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 August ~~4, 2018~~3, 2019



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

_________________________________

L BRANDS, INC.

(Exact name of registrant as specified in its charter)

~~_________________________________~~_______________________________



Delaware		31-1029810
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
Three Limited Parkway
~~Three Limited Parkway~~ Columbus, ~~Ohio~~	Ohio	43230
(Address of principal executive offices)			(Zip Code)
(614)
~~(614)~~ 415-7000
(Registrant's Telephone Number, Including Area Code)

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. Yesý☒ 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). Yesý☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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☐

		Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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~~Securities registered pursuant to Section 12(b) of the ~~issuer’s classes of common stock, as of the latest practicable date.~~Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, ~~$.50~~$0.50 Par Value	LB	~~Outstanding at August 31, 2018~~
		~~275,063,433 Shares~~The New York Stock Exchange

As of August 30, 2019, the number of outstanding shares of the Registrant’s common stock, was 276,391,606 shares.

L BRANDS, INC.

TABLE OF CONTENTS



	Page No.
Part I. Financial Information

Item 1. Financial Statements *

Consolidated Statements of Income for the Thirteen-Weeks and Twenty-Six-Weeks Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ (Unaudited)	3

Consolidated Statements of Comprehensive Income for the Thirteen-Weeks and Twenty-Six-Weeks Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ (Unaudited)	3

Consolidated Balance Sheets as of August 3, 2019 (Unaudited), February 2, 2019 and August 4, 2018 (Unaudited)~~, February 3, 2018 and July 29, 2017 (Unaudited)~~	4

Consolidated Statements of Total Equity (Deficit) for the Thirteen-Weeks and Twenty-Six-Weeks Ended August 3, 2019 and August 4, 2018 (Unaudited)	5

Consolidated Statements of Cash Flows for the Twenty-Six-Weeks Ended August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ (Unaudited)	57

Notes to Consolidated Financial Statements (Unaudited)	68

Report of Independent Registered Public Accounting Firm	2932

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	3033

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134

Item 3. Quantitative and Qualitative Disclosures About Market Risk	47

~~Item 4.~~ ~~Controls and Procedures~~	48

~~Part II. Other Information~~	49

~~Item 1.~~ ~~Legal Proceedings~~	49

~~Item 1A.~~ ~~Risk Factors~~	49

~~Item 2.~~ ~~Unregistered Sales of Equity Securities and Use of Proceeds~~	49

~~Item 3.~~ ~~Defaults Upon Senior Securities~~	49

~~Item 4.~~ ~~Mine Safety Disclosures~~	49

~~Item 5.~~ ~~Other Information~~	49

~~Item 6.~~ ~~Exhibits~~	50

Item 4. ~~Signature~~Controls and Procedures	51

Part II. Other Information	52

Item 1. Legal Proceedings	52

Item 1A. Risk Factors	52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3. Defaults Upon Senior Securities	52

Item 4. Mine Safety Disclosures	52

Item 5. Other Information	52

Item 6. Exhibits	53

Signature	54



*	The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of ~~2018”~~2019” and “second quarter of ~~2017”~~2018” refer to the thirteen-week periods ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ respectively. "Year-to-date ~~2018"~~2019" and "year-to-date ~~2017"~~2018" refer to the twenty-six-week periods ending August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ respectively.

PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions except per share amounts)

(Unaudited)


	Second Quarter						Year-to-Date						Second Quarter						Year-to-Date
	2018			2017			2018			2017			2019			2018			2019			2018
Net Sales	$	2,984		$	2,755		$	5,610		$	5,192		$	2,902		$	2,984		$	5,530		$	5,610
Costs of Goods Sold, Buying and Occupancy	(1,925		)	(1,727		)	(3,607		)	(3,261		)	(1,919		)	(1,925		)	(3,614		)	(3,607		)
Gross Profit	1,059			1,028			2,003			1,931			983			1,059			1,916			2,003
General, Administrative and Store Operating Expenses	(831		)	(727		)	(1,620		)	(1,421		)	(808		)	(831		)	(1,588		)	(1,620		)
Operating Income	228			301			383			510			175			228			328			383
Interest Expense	(98		)	(101		)	(196		)	(201		)	(95		)	(98		)	(194		)	(196		)
Other Income (Loss)	(1		)	17			1			27			(38		)	(1		)	(31		)	1
Income Before Income Taxes	129			217			188			336			42			129			103			188
Provision for Income Taxes	30			78			41			103			4			30			25			41
Net Income	$	99		$	139		$	147		$	233		$	38		$	99		$	78		$	147
Net Income Per Basic Share	$	0.36		$	0.48		$	0.53		$	0.81		$	0.14		$	0.36		$	0.28		$	0.53
Net Income Per Diluted Share	$	0.36		$	0.48		$	0.52		$	0.81		$	0.14		$	0.36		$	0.28		$	0.52
Dividends Per Share	$	0.60		$	0.60		$	1.20		$	1.20		$	0.30		$	0.60		$	0.60		$	1.20

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	Second Quarter						Year-to-Date
	2019			2018			2019			2018
Net Income	$	38		$	99		$	78		$	147
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	(7		)	(9		)	(11		)	(22		)
Unrealized Gain on Cash Flow Hedges	2			3			4			9
Reclassification of Cash Flow Hedges to Earnings	(1		)	1			(3		)	3
Total Other Comprehensive Income (Loss), Net of Tax	(6		)	(5		)	(10		)	(10		)
Total Comprehensive Income	$	32		$	94		$	68		$	137

Second Quarter Year-to-Date
2018 2017 2018 2017
Net Income $ 99
$ 139
$ 147
$ 233
Other Comprehensive Income (Loss), Net of Tax:
   Foreign Currency Translation (9 ) 7
(22 ) 10
   Unrealized Gain (Loss) on Cash Flow Hedges 3
(26 ) 9
(16 )
   Reclassification of Cash Flow Hedges to Earnings 1
12
3
5
Total Other Comprehensive Income (Loss), Net of Tax (5 ) (7 )
(10 )
(1 )
Total Comprehensive Income $ 94
$ 132
$ 137
$ 232

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

L BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)


	August 4, 2018			February 3, 2018			July 29, 2017			August 3, 2019			February 2, 2019			August 4, 2018
	(Unaudited)						(Unaudited)			(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	843		$	1,515		$	1,360		$	853		$	1,413		$	843
Accounts Receivable, Net	310			310			245			283			367			310
Inventories	1,315			1,240			1,118			1,329			1,248			1,315
Other	247			228			234			188			232			247
Total Current Assets	2,715			3,293			2,957			2,653			3,260			2,715
Property and Equipment, Net	2,949			2,893			2,841			2,756			2,818			2,949
Operating Lease Assets										3,209			—			—
Goodwill	1,348			1,348			1,348			1,348			1,348			1,348
Trade Names	411			411			411			411			411			411
Deferred Income Taxes	21			14			25			62			62			21
Other Assets	176			190			181			179			191			176
Total Assets	$	7,620		$	8,149		$	7,763		$	10,618		$	8,090		$	7,620
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	821		$	717		$	758		$	763		$	711		$	821
Accrued Expenses and Other	963			1,029			860			919			1,082			963
Current Debt	65			87			64			75			72			65
Current Operating Lease Liabilities										456			—			—
Income Taxes	7			198			76			3			121			7
Total Current Liabilities	1,856			2,031			1,758			2,216			1,986			1,856
Deferred Income Taxes	237			238			369			241			226			237
Long-term Debt	5,712			5,707			5,704			5,475			5,739			5,712
Long-term Operating Lease Liabilities										3,165			—			—
Other Long-term Liabilities	937			924			844			450			1,004			937
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—			—			—			—			—			—
Common Stock - $0.50 par value; 1,000 shares authorized; 283, 283 and 318 shares issued; 275, 280 and 286 shares outstanding, respectively	142			141			159
Common Stock - $0.50 par value; 1,000 shares authorized; 284, 283 and 283 shares issued; 276, 275 and 275 shares outstanding, respectively										142			141			142
Paid-in Capital	718			678			707			806			771			718
Accumulated Other Comprehensive Income	12			24			11			49			59			12
Retained Earnings (Deficit)	(1,648		)	(1,434		)	94			(1,572		)	(1,482		)	(1,648		)
Less: Treasury Stock, at Average Cost; 8, 3 and 32 shares, respectively	(348		)	(162		)	(1,885		)
Less: Treasury Stock, at Average Cost; 8, 8 and 8 shares, respectively										(358		)	(358		)	(348		)
Total L Brands, Inc. Shareholders’ Equity (Deficit)	(1,124		)	(753		)	(914		)	(933		)	(869		)	(1,124		)
Noncontrolling Interest	2			2			2			4			4			2
Total Equity (Deficit)	(1,122		)	(751		)	(912		)
Total Equity (Accumulated Deficit)										(929		)	(865		)	(1,122		)
Total Liabilities and Equity (Deficit)	$	7,620		$	8,149		$	7,763		$	10,618		$	8,090		$	7,620

