter 2012 rate was higher than the Company's combined estimated federal and state rate of 39.0% primarily due to losses related to certain foreign subsidiaries. Income taxes paid were approximately $188 million and $215 million for the first quarter of 2012 and 2011, respectively. 11 10. Long-term Debt The following table provides the Company’s long-term debt balance as of April 28, 2012, January 28, 2012 and April 30, 2011:
Issuance of Notes In February 2012, the Company issued $1 billion of 5.625% notes due in February 2022 utilizing an existing shelf registration under which debt securities, common and preferred stock and other securities can be issued. The 2022 Notes are jointly and severally guaranteed on a full and unconditional basis by certain of the Company's 100% owned subsidiaries (such subsidiaries, the "Guarantors"). The proceeds from the issuance were $985 million, which were net of transaction costs of $15 million. These transaction costs are being amortized through the maturity date of February 2022 and are included within Other Assets on the April 28, 2012 Consolidated Balance Sheet. 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 proceeds from the issuance were $981 million, which were net of 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 Consolidated Balance Sheets. 12 Revolving Facility On July 15, 2011, the Company entered into an amendment and restatement (“Amendment”) of its secured revolving credit facility (“Revolving Facility”). The Amendment increased the aggregate amount of the commitments of the lenders under the Revolving Facility from $800 million to $1 billion and extended the termination date from August 1, 2014 to July 15, 2016. In addition, the Amendment reduced fees payable under the Revolving Facility which are based on the Company’s long-term credit ratings. The fees related to committed and unutilized amounts per year were reduced from 0.50% to 0.325% per annum and the fees related to outstanding letters of credit were reduced from 3.00% to 1.75% per annum. In addition, the interest rate on outstanding borrowings was reduced from the London Interbank Offered Rate (“LIBOR”) plus 3.00% to LIBOR plus 1.75%. The Company incurred fees related to the Amendment of the Revolving Facility of $7 million, which were capitalized and are being amortized over the remaining term of the Revolving Facility. The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of April 28, 2012, 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 April 28, 2012, 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 $9 million of outstanding letters of credit as of April 28, 2012 that reduce its remaining availability under its amended credit agreements. Fair Value Interest Rate Swap Arrangements For information related to the Company’s fair value interest rate swap arrangements, see Note 11, “Derivative Instruments.” 11. 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. 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 April 28, 2012, January 28, 2012 and April 30, 2011:
13 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 first quarter 2012 and 2011:
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Interest Rate Risk Interest Rate Designated Fair Value Hedges The Company has the following interest rate swap arrangements related to certain outstanding debt:
The interest rate swap arrangements effectively convert the fixed interest rate on the related debt to a variable interest rate based on 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 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. In August 2011, the Company terminated interest rate designated fair value hedges related to the 2014 Notes with a notional amount of $213 million. In settlement of these hedges, the Company received $9 million. In September 2011, the Company terminated interest rate designated fair value hedges related to the 2017 Notes with a notional amount of $150 million. In settlement of these hedges, the Company received $12 million. The carrying values of the respective Notes include the settlement amounts received upon termination of the hedges. The settlement amounts are amortized as a reduction to interest expense through the maturity date of the respective Notes. The following table provides a summary of the fair value and balance sheet classification of the derivative financial instruments designated as interest rate fair value hedges as of April 28, 2012, January 28, 2012 and April 30, 2011:
14 12. Fair Value Measurements The following table provides a summary of the carrying value and fair value of long-term debt as of April 28, 2012, January 28, 2012 and April 30, 2011:
The authoritative guidance included in ASC Topic 820, 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:
15 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 April 28, 2012, January 28, 2012 and April 30, 2011:
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 the first quarter 2012 and 2011:
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 14, “Commitments and Contingencies.” 16 13. Comprehensive Income The following table provides the rollforward of additional detail regarding the composition of accumulated other comprehensive income for the first quarter 2012:
The following table provides the rollforward of additional detail regarding the composition of accumulated other comprehensive income for the first quarter 2011:
