XNYS:LTD Quarterly Report 10-Q Filing - 7/28/2012

Effective Date 7/28/2012


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 _________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-8344
 _________________________________
LIMITED BRANDS, INC.
(Exact name of registrant as specified in its charter)
 _________________________________
Delaware
 
31-1029810
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
Three Limited Parkway, P.O. Box 16000,
Columbus, Ohio
 
43216
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (614) 415-7000
 _________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  o    No  ý
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $.50 Par Value
 
Outstanding at August 24, 2012
 
 
287,414,106 Shares
 



LIMITED BRANDS, INC.
TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1A. Risk Factors
 
 
 
 
 
 
 
 
 
 
Item 6. Exhibits
 
 
 
*
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of 2012” and “second quarter of 2011” refer to the thirteen week periods ending July 28, 2012 and July 30, 2011, respectively. "Year-to-date 2012" and "year-to-date 2011" refer to the twenty-six week periods ending July 28, 2012 and July 30, 2011, respectively.


2


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
 
2012
 
2011
 
2012
 
2011
Net Sales
$
2,399

 
$
2,458

 
$
4,553

 
$
4,675

Costs of Goods Sold, Buying and Occupancy
(1,457
)
 
(1,556
)
 
(2,709
)
 
(2,931
)
Gross Profit
942

 
902

 
1,844

 
1,744

General, Administrative and Store Operating Expenses
(637
)
 
(708
)
 
(1,246
)
 
(1,334
)
Operating Income
305

 
194

 
598

 
410

Interest Expense
(79
)
 
(64
)
 
(157
)
 
(119
)
Other Income
3

 
146

 
1

 
234

Income Before Income Taxes
229

 
276

 
442

 
525

Provision for Income Taxes
86

 
45

 
174

 
129

Net Income
$
143

 
$
231

 
$
268

 
$
396

Net Income Per Basic Share
$
0.50

 
$
0.76

 
$
0.92

 
$
1.27

Net Income Per Diluted Share
$
0.49

 
$
0.73

 
$
0.90

 
$
1.23

Dividends Per Share
$
0.25

 
$
1.20

 
$
0.50

 
$
1.40





LIMITED BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)


 
Second Quarter
 
Year-to-Date
 
2012
 
2011
 
2012
 
2011
Net Income
$
143

 
$
231

 
$
268

 
$
396

Other Comprehensive Income (Loss), Net of Tax:
 
 
 
 
 
 
 
   Reclassification of Cash Flow Hedges to Earnings
(11
)
 
(5
)
 
1

 
24

   Foreign Currency Translation
5

 
1

 
1

 
(1
)
   Unrealized Gain (Loss) on Cash Flow Hedges
10

 
2

 
7

 
(26
)
Total Other Comprehensive Income (Loss), Net of Tax
4

 
(2
)
 
9

 
(3
)
Total Comprehensive Income
$
147

 
$
229

 
$
277

 
$
393



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)
 
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(Unaudited)
 
 
 
(Unaudited)
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and Cash Equivalents
$
1,193

 
$
935

 
$
1,035

Accounts Receivable, Net
175

 
218

 
241

Inventories
1,057

 
997

 
1,104

Deferred Income Taxes
51

 
51

 
30

Other
240

 
167

 
242

Total Current Assets
2,716

 
2,368

 
2,652

Property and Equipment, Net
1,775

 
1,644

 
1,583

Goodwill
1,330

 
1,330

 
1,457

Trade Names and Other Intangible Assets, Net
494

 
495

 
598

Other Assets
274

 
271

 
210

Total Assets
$
6,589

 
$
6,108

 
$
6,500

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Accounts Payable
$
624

 
$
540

 
$
646

Accrued Expenses and Other
712

 
770

 
696

Current Portion of Long-term Debt
57

 
57

 