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

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Second Quarter 2019



	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, May 4, 2019	276	$	142	$	786	$	55		$	(1,527	)	$	(358	)	$	4	$	(898	)
Net Income	—	—		—		—			38			—			—		38
Other Comprehensive Income (Loss)	—	—		—		(6		)	—			—			—		(6		)
Total Comprehensive Income	—	—		—		(6		)	38			—			—		32
Cash Dividends ($0.30 per share)	—	—		—		—			(83		)	—			—		(83		)
Share-based Compensation and Other	—	—		20		—			—			—			—		20
Balance, August 3, 2019	276	$	142	$	806	$	49		$	(1,572	)	$	(358	)	$	4	$	(929	)

Second Quarter 2018



	Common Stock				Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding		Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, May 5, 2018	278		$	141	$	696	$	17		$	(1,580	)	$	(245	)	$	2	$	(969	)
Net Income	—		—		—		—			99			—			—		99
Other Comprehensive Income (Loss)	—		—		—		(5		)	—			—			—		(5		)
Total Comprehensive Income	—		—		—		(5		)	99			—			—		94
Cash Dividends ($0.60 per share)	—		—		—		—			(167		)	—			—		(167		)
Repurchase of Common Stock	(3	)	—		—		—			—			(103		)	—		(103		)
Share-based Compensation and Other	—		1		22		—			—			—			—		23
Balance, August 4, 2018	275		$	142	$	718	$	12		$	(1,648	)	$	(348	)	$	2	$	(1,122	)

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

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Year-to-Date 2019



	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, February 2, 2019	275	$	141	$	771	$	59		$	(1,482	)	$	(358	)	$	4	$	(865	)
Cumulative Effect of Accounting Change	—	—		—		—			(2		)	—			—		(2		)
Balance, February 3, 2019	275	141		771		59			(1,484		)	(358		)	4		(867		)
Net Income	—	—		—		—			78			—			—		78
Other Comprehensive Income (Loss)	—	—		—		(10		)	—			—			—		(10		)
Total Comprehensive Income	—	—		—		(10		)	78			—			—		68
Cash Dividends ($0.60 per share)	—	—		—		—			(166		)	—			—		(166		)
Share-based Compensation and Other	1	1		35		—			—			—			—		36
Balance, August 3, 2019	276	$	142	$	806	$	49		$	(1,572	)	$	(358	)	$	4	$	(929	)

Year-to-Date 2018



	Common Stock				Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding		Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, February 3, 2018	280		$	141	$	678	$	24		$	(1,434	)	$	(162	)	$	2	$	(751	)
Cumulative Effect of Accounting Changes	—		—		—		(2		)	(26		)	—			—		(28		)
Balance, February 4, 2018	280		141		678		22			(1,460		)	(162		)	2		(779		)
Net Income	—		—		—		—			147			—			—		147
Other Comprehensive Income (Loss)	—		—		—		(10		)	—			—			—		(10		)
Total Comprehensive Income	—		—		—		(10		)	147			—			—		137
Cash Dividends ($1.20 per share)	—		—		—		—			(335		)	—			—		(335		)
Repurchase of Common Stock	(5	)	—		—		—			—			(186		)	—		(186		)
Share-based Compensation and Other	—		1		40		—			—			—			—		41
Balance, August 4, 2018	275		$	142	$	718	$	12		$	(1,648	)	$	(348	)	$	2	$	(1,122	)

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

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date						Year-to-Date
	2018			2017			2019			2018
Operating Activities:
Net Income	$	147		$	233		$	78		$	147
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Depreciation of Long-lived Assets	296			282			295			296
Amortization of Landlord Allowances	(22		)	(24		)	—			(22		)
Share-based Compensation Expense	50			50			44			50
Loss on Extinguishment of Debt							40			—
Deferred Income Taxes	—			12			15			—
Gains on Distributions from Easton Investments	(7		)	(20		)	(2		)	(7		)
Unrealized Losses on Marketable Equity Securities	6			—			—			6
Changes in Assets and Liabilities:
Accounts Receivable	1			50			55			1
Inventories	(81		)	(18		)	(83		)	(81		)
Accounts Payable, Accrued Expenses and Other	4			(73		)	(107		)	4
Income Taxes Payable	(209		)	(223		)	(138		)	(209		)
Other Assets and Liabilities	27			(48		)	(35		)	27
Net Cash Provided by Operating Activities	212			221			162			212
Investing Activities:
Capital Expenditures	(345		)	(372		)	(244		)	(345		)
Return of Capital from Easton Investments	13			27
Other Investing Activities	2			(5		)	7			15
Net Cash Used for Investing Activities	(330		)	(350		)	(237		)	(330		)
Financing Activities:
Payment of Long-term Debt	(52		)	—
Proceeds from Issuance of Long-Term Debt, Net of Issuance Costs							486			—
Payments of Long-term Debt							(799		)	(52		)
Borrowings from Foreign Facilities	89			36			25			89
Repayments of Foreign Facilities	(57		)	(8		)	(14		)	(57		)
Dividends Paid	(335		)	(344		)	(166		)	(335		)
Repurchases of Common Stock	(186		)	(132		)	—			(186		)
Tax Payments related to Share-based Awards	(12		)	(30		)	(11		)	(12		)
Proceeds from Exercise of Stock Options	1			37			1			1
Financing Costs and Other	(2		)	(8		)	(5		)	(2		)
Net Cash Used for Financing Activities	(554		)	(449		)	(483		)	(554		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			4			(2		)	—
Net Decrease in Cash and Cash Equivalents	(672		)	(574		)	(560		)	(672		)
Cash and Cash Equivalents, Beginning of Period	1,515			1,934			1,413			1,515
Cash and Cash Equivalents, End of Period	$	843		$	1,360		$	853		$	843

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

L BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

L 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, personal care, beauty and home fragrance products. The Company sells its merchandise through company-owned specialty retail stores in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Ireland and Greater China (China and Hong Kong), ~~which are primarily mall-based,~~ and through its websites and other channels. The Company's other international operations are primarily through franchise, license and wholesale partners. The Company currently operates the following retail brands:

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 ~~2018~~2019” and “second quarter of ~~2017~~2018” refer to the thirteen-week periods ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~, respectively. “Year-to-date ~~2018”~~2019” and “year-to-date ~~2017”~~2018” refer to the twenty-six-week periods ending August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ 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's 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 onin the Consolidated Statements of Income. The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) onin the Consolidated Statements of Income. The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.