The components of accumulated other comprehensive income above are presented net of tax as applicable. 14. 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 July 2009, a complaint was filed against the Company for patent infringement in the United States District Court for the Eastern District of Texas. The complaint sought monetary damages, costs, attorneys' fees, and injunctive relief. A jury found in favor of the plaintiff and awarded damages of $9 million for infringement from 2007 through 2011. The Company is unable to estimate the range of possible losses related to future infringement through the patents' expiration in 2015. The Company intends to ask the trial judge to reverse or amend the jury's award. The Company also intends to appeal any adverse judgment and to vigorously defend against this action. In April 2011, the Company made a pledge of $50 million to The Limited Brands Foundation in order to fund the Company's charitable activities on a multi-year basis. This commitment is included in Accrued Expenses and Other on the April 30, 2011 Consolidated Balance Sheet and the related expense is included in General, Administrative and Store Operating Expenses on the 2011 Consolidated Statement of Income. Guarantees In connection with the disposition of certain businesses, the Company has remaining guarantees of approximately $71 million related to lease payments of Express, Limited Stores, Abercrombie & Fitch, Dick’s Sporting Goods and New York & Company under the current terms of noncancelable leases expiring at various dates through 2017. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the businesses. In certain instances, the Company’s guarantee may remain in effect if the term of a lease is extended. The Company’s guarantees related to Express, Limited Stores and New York & Company require fair value accounting in accordance with generally accepted accounting principles (“GAAP”) in effect at the time of these divestitures. The guaranteed lease payments related to Express, Limited Stores and New York & Company totaled $45 million as of April 28, 2012, $49 million as of January 28, 2012 and $62 million as of April 30, 2011. The estimated fair value of these guarantee obligations was 17 $4 million as of April 28, 2012 and January 28, 2012 and $6 million as of April 30, 2011, and is included in Other Long-term Liabilities on the Consolidated Balance Sheets. The Company’s guarantees related to Abercrombie & Fitch and Dick’s Sporting Goods are not subject to fair value accounting, but require that a loss be accrued when probable and reasonably estimable based on 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 April 28, 2012, January 28, 2012 and April 30, 2011. 15. 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 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 $14 million for the first quarter of 2012 and 2011. 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 the first quarter of 2012 and 2011. 18 16. Segment Information The Company has two reportable segments: Victoria’s Secret and Bath & Body Works. Prior to the fourth quarter of 2011, the Victoria’s Secret reportable segment consisted of the Victoria’s Secret and La Senza operating segments which were aggregated in accordance with the authoritative guidance included in ASC Topic 280, Segment Reporting. In the fourth quarter of 2011, the Company ceased aggregating La Senza with Victoria's Secret. While this reporting change did not impact the Company's consolidated results, segment data for previous years has been recast to be consistent with the current year presentation throughout the financial statements and the accompanying notes. The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and Victoria’s Secret Pink brand names. Victoria’s Secret merchandise is sold through retail stores, its website, www.VictoriasSecret.com, and its catalogue. The Bath & Body Works segment sells personal care, beauty and home fragrance products under the Bath & Body Works, C.O. Bigelow, White Barn Candle Company and other brand names. Bath & Body Works merchandise is sold at retail stores and through its website, www.BathandBodyWorks.com. Other consists of the following:
The following table provides the Company’s segment information for the first quarter 2012 and 2011. As discussed above, certain reclassifications have been made to amounts for prior periods to conform to the current year's presentation.
In the fourth quarter of 2011, we divested 51% of our third-party apparel sourcing business, which was included in Other in the table above. For additional information, see Note 8 "Equity Investments and Other." The Company’s international sales, consisting of La Senza, Victoria's Secret Canada and Bath & Body Works Canada retail sales; non-U.S. franchise, license and wholesale operations; and direct sales shipped internationally, totaled $196 million and $190 million for the first quarter of 2012 and 2011, respectively. 17. Subsequent Events Subsequent to April 28, 2012, the Company repurchased an additional 1.2 million shares of common stock for $59 million under the February 2012 repurchase program. 19 18. Supplemental Guarantor Financial Information The Company’s 2019 Notes, 2020 Notes, 2021 Notes and 2022 Notes are jointly and severally guaranteed on a full and unconditional basis by certain of the Company’s 100% 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 April 28, 2012, January 28, 2012 and April 30, 2011; and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended April 28, 2012 and April 30, 2011. 20 LIMITED BRANDS, INC. CONDENSED CONSOLIDATING BALANCE SHEETS (in millions) (Unaudited)
21 LIMITED BRANDS, INC. CONDENSED CONSOLIDATING BALANCE SHEETS (in millions)
22 LIMITED BRANDS, INC. CONDENSED CONSOLIDATING BALANCE SHEETS (in millions) (Unaudited)
23 LIMITED BRANDS, INC. CONDENSED CONSOLIDATING STATEMENTS OF INCOME (in millions) (Unaudited)
LIMITED BRANDS, INC. CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (in millions) (Unaudited)
24 CONDENSED CONSOLIDATING STATEMENTS OF INCOME (in millions) (Unaudited)
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