Income Taxes
7

 
159

 
5

Total Current Liabilities
1,400

 
1,526

 
1,347

Deferred Income Taxes
188

 
183

 
224

Long-term Debt
4,480

 
3,481

 
3,524

Other Long-term Liabilities
766

 
780

 
780

Shareholders’ Equity (Deficit):
 
 
 
 
 
Preferred Stock - $1.00 par value; 10 shares authorized; none issued

 

 

Common Stock - $0.50 par value; 1,000 shares authorized; 303, 296 and 334 shares issued; 288, 295 and 301 shares outstanding, respectively
151

 
148

 
167

Paid-in Capital
112

 
25

 
252

Accumulated Other Comprehensive Income (Loss)
9

 

 
(2
)
Retained Earnings
146

 
24

 
1,320

Less: Treasury Stock, at Average Cost; 15, 1 and 33 shares, respectively
(663
)
 
(60
)
 
(1,112
)
Total Limited Brands, Inc. Shareholders’ Equity (Deficit)
(245
)
 
137

 
625

Noncontrolling Interest

 
1

 

Total Equity (Deficit)
(245
)
 
138

 
625

Total Liabilities and Equity (Deficit)
$
6,589

 
$
6,108

 
$
6,500


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


4


LIMITED BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 
Year-to-Date
 
2012
 
2011
Operating Activities:
 
 
 
Net Income
$
268

 
$
396

Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
 
 
 
Depreciation and Amortization of Long-lived Assets
191

 
196

Amortization of Landlord Allowances
(17
)
 
(16
)
Deferred Income Taxes
3

 
23

Share-based Compensation Expense
33

 
24

Excess Tax Benefits from Share-based Compensation
(100
)
 
(34
)
Gain on Sale of Express Common Stock

 
(86
)
Contribution of Express Common Stock to The Limited Brands Foundation

 
163

Gain on Contribution of Express Common Stock to The Limited Brands Foundation

 
(147
)
Changes in Assets and Liabilities:
 
 
 
Accounts Receivable
32

 
(7
)
Inventories
(60
)
 
(69
)
Accounts Payable, Accrued Expenses and Other
(53
)
 
(12
)
Income Taxes Payable
(112
)
 
(155
)
Other Assets and Liabilities
20

 
(53
)
Net Cash Provided by Operating Activities
205

 
223

Investing Activities:
 
 
 
Capital Expenditures
(329
)
 
(162
)
Proceeds from Sale of Express Common Stock

 
99

Other Investing Activities
11

 

Net Cash Used for Investing Activities
(318
)
 
(63
)
Financing Activities:
 
 
 
Proceeds from Long-term Debt, Net of Issuance Costs
985

 
981

Repurchase of Common Stock
(604
)
 
(890
)
Dividends Paid
(146
)
 
(431
)
Excess Tax Benefits from Share-based Compensation
100

 
34

Proceeds from Exercise of Stock Options and Other
36

 
55

Financing Costs

 
(7
)
Net Cash Provided by (Used for) Financing Activities
371

 
(258
)
Effects of Exchange Rate Changes on Cash

 
3

Net Increase (Decrease) in Cash and Cash Equivalents
258

 
(95
)
Cash and Cash Equivalents, Beginning of Period
935

 
1,130

Cash and Cash Equivalents, End of Period
$
1,193

 
$
1,035


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:
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 2012” and “second quarter of 2011” refer to the thirteen week periods ending July 28, 2012 and July 30, 2011, respectively. “Year-to-date 2012” and “year-to-date 2011” refer to the twenty-six week periods ending July 28, 2012 and July 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.”

6


Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended July 28, 2012 and July 30, 2011 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 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 periodically reviews 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
Indefinite-Lived Intangible Assets
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If a company determines that it is more likely than not that the fair value of such an asset exceeds its carrying amount, it would not need to calculate the fair value of the asset in that year. However, if a company concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying amount and record an impairment charge, if any. This guidance will be effective beginning in fiscal 2013, however, early adoption is permitted. ASU 2012-02 will not have an impact on the Company's consolidated results of operations, financial position or cash flows. The Company is currently evaluating the provisions of this ASU.