On January 6, 2019, the Company completed the sale of the La Senza business. For additional information, see Note 5, "Restructuring Activities."

Interim Financial Statements

The Consolidated Financial Statements as of and for the periods ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~ 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 ~~2017~~2018 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 and 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. Typically, the Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.

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. The Company records an allowance for uncollectable accounts when it becomes probable that the counterparty will be unable to pay.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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

~~Revenue from Contracts with Customers~~Leases

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) ~~606,~~ ~~Revenue from Contracts with Customers~~, which was further clarified and amended in 2015 and 2016. This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted the standard in the first quarter of 2018 under the modified retrospective approach. Under the standard, income from the Victoria's Secret private label credit card arrangement, which was historically presented as a reduction to General, Administrative and Store Operating Expenses, is presented as revenue. Further, historical accounting related to loyalty points earned under the Victoria's Secret customer loyalty program changed as the Company now defers revenue associated with customer loyalty points until the points are redeemed using a relative stand-alone selling price method. The standard also changed accounting for sales returns which requires balance sheet presentation on a gross basis.

In the first quarter of 2018, the Company recorded a cumulative catch-up adjustment resulting in a reduction to opening retained earnings, net of tax, of $28 million. The cumulative adjustment primarily related to the deferral of revenue related to outstanding points, net of estimated forfeitures, under the Victoria's Secret customer loyalty program. In addition, Net Sales and General, Administrative and Store Operating Expenses both increased $48 million and $73 million in the second quarter and year-to-date 2018 Consolidated Statements of Income, respectively. Further, gross presentation of the Company's sales return reserve resulted in a $4 million increase in Other Current Assets and Accrued Expenses and Other on the August 4, 2018 Consolidated Balance Sheet.

~~Fair Value of Financial Instruments~~

~~In January 2016, the FASB issued ASC 321,~~ ~~Investments - Equity Securities~~, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard requires the recognition of changes in the fair value of marketable equity securities in net income as compared to historical treatment in accumulated other comprehensive income on the balance sheet. The Company adopted the standard in the first quarter of 2018 and recorded an increase to opening retained earnings, net of tax, of $2 million.

~~Leases~~

~~In February 2016, the FASB issued ASC~~ 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheets but recognize expenses on their income statements in a manner similar to ~~today’s~~legacy accounting. The standard also ~~will result in~~requires enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of ~~revenue and~~ expense recognized and expected to be recognized from existing leases. In July 2018, the FASB approved an amendment to the standard that provides companies a modified retrospective transition option that ~~would~~did not require earlier periods to be restated upon adoption. ~~The standard is effective beginning in fiscal 2019, with early adoption permitted.~~

The Company is currently evaluating the impacts that this standard will have on its Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows. The Company currently expects that most of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the standard. Thus, the Company expects adoption will result in a material increase to the assets and liabilities on the Consolidated Balance Sheet. The Company will adoptadopted the standard in the first quarter of 2019 ~~and~~under the modified retrospective approach. As allowed by the new standard, the Company elected the package of transition practical expedients but elected to not apply the ~~standard prospectively~~hindsight practical expedient to its leases at transition.

Upon adoption at the beginning of 2019, the Company recorded operating lease liabilities of $3.7 billion and operating lease assets for its leases of $3.3 billion. The operating lease assets are net of $470 million of liabilities for deferred rent and unamortized landlord construction allowances that were previously recorded as Other Long-term Liabilities on the Consolidated Balance Sheet. The Company also recorded a decrease to opening retained earnings, net of tax, of $2 million. The adoption of the ~~adoption date.~~standard did not materially impact the Consolidated Statements of Income or Cash Flows. See Note 8, “Leases” for additional disclosure required by the new standard.

Hedging Activities

In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12, Targeted Improvements to Accounting for Hedging Activities, which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This guidance will be effective beginning in fiscal ~~2019,~~2020, with early adoption permitted. The Company ~~is currently evaluating the impact of~~does not expect this standard to have a material impact on its ~~Consolidated Statements~~consolidated results of ~~Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows.~~operations, financial position or cash flows.

3. Revenue Recognition

~~In the first quarter of 2018, the Company adopted ASC 606,~~ ~~Revenue from Contracts with Customers,~~ using the modified retrospective approach. Results for the second quarter and year-to-date 2018 are presented under ASC 606, while prior period consolidated financial statements have not been adjusted and continue to be presented under the accounting standards in effect for those periods.

The Company recognizes revenue based on the amount it expects to receive when control of the goods or services is transferred to the customer. The Company recognizes sales upon customer receipt of merchandise, which for direct channel revenues reflects an estimate of shipments that have not yet been received by the customer based on shipping terms and historical delivery times. The Company’s shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy on the Consolidated Statements of Income. The Company also provides a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers.

The Company offers certain loyalty programs that allow customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, they are able to use the points to purchase merchandise in stores or online. The Company allocates revenue to points earned on qualifying purchases and defers recognition until the points are redeemed. The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points not expected to be redeemed based on historical experience.

The Company’s brands sell gift cards with no expiration dates to customers. The Company does not charge administrative fees on unused gift cards. The Company recognizes revenue from gift cards when they are redeemed by the customer. In addition, the Company recognizes revenue on unredeemed gift cards where the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). Gift card breakage revenue is recognized in proportion, and over the same time period, as actual gift card redemptions. The Company determines the gift card breakage rate based on historical redemption patterns. Gift card breakage is included in Net Sales in the Consolidated Statements of Income.

Revenue earned in connection with Victoria’s Secret's private label credit card arrangement is recognized over the term of the license arrangement and is included in Net Sales in the 2018 Consolidated Statements of Income.

The Company also recognizes revenues associated with franchise, license and wholesale arrangements. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title passes to the partner.

Accounts receivable, net from revenue-generating activities were $174 million as of August 3, 2019, $150 million as of February 2, 2019 and $165 million as of August 4, ~~2018 and $144 million as of the beginning of the period upon adoption of the new standard.~~2018. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 7590 days.

The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments not yet delivered, which are all impacted by seasonal and holiday-related sales patterns. ~~The balance of deferred~~Deferred revenue was $276 million as of

August 3, 2019, $331 million as of February 2, 2019 and $281 million as of August 4, ~~2018 and $320 million as of the beginning of the period upon adoption of the new standard.~~2018. The Company recognized ~~$159~~$167 million as revenue year-to-date in ~~2018~~2019 from amounts recorded as deferred revenue at the beginning of the period. ~~The Company's deferred revenue balance would have been $241 million as of August 4, 2018 under accounting standards in effect prior to the adoption of the new standard.~~ As of August ~~4, 2018,~~3, 2019, the Company recorded deferred ~~revenues~~revenue of

~~$265~~ $262 million within Accrued Expenses and Other, and ~~$16~~$14 million within Other Long-term Liabilities on the Consolidated Balance Sheet.