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

7


The following table provides shares utilized for the calculation of basic and diluted earnings per share for the second quarter of and year-to-date 2012 and 2011:
 
Second Quarter
 
Year-to-Date
 
2012
 
2011
 
2012
 
2011
 
(in millions)
Weighted-average Common Shares:
 
 
 
 
 
 
 
Issued Shares
302

 
334

 
300

 
332

Treasury Shares
(12
)
 
(29
)
 
(9
)
 
(21
)
Basic Shares
290

 
305

 
291

 
311

Effect of Dilutive Options and Restricted Stock
6

 
10

 
8

 
10

Diluted Shares
296

 
315

 
299

 
321

Anti-dilutive Options and Awards (a)
1

 
1

 
1

 
1

 _______________
(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
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 year-to-date 2012 and 2011:
 
Amount Authorized
 
Shares
Repurchased
 
Amount
Repurchased
 
Average Stock Price of Shares Repurchased within Program
Repurchase Program
 
2012
 
2011
 
2012
 
2011
 
 
(in millions)
 
(in thousands)
 
(in millions)
 
 
February 2012 (a)
$
500

 
9,645

 
NA

 
$
439

 
NA

 
$
45.54

November 2011
250

 
3,657

 
NA

 
164

 
NA

 
44.90

May 2011
500

 
NA

 
7,750

 
NA

 
$
296

 
38.13

March 2011
500

 
NA

 
13,695

 
NA

 
500

 
36.49

November 2010 (b)
200

 
NA

 
3,431

 
NA

 
109

 
31.65

Total
 
 
13,302

 
24,876

 
$
603

 
$
905

 
 
 _______________
(a)
The February 2012 repurchase program had $61 million remaining as of July 28, 2012.
(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.
NA
Not applicable
For the February 2012 repurchase program, $3 million of share repurchases were reflected in Accounts Payable on the July 28, 2012 Consolidated Balance Sheet and were settled in August 2012.
Subsequent to July 28, 2012, the Company repurchased an additional 0.2 million shares of common stock for $8 million under the February 2012 repurchase program.

8


Dividends
Under the authority and declaration of the Board of Directors, the Company paid the following dividends during 2012 and 2011:
 
 
Ordinary Dividends
 
Special Dividends
 
Total Dividends
 
Total Paid
 
 
(per share)
 
(in millions)
2012
 
 
 
 
 
 
 
 
Second Quarter
 
$
0.25

 
$

 
$
0.25

 
$
73

First Quarter
 
0.25

 

 
0.25

 
73

2012 Total
 
$
0.50

 
$

 
$
0.50

 
$
146

2011
 

 

 

 

Second Quarter
 
$
0.20

 
$
1.00

 
$
1.20

 
$
367

First Quarter
 
0.20

 

 
0.20

 
64

2011 Total
 
$
0.40

 
$
1.00

 
$
1.40

 
$
431


Subsequent to July 28, 2012, the Board of Directors declared the third quarter ordinary dividend of $0.25 per share and a special dividend of $1 per share. The special dividend, estimated to total $290 million, will be distributed on September 7, 2012 to shareholders of record at the close of business on August 23, 2012. In accordance with the anti-dilutive provisions of the 2011 Stock Option and Performance Incentive Plan, the Company will adjust 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 will be approximately equal immediately before and after the adjustment. Therefore, no compensation expense will be recognized.

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. Through the second quarter of 2012, the Company made cash payments of $6 million related to this restructuring program. The remaining balance of $13 million is included in Accrued Expenses and Other on the July 28, 2012 Consolidated Balance Sheet.
During the second quarter of 2012, the Company initiated a second restructuring program designed to further resize the La Senza store fleet by announcing the closure of 39 additional store locations. The Company recognized a pre-tax charge of $4 million, including non-cash charges of $3 million, in the second quarter of 2012. Restructuring charges of $3 million and $1 million are included in Cost of Goods Sold, Buying and Occupancy and General, Administrative and Store Operating Expenses, respectively, on the second quarter 2012 Consolidated Statement of Income. The Company expects to incur an additional $13 million in charges consisting of contract termination costs, accelerated depreciation and other costs in the third quarter of 2012 which is when the majority of stores are expected to close.