The following table provides a disaggregation of Net Sales for the second quarter and year-to-date ~~2018~~2019 and ~~2017:~~2018:


	Second Quarter				Year-to-Date				Second Quarter				Year-to-Date
	2018		2017 (a)		2018		2017 (a)		2019		2018		2019		2018
	(in millions)								(in millions)
Victoria’s Secret Stores ~~(b)~~(a)	$	1,365	$	1,351	$	2,601	$	2,597	$	1,233	$	1,365	$	2,381	$	2,601
Victoria’s Secret Direct	360		295		713		582		373		360		735		713
Total Victoria’s Secret	1,725		1,646		3,314		3,179		1,606		1,725		3,116		3,314
Bath & Body Works Stores ~~(b)~~(a)	824		753		1,473		1,342		883		824		1,597		1,473
Bath & Body Works Direct	140		107		251		197		178		140		335		251
Total Bath & Body Works	964		860		1,724		1,539		1,061		964		1,932		1,724
Victoria's Secret and Bath & Body Works International ~~(c)~~(b)	145		114		281		217		155		145		289		281
Other ~~(d)~~(c)	150		135		291		257		80		150		193		291
Total Net Sales	$	2,984	$	2,755	$	5,610	$	5,192	$	2,902	$	2,984	$	5,530	$	5,610

_______________


(a)	~~2017 amounts have not been adjusted under the modified retrospective approach.~~


~~(b)~~	Includes company-owned stores in the U.S. and Canada.


~~(c)~~(b)	Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.


~~(d)~~(c)	Includes wholesale revenues from the Company's sourcing ~~function,~~function. Results for 2018 also include store and direct sales for La Senza and Henri ~~Bendel store and direct sales.~~Bendel.

4. Earnings Per Share and Shareholders’ Equity (Deficit)

Earnings Per Share

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

The following table provides shares utilized for the calculation of basic and diluted earnings per share for the second quarter and year-to-date ~~2018~~2019 and ~~2017~~2018:


	Second Quarter				Year-to-Date				Second Quarter				Year-to-Date
	2018		2017		2018		2017		2019		2018		2019		2018
	(in millions)								(in millions)
Weighted-average Common Shares:
Issued Shares	283		318		283		317		284		283		284		283
Treasury Shares	(6	)	(31	)	(5	)	(31	)	(8	)	(6	)	(8	)	(5	)
Basic Shares	277		287		278		286		276		277		276		278
Effect of Dilutive Options and Restricted Stock	2		2		2		3		2		2		2		2
Diluted Shares	279		289		280		289		278		279		278		280
Anti-dilutive Options and Awards (a)	5		4		5		4		6		5		5		5

_______________


(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 (Deficit)

Common Stock Share Repurchases

Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs ~~for~~during year-to-date 2018 ~~and~~ ~~2017~~:



	Amount Authorized		Shares Repurchased	Amount Repurchased		Average Stock Price of Shares Repurchased within Program
Repurchase Program	Amount Authorized		Shares Repurchased	Amount Repurchased		Average Stock Price of Shares Repurchased within Program
	(in millions)		(in thousands)	(in millions)
March 2018	$	250	4,538	$	161	$	35.53
September 2017	250		527	25		$	46.98
Total			5,065	$	186

Amount
Authorized

Shares
Repurchased

Amount
Repurchased
Average Stock Price of Shares Repurchased within Program
Repurchase Program 2018 2017 2018 2017 2018 2017
(in millions) (in thousands) (in millions)
March 2018 $ 250
4,538
NA
$ 161
NA
$ 35.53
NA
September 2017 250
527
NA
25
NA
$ 46.98
NA
February 2017 250
NA
2,605
NA
$ 129
NA
$ 49.58
February 2016 500
NA
51
NA
3
NA
$ 58.95
Total 5,065
2,656
$ 186
$ 132

The Company did not repurchase any shares during year-to-date 2019.

In March 2018, the Company's Board of Directors approved a ~~new~~ $250 million share repurchase program, which included the $23 million remaining under the September 2017 repurchase program.

~~In September 2017, the Company's Board of Directors approved a $250 million share repurchase program, which included the $10 million remaining under the February 2017 repurchase program.~~

~~In February 2017, the Company's Board of Directors approved a $250 million share repurchase program, which included the $59 million remaining under the February 2016 repurchase program.~~

~~In February 2016, the Company's Board of Directors approved a $500 million share repurchase program, which included the $17 million remaining under the June 2015 repurchase program.~~

The March 2018 repurchase program had ~~$89~~$79 million remaining as of August ~~4, 2018. Subsequent to August 4, 2018, the Company repurchased an additional 0.3 million shares of common stock for $10 million under this program.~~3, 2019.

There were $2 ~~million, $2 million and $3~~ million of share repurchases reflected in Accounts Payable on the August 4, 2018 ~~February 3, 2018 and July 29, 2017~~ Consolidated Balance ~~Sheets, respectively.~~

Sheet.

Dividends

Under the authority and declaration of the Board of Directors, the Company paid the following dividends during year-to-date ~~2018~~2019 and ~~2017:~~2018:



	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2019
Second Quarter	$	0.30	$	83
First Quarter	0.30		83
Total	$	0.60	$	166
2018
Second Quarter	$	0.60	$	167
First Quarter	0.60		168
Total	$	1.20	$	335

Ordinary Dividends Total Paid
(per share) (in millions)
2018
Second Quarter $ 0.60
$ 167
First Quarter 0.60
168
2018 Total $ 1.20
$ 335
2017
Second Quarter $ 0.60
$ 172
First Quarter 0.60
172
2017 Total $ 1.20
$ 344

5. Restructuring Activities

La Senza

On January 6, 2019, in an effort to increase shareholder value and in order to focus on its larger core businesses, the Company divested its ownership interest in La Senza to an affiliate of Regent LP, a global private equity firm. Regent LP assumed La Senza’s operating assets and liabilities in exchange for potential future consideration upon the sale or other monetization of La Senza, as defined in the agreement. In the fourth quarter of 2018, the Company recognized a pre-tax loss on the divestiture of $99 million, primarily related to $45 million of accumulated foreign currency translation adjustments reclassified into earnings that were previously recognized as a component of equity, as well as losses related to the transfer of the net working capital and long-lived store assets to the buyer. The after-tax loss on the divestiture was $55 million, which includes $44 million of tax benefits primarily associated with the recognition of previously unrecognized deferred tax assets. The Company received cash proceeds of $12 million related to a net working capital settlement from the divestiture year-to-date 2019. These proceeds are included within the Investing Activities section of the 2019 Consolidated Statement of Cash Flows.

In conjunction with the transaction, the Company has guaranteed certain lease payments under the current terms of noncancelable leases. For additional information, see Note 15, "Commitments and Contingencies."

Additionally, the Company will continue to provide support to La Senza in various operational areas including logistics, technology and merchandise sourcing for periods of time expected to range from one month to 18 months.

5.Henri Bendel

The Company announced the planned closure of Henri Bendel in the third quarter of 2018. As a result, the Company recognized a pre-tax charge, primarily cash, consisting of lease termination costs, severance and other costs of $20 million in the third quarter of 2018. In the fourth quarter of 2018, the Company recognized an additional pre-tax charge of $3 million, primarily related to contract termination and employee retention costs. In the fourth quarter of 2018, the Company closed all Henri Bendel stores and ceased selling merchandise online.

6. Inventories

The following table provides details of inventories as of August 3, 2019, February 2, 2019 and August 4, 2018, ~~February 3, 2018~~ ~~and~~ ~~July 29, 2017~~:



	August 3, 2019		February 2, 2019		August 4, 2018
	(in millions)
Finished Goods Merchandise	$	1,132	$	1,107	$	1,143
Raw Materials and Merchandise Components	197		141		172
Total Inventories	$	1,329	$	1,248	$	1,315

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Finished Goods Merchandise $ 1,143
$ 1,121
$ 973
Raw Materials and Merchandise Components 172
119
145
Total Inventories $ 1,315
$ 1,240
$ 1,118

Inventories are principally valued at the lower of cost, on a weighted-average cost basis, or net realizable value.