5. Inventories
The following table provides details of inventories as of July 28, 2012January 28, 2012 and July 30, 2011:
 
 
July 28,
2012
 
January 28, 2012
 
July 30,
2011
 
(in millions)
Finished Goods Merchandise
$
950

 
$
926

 
$
999

Raw Materials and Merchandise Components
107

 
71

 
105

Total Inventories
$
1,057

 
$
997

 
$
1,104


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


9


6. Property and Equipment, Net
The following table provides details of property and equipment, net as of July 28, 2012January 28, 2012 and July 30, 2011:
 
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(in millions)
Property and Equipment, at Cost
$
4,612

 
$
4,387

 
$
4,227

Accumulated Depreciation and Amortization
(2,837
)
 
(2,743
)
 
(2,644
)
Property and Equipment, Net
$
1,775

 
$
1,644

 
$
1,583


Depreciation expense was $96 million and $97 million for the second quarter of 2012 and 2011, respectively. Depreciation expense was $190 million and $194 million for year-to-date 2012 and 2011, respectively.

7. Goodwill, Trade Names and Other Intangible Assets, Net
Goodwill
The following table provides the rollforward of goodwill for year-to-date 2012:
 
 
Victoria’s
Secret
 
Bath &
Body Works
 
Other (a)
 
Total
 
(in millions)
Balance as of January 28, 2012
$
690

 
$
628

 
$
12

 
$
1,330

Foreign Currency Translation

 

 

 

Balance as of July 28, 2012
$
690

 
$
628

 
$
12

 
$
1,330

  ________________
(a)
Balance is presented net of a $189 million and $119 million La Senza impairment recognized in the fourth quarter of 2008 and the fourth quarter of 2011, respectively.

The following table provides the rollforward of goodwill for year-to-date 2011:
 
 
Victoria’s
Secret
 
Bath &
Body  Works
 
Other (a)
 
Total
 
(in millions)
Balance as of January 29, 2011
$
690

 
$
628

 
$
133

 
$
1,451

Foreign Currency Translation

 

 
6

 
6

Balance as of July 30, 2011
$
690

 
$
628

 
$
139

 
$
1,457

  ________________
(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 and are included in Trade Names and Other Intangible Assets, Net on the Consolidated Balance Sheets. The following table provides additional detail regarding the composition of trade names as of July 28, 2012January 28, 2012 and July 30, 2011:
 
July 28, 2012
 
January 28, 2012
 
July 30, 2011
 
(in millions)
Victoria's Secret
$
246

 
$
246

 
$
246

Bath & Body Works
165

 
165

 
165

La Senza
75

 
75

 
173

Intangible Assets - Trade Names
$
486

 
$
486

 
$
584

Intangible Assets – Finite Lives
Intangible assets with finite lives represent certain trademarks and customer relationships. These assets totaled $8 million as of July 28, 2012, $9 million as of January 28, 2012 and $14 million as of July 30, 2011 and are included in Trade Names and

10


Other Intangible Assets, Net on the Consolidated Balance Sheets. Amortization expense was $0 million and $1 million for the second quarter of 2012 and 2011, respectively. Amortization expense was $1 million and $2 million for year-to-date 2012 and 2011, respectively. Estimated future annual amortization expense will be approximately $1 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 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 $72 million as of July 28, 2012 and January 28, 2012 and is included in Other Assets on the July 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 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 Statements 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. 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 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 $108 million and $192 million in the second quarter of 2011 and year-to-date 2011, respectively. The Company’s accounts receivable from Express for merchandise sourcing and other services provided totaled $78 million as of July 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 $73 million as of July 28, 2012, $70 million as of January 28, 2012 and $68 million as of July 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.