6.7. Property and Equipment, Net

The following table provides details of property and equipment, net as of August 3, 2019, February 2, 2019 and August 4, 2018, ~~February 3, 2018~~ ~~and~~ ~~July 29, 2017~~:



	August 3, 2019			February 2, 2019			August 4, 2018
	(in millions)
Property and Equipment, at Cost	$	6,808		$	6,733		$	6,890
Accumulated Depreciation and Amortization	(4,052		)	(3,915		)	(3,941		)
Property and Equipment, Net	$	2,756		$	2,818		$	2,949

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Property and Equipment, at Cost $ 6,890
$ 6,687
$ 6,478
Accumulated Depreciation and Amortization (3,941 ) (3,794 ) (3,637 )
Property and Equipment, Net $ 2,949
$ 2,893
$ 2,841

Depreciation expense was ~~$148~~$150 million and ~~$140~~$148 million for the second quarter of ~~2018~~2019 and ~~2017,~~2018, respectively. Depreciation expense was ~~$296~~$295 million and ~~$282~~$296 million for year-to-date ~~2018~~2019 and ~~2017,~~2018, respectively.

7.8. Leases

In the first quarter of 2019, the Company adopted ASC 842, Leases, using the modified retrospective approach. Results for 2019 are presented under ASC 842, while prior period consolidated financial statements have not been adjusted and continue to be presented under the accounting standard in effect at that time.

The Company leases retail space, office space, warehouse facilities, storage space, equipment and certain other items under operating leases. A substantial portion of the Company’s leases are operating leases for its stores, which generally have an initial term of 10 years. Annual store rent consists of a fixed minimum amount and/or variable rent based on a percentage of sales exceeding a stipulated amount. Store lease terms generally also require additional payments covering certain operating costs such as common area maintenance, utilities, insurance and taxes. Certain leases contain predetermined fixed escalations of minimum rentals or require periodic adjustments of minimum rentals depending on an index or rate. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.

At lease commencement, the Company recognizes an asset for the right to use the leased asset and a liability based on the present value of the unpaid fixed lease payments. Operating lease costs are recognized on a straight-line basis as lease expense over the lease term. Variable lease payments associated with the Company's leases are recognized upon occurrence of the event or circumstance on which the payments are assessed. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.

The Company uses its incremental borrowing rate, adjusted for collateral, to determine the present value of its unpaid lease payments.

The Company’s store leases often include options to extend the initial term or to terminate the lease prior to the end of the initial term. The exercise of these options is typically at the sole discretion of the Company. These options are included in determining the initial lease term at lease commencement if the Company is reasonably certain to exercise the option. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term.

For leases entered into or reassessed after the adoption of the new standard, the Company has elected the practical expedient allowed by the standard to account for all fixed consideration in a lease as a single lease component. Therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed operating costs such as common area maintenance and utilities.

The Company has provided residual value guarantees in connection with noncancelable operating leases of certain assets. For additional information, see Note 15, “Commitments and Contingencies.”

The following table provides the components of lease cost for operating leases for the second quarter and year-to-date 2019:



	Second Quarter		Year-to-Date
	(in millions)
Operating Lease Costs	$	176	$	351
Variable Lease Costs	23		40
Short-term Lease Costs	5		10
Total Lease Cost	$	204	$	401

The following table provides future maturities of operating lease liabilities as of the second quarter of 2019:



Fiscal Year	(in millions)
2019	$	299
2020	705
2021	664
2022	594
2023	536
Thereafter	1,843
Total Lease Payments	$	4,641
Less: Interest	(1,020		)
Present Value of Operating Lease Liabilities	$	3,621

As of August 3, 2019, the Company has additional operating lease commitments that have not yet commenced of approximately $44 million.

The following table provides the weighted-average remaining lease term and discount rate for operating leases with lease liabilities as of the second quarter of 2019:



Weighted Average Remaining Lease Term (years)	7.5
Weighted Average Discount Rate	6.1	%

Year-to-date 2019, the Company paid $348 million for operating lease liabilities recorded on the balance sheet. These payments are included within the Operating Activities section of the 2019 Consolidated Statement of Cash Flows.

Year-to-date 2019, the Company obtained $203 million of additional lease assets as a result of new operating lease obligations.

Disclosures for 2018

The following table provides rent expense, as presented under the prior accounting standard, for the second quarter and year-to-date 2018:



	Second Quarter		Year-to-Date
	(in millions)
Store Rent:
Fixed Minimum	$	166	$	333
Contingent	18		30
Total Store Rent	184		363
Office, Equipment and Other	22		44
Total Rent Expense	$	206	$	407

The following table provides future minimum rent commitments under noncancelable operating leases in the next five fiscal years and the remaining years thereafter, as determined under the prior accounting standard, as of February 2, 2019:



Fiscal Year (a)	(in millions)
2019	$	698
2020	676
2021	630
2022	562
2023	504
Thereafter	$	1,738

_______________


(a)	Excludes additional payments covering taxes, common area costs and certain other expenses generally required by store lease terms.

Finance Leases

The Company leases certain fulfillment equipment under finance leases that expire at various dates through 2023. The Company records finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the Consolidated Balance Sheet. Additionally, the Company records finance lease liabilities in Accrued Expenses and Other and Other Long-term Liabilities on the Consolidated Balance Sheet. Finance lease costs are comprised of the straight-line amortization of the lease asset and the accretion of interest expense under the effective interest method.

The Company recorded $23 million and $32 million of finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the August 3, 2019 and August 4, 2018 Consolidated Balance Sheets, respectively. Additionally, the Company recorded finance lease liabilities of $7 million and $9 million in Accrued Expenses and Other and $16 million and $23 million in Other Long-term Liabilities, on the August 3, 2019 and August 4, 2018 Consolidated Balance Sheets, respectively.

Asset Retirement Obligations

The Company has asset retirement obligations related to certain company-owned international stores that contractually obligate the Company to remove leasehold improvements at the end of a lease. The Company’s liability for asset retirement obligations totaled $19 million as of August 3, 2019 and $15 million as of August 4, 2018. These liabilities are included in Other Long-term Liabilities on the Consolidated Balance Sheets.

9. Equity Investments

~~Easton Investments~~

The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $102 million as of August 3, 2019, $89 million as of February 2, 2019, and $78 million as of August 4, 2018,~~, $81 million as of~~ ~~February 3, 2018, and~~ ~~$75 million~~ ~~as of~~ ~~July 29, 2017~~, are recorded in Other Assets on the Consolidated Balance Sheets.

Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.

During 2018, the Company received cash distributions of $13 million from certain of its Easton investments. As a result, the Company recognized pre-tax gains totaling $7 million which are included in Other Income (Loss) on the 2018 Consolidated Statements of Income and the return of capital is included within the Investing Activities section of the 2018 Consolidated Statement of Cash Flows.

During 2017, the Company received cash distributions of $27 million from certain of its Easton investments. As a result, the Company recognized pre-tax gains totaling $20 million which are included in Other Income (Loss) on the 2017 Consolidated Statements of Income and the return of capital is included within the Investing Activities section of the 2017 Consolidated Statement of Cash Flows.

8.10. 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.~~

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The TCJA reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

For the second quarter of ~~2018,~~2019, the Company’s effective tax rate was ~~23.2%~~10.1% compared to ~~36.0%~~23.2% in the second quarter of ~~2017.~~2018. For year-to-date 2019, the Company’s effective tax rate was 24.0% compared to 21.7% year-to-date 2018. The ~~second quarter~~rates for 2019 and 2018 ~~rate was~~were lower than the Company's combined federal and state statutory rate primarily due to the resolution of certain tax matters. ~~The~~

Income taxes paid were $169 million and $255 million for the second quarter ~~2017 rate was lower than~~of 2019 and 2018, respectively. Income taxes paid were $181 million and $266 million for year-to-date 2019 and 2018, respectively.