11


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 second quarter of 2012 and year-to-date 2012, the Company’s effective tax rates were 37.4% and 39.4%, respectively. The 2012 second quarter rate was lower than the Company's combined estimated federal and state rate of 39.0% primarily due to the resolution of certain tax matters. The 2012 year-to-date 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.
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 primarily due to tax benefits associated with the Company's charitable contribution of Express shares to The Limited Brands Foundation.
Income taxes paid were approximately $100 million and $138 million for the second quarter of 2012 and 2011, respectively. Income taxes paid approximated $288 million and $353 million for year-to-date 2012 and 2011, respectively.

10. Long-term Debt
The following table provides the Company’s long-term debt balance as of July 28, 2012January 28, 2012 and July 30, 2011:
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(in millions)
Senior Unsecured Debt with Subsidiary Guarantee
 
 
 
 
 
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)
$
1,000

 
$

 
$

$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)
1,000

 
1,000

 
1,000

$500 million, 8.50% Fixed Interest Rate Notes due June 2019, Less Unamortized Discount (“2019 Notes”)
489

 
488

 
487

$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)
400

 
400

 
400

Total Senior Unsecured Debt with Subsidiary Guarantee
$
2,889

 
$
1,888

 
$
1,887

Senior Unsecured Debt
 
 
 
 
 
$700 million, 6.90% Fixed Interest Rate Notes due July 2017, Less Unamortized Discount (“2017 Notes”)(a)
$
723

 
$
724

 
$
711

$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

 
220

 
219

6.125% Fixed Interest Rate Notes due December 2012, Less Unamortized Discount (“2012 Notes”)(c)
57

 
57

 
58

Total Senior Unsecured Debt
$
1,648

 
$
1,650

 
$
1,637

Total
$
4,537

 
$
3,538

 
$
3,524

Current Portion of Long-term Debt
(57
)
 
(57
)
 

Total Long-term Debt, Net of Current Portion
$
4,480

 
$
3,481

 
$
3,524

 ________________
(a)
The balances include a fair value interest rate hedge adjustment which increased the debt balance by $24 million as of July 28, 2012, $25 million as of January 28, 2012 and $12 million as of July 30, 2011.
(b)
The principal balance outstanding was $213 million as of July 28, 2012, January 28, 2012 and July 30, 2011. The balances include a fair value interest rate hedge adjustment which increased the debt balance by $6 million as of July 28, 2012, $7 million as of January 28, 2012 and $7 million as of July 30, 2011.
(c)
The principal balance outstanding was $57 million as of July 28, 2012, January 28, 2012 and July 30, 2011. The July 30, 2011 balance includes a fair value interest rate hedge adjustment which increased the debt balance by $1 million.

12


 
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 issuance costs of $15 million. These issuance costs are being amortized through the maturity date of February 2022 and are included within Other Assets on the July 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 issuance costs of $19 million. These issuance costs are being amortized through the maturity date of April 2021 and are included within Other Assets on the Consolidated Balance Sheets.
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 July 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 July 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 $15 million of outstanding letters of credit as of July 28, 2012 that reduce its remaining availability under its Revolving Facility.
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 CAD$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.

13



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 28, 2012, January 28, 2012 and July 30, 2011:
 
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(in millions)
Other Long-term Liabilities
$
53

 
$
60

 
$
83


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 2012 and 2011:
 
 
 
 
Second Quarter
 
Year-to-Date
 
Location
 
2012
 
2011
 
2012
 
2011
 
 
 
(in millions)
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Other Comprehensive Income (Loss)
 
$
10

 
$
2

 
$
7

 
$
(26
)
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Other Income (a)
Other Income
 
(11
)
 
(5
)
 
1

 
23

 ________________
(a)
Represents reclassification of amounts from accumulated other comprehensive income 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 Fair Value Hedges
The Company had the following interest rate swap arrangements related to certain outstanding debt as of July 28, 2012, January 28, 2012 and July 30, 2011:
 
 
Notional Amount
 
 
July 28, 2012
 
January 28, 2012
 
July 30, 2011
 
 
 
 
(in millions)
 
 
2014 Notes
 
$

 
$

 
$
213

2017 Notes
 

 
175

 
325

Total
 
$

 
$
175

 
$
538

The interest rate swap arrangements effectively converted the fixed interest rate on the related debt to a variable interest rate based on LIBOR plus a fixed interest rate.
The swap arrangements were designated as fair value hedges. The changes in the fair value of the interest rate swaps had 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 was accrued and recognized as an adjustment to interest expense.
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. In June 2012, the Company terminated the remaining interest rate designated fair value hedges related to the 2017 Notes with a notional amount of $175 million. In settlement of these hedges, the Company received $14 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.


14


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 28, 2012, January 28, 2012 and July 30, 2011:
 
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(in millions)
Other Assets
$

 
$
14

 
$
19


12. Fair Value Measurements

The following table provides a summary of the carrying value and fair value of long-term debt as of July 28, 2012January 28, 2012 and July 30, 2011:
 
July 28,
2012
 
January 28,
2012
 
July 30,
2011
 
(in millions)
Carrying Value
$
4,537

 
$
3,538

 
$
3,524

Fair Value (a)
4,927

 
3,849

 
3,704

 
(a)
The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices which are considered Level 2 inputs in accordance with ASC Topic 820, Fair Value Measurements and Disclosure. 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, 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.

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 July 28, 2012, January 28, 2012 and July 30, 2011:

 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
As of July 28, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,193

 
$

 
$

 
$
1,193

Liabilities:
 
 
 
 
 
 
 
Cross-currency Cash Flow Hedges

 
53

 

 
53

Lease Guarantees

 

 
3

 
3

As of January 28, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
935

 
$

 
$

 
$
935

Interest Rate Designated Fair Value Hedges

 
14

 

 
14

Liabilities:
 
 
 
 
 
 
 
Cross-currency Cash Flow Hedges

 
60

 

 
60

Lease Guarantees

 

 
4

 
4

As of July 30, 2011
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,035

 
$

 
$

 
$
1,035

Interest Rate Designated Fair Value Hedges

 
19

 

 
19

Liabilities:
 
 
 
 
 
 
 
Cross-currency Cash Flow Hedges

 
83

 

 
83

Lease Guarantees

 

 
5

 
5


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 second quarter and year-to-date 2012 and 2011:
 
Second Quarter
 
Year-to-Date
 
2012
 
2011
 
2012
 
2011
 
(in millions)
Beginning Balance
$
4

 
$
6

 
$
4

 
$
6

Change in Estimated Fair Value Reported in Earnings
(1
)
 
(1
)
 
(1
)
 
(1
)
Ending Balance
$
3

 
$
5

 
$
3

 
$
5


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 (loss) for year-to-date 2012:
 
Foreign Currency Translation
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Income (Loss)
 
(in millions)
Balance as of January 28, 2012
$
(8
)
 
$
8

 
$

Current-period Other Comprehensive Income
1

 
8

 
9

Balance as of July 28, 2012
$
(7
)
 
$
16

 
$
9

The following table provides the rollforward of additional detail regarding the composition of accumulated other comprehensive income (loss) for year-to-date 2011:
 
Foreign Currency Translation
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Income (Loss)
 
(in millions)
Balance as of January 29, 2011
$
(7
)
 
$
8

 
$
1

Current-period Other Comprehensive Income (Loss)
(1
)
 
(2
)
 
(3
)
Balance as of July 30, 2011
$
(8
)
 
$
6

 
$
(2
)

The components of accumulated other comprehensive income (loss) 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 appeal the judgment and to vigorously defend against this action.