Uncertain Tax Positions

The Company had unrecognized tax benefits of $114 million as of February 2, 2019, of which $104 million, if recognized would reduce the ~~Company's combined federal and state statutory rate primarily due~~effective income tax rate. Through August 3, 2019, the Company had a net decrease to ~~the domestic manufacturing deduction.~~

~~For year-to-date 2018, the Company's effective~~gross unrecognized tax ~~rate was 21.7% compared to 30.6% year-to-date 2017. The year-to-date 2018 rate was lower than the Company's combined estimated federal and state statutory rate~~benefits of $33 million, primarily due to the resolution of certain tax matters. The ~~year-to-date 2017 rate was lower than~~changes to the ~~Company's combined federal and state statutory rate primarily~~unrecognized tax benefits resulted in a $17 million benefit to the Company’s Provision for Income Taxes year-to-date.

Of the total unrecognized tax benefits as of August 3, 2019, it is reasonably possible that $56 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the ~~recognition~~uncertain and complex application of tax ~~benefits resulting~~regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from ~~stock options exercised.~~

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The ultimate impact may differ from provisional amounts, due to changes in interpretations and assumptionsthis estimate. In such case, the Company ~~has made regarding application of the TCJA as well as~~will record additional ~~regulatory guidance that may be issued. Any adjustments made to the provisional amounts under SAB 118 should be recorded as discrete adjustments~~tax expense or tax benefit in the period ~~identified (not to extend beyond the one-year measurement provided~~ in SAB 118). Through the second quarter of 2018, the Company did not make any adjustments to its provisional amounts included in its consolidated financial statements for the year ended February 3, 2018. The accounting is expected to be completed in the fourth quarter of 2018.which such matters are effectively settled.

Income taxes paid were $255 million and $305 million for the second quarter of 2018 and 2017, respectively. Income taxes paid were $266 million and $320 million for year-to-date 2018 and 2017, respectively.

9.11. Long-term Debt and Borrowing Facilities

The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of August 3, 2019, February 2, 2019 and August 4, 2018:



	August 3, 2019			February 2, 2019			August 4, 2018
	(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	990		$	990		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	486			—			—
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	274			273			272
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	—			337			337
Secured Foreign Facilities	95			91			80
Total Senior Debt with Subsidiary Guarantee	$	4,838		$	5,106		$	5,092
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297
Unsecured Foreign Facilities	67			60			40
Total Senior Debt	$	712		$	705		$	685
Total	$	5,550		$	5,811		$	5,777
Current Debt	(75		)	(72		)	(65		)
Total Long-term Debt, Net of Current Portion	$	5,475		$	5,739		$	5,712

Issuance of Notes

In June 2019, the Company issued $500 million of 7.50% notes due in June 2029 ("2029 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's 100% owned subsidiaries (the “Guarantors”). The proceeds from the issuance were $486 million, which were net of discounts and issuance costs of $14 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the August 3, 2019 Consolidated Balance Sheet.

Repurchases of Notes

In June 2019, the Company completed the early settlement of tender offers to repurchase $212 million of outstanding 2020 Notes, $330 million of outstanding 2021 Notes and $96 million of outstanding 2022 Notes for $669 million. The Company used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, the Company redeemed the remaining $126 million of outstanding 2020 Notes for $130 million.

In the second quarter of 2019, the Company recognized a pre-tax loss on extinguishment of debt of $40 million (after-tax loss of $30 million), ~~February 3, 2018~~which includes write-offs of unamortized issuance costs and ~~July 29, 2017~~:

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) $ 990

$ 990

$ 990
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”) 951

994

993
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”) 776

994

993
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) 693

693

692
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”) 498

497

497
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) 495
495
—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019 (“2019 Notes”)(a) —

—

497
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”) 337

398

397
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”) 272
—
—
Secured Foreign Facilities 80
1
—
Total Senior Debt with Subsidiary Guarantee $ 5,092

$ 5,062

$ 5,059
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) $ 348

$ 348

$ 348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) 297

297

297
Unsecured Foreign Facilities 40

87

64
Total Senior Debt $ 685

$ 732

$ 709
Total $ 5,777

$ 5,794

$ 5,768
Current Debt (65 )
(87 )
(64 )
Total Long-term Debt, Net of Current Portion $ 5,712

$ 5,707

$ 5,704

~~________________~~


~~(a)~~	~~The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $2 million as of July 29, 2017.~~

redemption fees. This loss is included in Other Income (Loss) in the 2019 Consolidated Statements of Income.

Exchange of Notes

In June 2018, the Company completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain or loss was recognized. The exchange premium ~~will be~~is being amortized through the maturity date of January 2027 and is included within Long-term Debt on the ~~August 4, 2018~~ Consolidated Balance ~~Sheet.~~Sheets. The obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by ~~certain of the Company's 100% owned subsidiaries (the “Guarantors”).~~

~~Issuance of Notes~~

In January 2018, the Company issued $500 million of 5.25% notes due in February 2028. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors. The proceeds from the issuance were $495 million, which were net of issuance costs of $5 million. These issuance costs are being amortized through the maturity date of February 2028 and are included within Long-term Debt on the August 4, 2018 and February 3, 2018 Consolidated Balance Sheets.

~~Redemption of Notes~~

In January 2018, the Company used the proceeds from the 2028 Notes to redeem the $500 million 2019 Notes for $540 million. In the fourth quarter of 2017, the Company recognized a pre-tax loss on extinguishment of this debt of $45 million (after-tax loss of $29 million), which includes write-offs of unamortized issuance costs and discounts and losses related to terminated interest rate swaps associated with the 2019 Notes.

Secured Revolving Facility

The Company and the Guarantors guarantee and pledge collateral to secure a revolving credit facility ("Secured Revolving Facility"). The Secured Revolving Facility has aggregate availability of $1 ~~billion and expires in May 2022.~~billion. The Secured Revolving Facility allows the Company and certain of the Company's non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.

The Secured Revolving Facility fees related to committed and unutilized amounts are 0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings is the London Interbank Offered Rate (“LIBOR”) plus 1.50% per annum. The interest rate on outstanding ~~foreign denominated~~foreign-denominated borrowings is the applicable benchmark rate plus 1.50% per annum.

The Secured 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,~~Additionally, as of August 3, 2019, the Secured Revolving Facility ~~provides~~provided 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 August ~~4, 2018,~~3, 2019, 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 August ~~4, 2018,~~3, 2019, there were no0 borrowings outstanding under the Secured Revolving Facility.

The Secured Revolving Facility supports the Company’s letter of credit program. The Company had $9$10 million of outstanding letters of credit as of August ~~4, 2018~~3, 2019 that reduced its remaining availability under the Secured Revolving Facility.

Subsequent to August 3, 2019, the Company entered into an amendment and restatement (“Amendment”) of the Secured Revolving Facility. The Amendment maintains the aggregate availability under the Secured Revolving Facility at $1 billion and extends the expiration date from May 2022 to August 2024. The Amendment also raises the threshold of consolidated debt to consolidated EBITDA in which investments and restricted payments may be made without limitation to 3.50 to 1.00.

Secured Foreign Facilities

The Company and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities ("Secured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese ~~yuan,~~Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. ~~For year-to-date 2018,~~During 2019, the Company borrowed ~~$79~~$12 million and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between ~~August 2018~~December 2019 and May 2022. As of August ~~4, 2018,~~3, 2019, borrowings of ~~$25~~$8 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.

Unsecured Foreign Facilities

The Company guarantees unsecured revolving and term loan bank facilities ("Unsecured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese ~~yuan,~~Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. ~~For year-to-date 2018,~~During 2019, the Company borrowed ~~$10~~$13 million and made payments of ~~$57~~$6 million under the Unsecured Foreign Facilities. The maximum

daily amount outstanding at any point in time ~~in 2018~~during 2019 was ~~$90~~$73 million. Borrowings on the Unsecured Foreign Facilities mature between ~~August 2018~~September 2019 and December ~~2018.~~2019. As of August ~~4, 2018,~~3, 2019, borrowings of ~~$40~~$67 million are included within Current Debt on the Consolidated Balance Sheet.

~~10.~~12. Derivative Financial ~~Instruments~~

~~Foreign Exchange Derivative~~ Instruments

The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all their merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. These forward contracts currently have a maximum term of 18 months. Amounts are reclassified from accumulated other comprehensive income upon the sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy onin the Consolidated Statements of Income.

The Company had a cross-currency swap related to an intercompany loan of approximately CAD$170 million that matured in January 2018 which was designated as a cash flow hedge of foreign currency exchange risk. This cross-currency swap mitigated the exposures to fluctuations in the U.S. dollar-Canadian dollar exchange rate related to the Company's Canadian operations. Changes in the U.S. dollar-Canadian dollar exchange rate and the related swap settlements resulted in reclassification of amounts from accumulated other comprehensive income to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan.

The Company uses foreign currency forward contracts to mitigate the impact of fluctuations in foreign currency exchange rates relative to recognized payable balances denominated in non-functional currencies. The fair value of these non-designated foreign currency forward contracts is not significant as of August ~~4, 2018.~~

3, 2019.

The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of August 3, 2019, February 2, 2019 and August 4, ~~2018, February 3, 2018 and July 29, 2017:~~2018:



	August 3, 2019		February 2, 2019		August 4, 2018
	(in millions)
Notional Amount	$	168	$	147	$	224

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Notional Amount $ 224
$ 217
$ 376

The following table provides a summary of the fair value and balance sheet classification of outstanding derivative financial instruments designated as foreign currency cash flow hedges as of August 3, 2019, February 2, 2019 and August 4, ~~2018, February 3, 2018 and July 29, 2017:~~2018:



	August 3, 2019		February 2, 2019		August 4, 2018
	(in millions)
Other Current Assets	$	3	$	2	$	3
Accrued Expenses and Other	—		—		1

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Other Current Assets $ 3
$ —
$ 8
Accrued Expenses and Other 1
8
8
Other Long-term Liabilities —
1
3

The following table provides a summary of the pre-tax financial statement effect of the gains and losses on derivative financial instruments designated as foreign currency cash flow hedges for the second quarter and year-to-date ~~2018~~2019 and ~~2017:~~2018:



	Second Quarter					Year-to-Date
	2019			2018		2019			2018
	(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income	$	2		$	3	$	4		$	10
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense	(1		)	1		(3		)	3

Second Quarter Year-to-Date
2018 2017 2018 2017
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income $ 3
$ (28 ) $ 10
$ (18 )
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense (a) 1
(1 ) 3
(3 )
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Other Income (Loss) (b) —
13
—
8

~~________________~~


~~(a)~~	Represents reclassification of amounts from accumulated other comprehensive income to earnings when the hedged merchandise is sold to the customer. No ineffectiveness was associated with these foreign currency cash flow hedges.


~~(b)~~	~~Represents reclassification of amounts from accumulated other comprehensive income to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan.~~

The Company estimates that $2$3 million of net gains included in accumulated other comprehensive income as of August ~~4, 2018~~3, 2019 related to foreign currency forward contracts designated as cash flow hedges will be reclassified into earnings within the following 12 months. Actual amounts ultimately reclassified depend on the exchange rates in effect when derivative contracts that are currently outstanding mature.

~~11.~~13. Fair Value Measurements

~~The authoritative guidance included in ASC 820,~~ ~~Fair Value Measurement,~~ 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.

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 August 3, 2019, February 2, 2019 and August 4, ~~2018~~, ~~February 3, 2018~~ ~~and~~ ~~July 29, 2017~~:2018:



	Level 1		Level 2		Level 3		Total
	(in millions)
As of August 3, 2019
Assets:
Cash and Cash Equivalents	$	853	$	—	$	—	$	853
Marketable Equity Securities	2		—		—		2
Foreign Currency Cash Flow Hedges	—		3		—		3
As of February 2, 2019
Assets:
Cash and Cash Equivalents	$	1,413	$	—	$	—	$	1,413
Marketable Equity Securities	11		—		—		11
Foreign Currency Cash Flow Hedges	—		2		—		2
As of August 4, 2018
Assets:
Cash and Cash Equivalents	$	843	$	—	$	—	$	843
Marketable Equity Securities	11		—		—		11
Foreign Currency Cash Flow Hedges	—		3		—		3
Liabilities:
Foreign Currency Cash Flow Hedges	—		1		—		1

Level 1 Level 2 Level 3 Total
(in millions)
As of August 4, 2018
Assets:
Cash and Cash Equivalents $ 843
$ —
$ —
$ 843
Marketable Equity Securities 11
—
—
11
Foreign Currency Cash Flow Hedges —
3
—
3
Liabilities:
Foreign Currency Cash Flow Hedges —
1
—
1
As of February 3, 2018
Assets:
Cash and Cash Equivalents $ 1,515
$ —
$ —
$ 1,515
Marketable Equity Securities 17
—
—
17
Liabilities:
Foreign Currency Cash Flow Hedges —
9
—
9
As of July 29, 2017
Assets:
Cash and Cash Equivalents $ 1,360
$ —
$ —
$ 1,360
Marketable Equity Securities 6
—
—
6
Interest Rate Fair Value Hedges —
2
—
2
Foreign Currency Cash Flow Hedges —
8
—
8
Liabilities:
Foreign Currency Cash Flow Hedges —
11
—
11

The Company's Level 1 fair value measurements use unadjusted quoted prices in active markets for identical assets. The Company's marketable equity securities are classified as Level 1 fair value measurements as they are traded with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

~~In January 2016, the FASB issued ASC 321,~~ ~~Investments - Equity Securities.~~ The standard requires the recognition of changes in the fair value of the Company's marketable equity securities in net income as compared to historical treatment in accumulated other comprehensive income. The Company adopted the standard in the first quarter of 2018. The Company recognized unrealized losses of $6 million related to its marketable equity securities in Other Income (Loss) in the 2018 Consolidated Statements of Income.

The Company’s Level 2 fair value measurements use 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 following table provides a summary of the principal value and estimated fair value of outstanding ~~long-term~~publicly traded debt ~~excluding Foreign Facility borrowings,~~ as of August 3, 2019, February 2, 2019 and August 4, ~~2018, February 3, 2018 and July 29, 2017:~~2018:



	August 3, 2019		February 2, 2019		August 4, 2018
	(in millions)
Principal Value	$	5,458	$	5,722	$	5,722
Fair Value (a)	5,215		5,340		5,432

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Principal Value $ 5,722
$ 5,750
$ 5,750
Fair Value (a) 5,432
5,943
5,929

_______________


(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 ~~820.~~820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

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

~~12.~~14. Comprehensive Income

The following table provides the rollforward of accumulated other comprehensive income for year-to-date ~~2018:~~2019:



	Foreign Currency Translation			Cash Flow Hedges			Accumulated Other Comprehensive Income
	(in millions)
Balance as of February 2, 2019	$	57		$	2		$	59
Other Comprehensive Income (Loss) Before Reclassifications	(11		)	4			(7		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			(3		)	(3		)
Tax Effect	—			—			—
Current-period Other Comprehensive Income (Loss)	(11		)	1			(10		)
Balance as of August 3, 2019	$	46		$	3		$	49