Guarantees
In connection with the disposition of certain businesses, the Company has remaining guarantees of approximately $66 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 $42 million as of July 28, 2012, $49 million as of January 28, 2012 and $57 million as of July 30, 2011. The estimated fair value of these guarantee obligations was $3 million as of July 28, 2012, $4 million as of January 28, 2012 and $5 million as of July 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 July 28, 2012January 28, 2012 and July 30, 2011.

17



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 $13 million for both the second quarter of 2012 and 2011. Total expense recognized related to the qualified plan was $27 million for both year-to-date 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 both the second quarter of 2012 and 2011. Total expense recognized related to the non-qualified plan was $12 million for both year-to-date 2012 and 2011.

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:
Mast Global, a merchandise sourcing and production function serving the Company and its international partners;
International retail, franchise, license and wholesale operations, which include the company-owned La Senza, Bath & Body Works and Victoria’s Secret stores in Canada;
Henri Bendel, a chain of specialty stores which feature accessories and personal care products; and
Corporate functions including non-core real estate, equity investments and other governance functions such as treasury and tax.

18


The following table provides the Company’s segment information for the second quarter and year-to-date 2012 and 2011. As discussed above, certain reclassifications have been made to amounts for prior periods to conform to the current year's presentation.
 
Victoria’s
Secret
 
Bath &
Body Works
 
Other
 
Total
 
(in millions)
2012
 
 
 
 
 
 
 
Second Quarter:
 
 
 
 
 
 
 
Net Sales
$
1,577

 
$
609

 
$
213

 
$
2,399

Operating Income (Loss)
256

 
88

 
(39
)
 
305

Year-to-Date:
 
 
 
 
 
 
 
Net Sales
$
3,047

 
$
1,114

 
$
392

 
$
4,553

Operating Income (Loss)
534

 
148

 
(84
)
 
598

2011
 
 
 
 
 
 
 
Second Quarter:
 
 
 
 
 
 
 
Net Sales
$
1,457

 
$
563

 
$
438

 
$
2,458

Operating Income (Loss)
239

 
70

 
(115
)
 
194

Year-to-Date:
 
 
 
 
 
 
 
Net Sales
$
2,812

 
$
1,043

 
$
820

 
$
4,675

Operating Income (Loss)
484

 
124

 
(198
)
 
410


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 $239 million and $245 million for the second quarter of 2012 and 2011, respectively. The Company's international sales totaled $442 million and $435 million for year-to-date 2012 and 2011, respectively.

17. Subsequent Events
Subsequent to July 28, 2012, the Company repurchased an additional 0.2 million shares of common stock for $8 million under the February 2012 repurchase program. In addition, on August 2, 2012, the Company declared the third quarter ordinary dividend of $0.25 per share and a special dividend of $1 per share. The special dividend is estimated to total $290 million. For additional information, see Note 3, "Earnings Per Share and Shareholders' Equity."

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 July 28, 2012, January 28, 2012 and July 30, 2011; and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended July 28, 2012 and July 30, 2011.


19


LIMITED BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)
(Unaudited)
 
 
July 28, 2012
 
Limited
Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Limited
Brands, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
623

 
$
570

 
$

 
$
1,193

Accounts Receivable, Net

 
113

 
62

 

 
175

Inventories

 
886

 
171

 

 
1,057

Deferred Income Taxes

 
33

 
18

 

 
51

Other

 
179

 
61

 

 
240

Total Current Assets

 
1,834

 
882

 

 
2,716

Property and Equipment, Net

 
971

 
804

 

 
1,775

Goodwill

 
1,318

 
12

 

 
1,330

Trade Names and Other Intangible Assets, Net

 
410

 
84

 

 
494

Net Investments in and Advances to/from Consolidated Affiliates
4,169

 
13,874

 
557

 
(18,600
)
 

Other Assets
194

 
44

 
684

 
(648
)
 
274

Total Assets
$
4,363

 
$
18,451

 
$
3,023

 
$
(19,248
)
 
$
6,589

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
$
4

 
$
366

 
$
254

 
$

 
$
624

Accrued Expenses and Other
77

 
392

 
243

 

 
712

Current Portion of Long-term Debt
57

 

 

 

 
57

Income Taxes

 

 
7

 

 
7

Total Current Liabilities
138

 
758

 
504

 

 
1,400

Deferred Income Taxes
(5
)
 
12

 
181

 

 
188

Long-term Debt
4,480

 
596

 
37

 
(633
)
 
4,480

Other Long-term Liabilities
4

 
583

 
193

 
(14
)
 
766

Total Equity (Deficit)
(254
)
 
16,502

 
2,108

 
(18,601
)
 
(245
)
Total Liabilities and Equity (Deficit)
$
4,363

 
$
18,451

 
$
3,023

 
$
(19,248
)
 
$
6,589


20



LIMITED BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(in millions)

 
January 28, 2012
 
Limited
Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Limited
Brands, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
371

 
$
564

 
$

 
$
935

Accounts Receivable, Net

 
142

 
76

 

 
218

Inventories


 
822

 
175

 

 
997

Deferred Income Taxes

 
33

 
18

 

 
51

Other

 
109

 
58

 

 
167

Total Current Assets

 
1,477

 
891

 

 
2,368

Property and Equipment, Net

 
911

 
733

 

 
1,644

Goodwill

 
1,318

 
12

 

 
1,330

Trade Names and Other Intangible Assets, Net

 
410

 
85

 

 
495

Net Investments in and Advances to/from Consolidated Affiliates
3,531

 
13,928

 
518

 
(17,977
)
 

Other Assets
199

 
43

 
677

 
(648
)
 
271

Total Assets
$
3,730

 
$
18,087

 
$
2,916

 
$
(18,625
)
 
$
6,108

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
$
4

 
$
312

 
$
224

 
$

 
$
540

Accrued Expenses and Other
51

 
412

 
307

 

 
770

Current Portion of Long-term Debt
57

 

 

 

 
57

Income Taxes
1

 
150

 
8

 

 
159

Total Current Liabilities
113

 
874

 
539

 

 
1,526

Deferred Income Taxes
(6
)
 
10

 
179

 

 
183

Long-term Debt
3,481

 
597

 
36

 
(633
)
 
3,481

Other Long-term Liabilities
6

 
582

 
207

 
(15
)
 
780

Total Equity
136

 
16,024

 
1,955

 
(17,977
)
 
138

Total Liabilities and Equity
$
3,730

 
$
18,087

 
$
2,916

 
$
(18,625
)
 
$
6,108



21


LIMITED BRANDS, INC.
CONDENSED CONSOLIDATING 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
$

 
$
565

 
$
470

 
$

 
$
1,035

Accounts Receivable, Net
2

 
194

 
45

 

 
241

Inventories

 
911

 
193

 

 
1,104

Deferred Income Taxes

 
31

 
(1
)
 

 
30

Other
(2
)
 
160

 
84

 

 
242

Total Current Assets

 
1,861

 
791

 

 
2,652

Property and Equipment, Net

 
903

 
680

 

 
1,583

Goodwill

 
1,318

 
139

 

 
1,457

Trade Names and Other Intangible Assets, Net

 
411

 
187

 

 
598

Net Investments in and Advances to/from Consolidated Affiliates
4,011

 
16,110

 
3,205

 
(23,326
)
 

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

 
$

 
$
646

Accrued Expenses and Other
52

 
384

 
260

 

 
696

Income Taxes

 

 
5

 

 
5

Total Current Liabilities
67

 
705

 
575

 

 
1,347

Deferred Income Taxes
(5
)
 
41

 
188

 

 
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



22


LIMITED BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(in millions)
(Unaudited)
 
 
Second Quarter 2012
 
Limited
Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Limited
Brands, Inc.
Net Sales
$

 
$
2,190

 
$
678

 
$
(469
)
 
$
2,399

Costs of Goods Sold, Buying and Occupancy

 
(1,335
)
 
(582
)
 
460

 
(1,457
)
Gross Profit

 
855

 
96

 
(9
)