Foreign Currency Translation Cash Flow Hedges Marketable Equity Securities Accumulated Other Comprehensive Income
(in millions)
Balance as of February 3, 2018 $ 32
$ (10 ) $ 2
$ 24
Amount reclassified to Retained Earnings upon adoption of ASC 321 —
—
(2 ) (2 )
Balance as of February 4, 2018 32
(10 ) —
22
Other Comprehensive Income (Loss) Before Reclassifications (22 ) 10
—
(12 )
Amounts Reclassified from Accumulated Other Comprehensive Income —
3
—
3
Tax Effect —
(1 ) —
(1 )
Current-period Other Comprehensive Income (Loss) (22 ) 12
—
(10 )
Balance as of August 4, 2018 $ 10
$ 2
$ —
$ 12

The following table provides the rollforward of accumulated other comprehensive income for year-to-date ~~2017:~~2018:



	Foreign Currency Translation			Cash Flow Hedges			Marketable Equity Securities			Accumulated Other Comprehensive Income
	(in millions)
Balance as of February 3, 2018	$	32		$	(10	)	$	2		$	24
Amount reclassified to Retained Earnings upon adoption of ASC 321, Investments - Equity Securities	—			—			(2		)	(2		)
Balance as of February 4, 2018	32			(10		)	—			22
Other Comprehensive Income (Loss) Before Reclassifications	(22		)	10			—			(12		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			3			—			3
Tax Effect	—			(1		)	—			(1		)
Current-period Other Comprehensive Income (Loss)	(22		)	12			—			(10		)
Balance as of August 4, 2018	$	10		$	2		$	—		$	12

Foreign Currency Translation Cash Flow Hedges Marketable Equity Securities Accumulated Other Comprehensive Income
(in millions)
Balance as of January 28, 2017 $ 9
$ 3
$ —
$ 12
Other Comprehensive Income (Loss) Before Reclassifications 10
(18 ) —
(8 )
Amounts Reclassified from Accumulated Other Comprehensive Income —
5
—
5
Tax Effect —
2
—
2
Current-period Other Comprehensive Income (Loss) 10
(11 ) —
(1 )
Balance as of July 29, 2017 $ 19
$ (8 ) $ —
$ 11

~~The following table provides a summary of the reclassification adjustments out of accumulated other comprehensive income for the second quarter and year-to-date 2018 and 2017:~~

Details About Accumulated Other Comprehensive Income Components Amount Reclassified from Accumulated Other Comprehensive Income Location on Consolidated Statements of Income
Second Quarter Year-to-Date
2018 2017 2018 2017
(in millions)
(Gain) Loss on Cash Flow Hedges $ 1
$ (1 ) $ 3
$ (3 ) Costs of Goods Sold, Buying and Occupancy
—
13
—
8
Other Income (Loss)
—
—
—
—
Provision for Income Taxes
$ 1
$ 12
$ 3
$ 5
Net Income

~~13.~~15. 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 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that the Company made false and/or misleading statements relating to the November 2018 announcement that the Company was reducing its quarterly dividend. The Company views this lawsuit as meritless and intends to defend against this lawsuit vigorously.

Guarantees

In connection with the ~~disposition~~sale of ~~a certain business,~~La Senza in the fourth quarter of 2018, the Company has remaining guarantees of $8$67 million related to lease payments under the current terms of noncancelable leases expiring at various dates through ~~2021.~~2028. 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 business. The Company recorded a liability of $5 millionas of August 3, 2019 and February 2, 2019 representing the estimated fair value of its obligation as guarantor in accordance with ASC 460, Guarantees. In connection with the disposition of a certain ~~instances,~~other business, the ~~Company’s guarantee~~Company has remaining guarantees of $5 million related to lease payments under the current terms of a noncancelable lease expiring in 2021, which may remain in effect if the term ~~of a lease~~ is extended. The Company has not recorded a liability with respect to ~~these~~this guarantee ~~obligations~~obligation as of August 3, 2019, February 2, 2019 or August 4, 2018 ~~February 3, 2018 or July 29, 2017~~ as it concluded that payments under ~~these guarantees~~this guarantee were not probable.

In connection with noncancelable operating leases of certain assets, the Company provided residual value guarantees to the lessor if the leased assets cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The leases expire at various dates through 2021, and the total amount of the guarantees is ~~$104~~$94 million. The Company recorded a liability of $11 million as of August 3, 2019 and February 2, 2019, and $3 million as of August 4, 2018 ~~and February 3, 2018, and a liability of less than $1 million as of July 29, 2017~~ related to these guarantee ~~obligations, which are~~obligations. This liability is included in Current Operating Lease Liabilities on the August 3, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and August 4, 2018 Consolidated Balance Sheets.

~~14.~~16. Retirement Benefits

The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all its associates within the U.S. 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 $20 million for both the second quarter of ~~2018~~2019 and ~~$16 million for the second quarter of 2017.~~2018. Total expense recognized related to the qualified plan was $39 million for year-to-date 2019 and $38 million for year-to-date ~~2018 and $32 million for year-to-date 2017.~~2018.

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 fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors prior to the beginning of each year. 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 second quarter of 2019 and $5 million for the second quarter of ~~2018 and 2017.~~2018. Total expense recognized related to the non-qualified plan was $12 million for year-to-date 2019 and $11 million for year-to-date ~~2018 and $9 million for year-to-date 2017.~~2018.

~~15.~~17. Segment Information

The Company has ~~three~~3 reportable segments: Victoria’s Secret, Bath & Body Works and Victoria's Secret and Bath & Body Works International.

The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and PINK brand names. Victoria’s Secret merchandise is sold online and through retail stores located in the U.S. and Canada.

The Bath & Body Works segment sells body care, home fragrance products, soaps and sanitizers under the Bath & Body Works, White Barn, C.O. Bigelow and other brand names. Bath & Body Works merchandise is sold online and at retail stores located in the U.S. and Canada.

The Victoria's Secret and Bath & Body Works International segment includes the Victoria's Secret and Bath & Body Works company-owned and partner-operated stores located outside of the U.S. and Canada, as well as the online business in Greater China. This segment includes the following:

Victoria's Secret International, comprised of company-owned stores in the U.K., Ireland and Greater China, as well as stores operated by partners under franchise and license arrangements;

Victoria's Secret Beauty and Accessories, comprised of company-owned stores in Greater China, as well as stores operated by partners under franchise, license and wholesale arrangements, which feature Victoria's Secret branded beauty and accessories products in travel retail and other locations; and

Bath & Body Works International stores operated by partners under franchise, license and wholesale arrangements.

Other ~~consists of the following:~~

includes Mast Global, a merchandise sourcing and production function serving the Company and its international ~~partners;~~

~~La Senza, which sells women's intimate apparel online~~partners, and ~~through company-owned stores located in Canada and the U.S.~~, ~~as well as stores operated by partners under franchise and license arrangements;~~

~~Henri Bendel, which sells handbags, jewelry and other accessory products online and through company-owned stores;and~~

Corporate functions, including non-core real estate, equity investments and other governance functions such as treasury and tax. Results for 2018 also include La Senza and Henri Bendel.

The following table provides the Company’s segment information for the second quarter and year-to-date ~~2018~~2019 and ~~2017~~2018:



	Victoria’s Secret		Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total
	(in millions)
2019
Second Quarter:
Net Sales	$	1,606	$	1,061	$	155		$	80		$	2,902
Operating Income (Loss)	17		180		(1		)	(21		)	$	175
Year-to-Date:
Net Sales	$	3,116	$	1,932	$	289		$	193		$	5,530
Operating Income (Loss)	49		335		(5		)	(51		)	328
2018
Second Quarter:
Net Sales	$	1,725	$	964	$	145		$	150		$	2,984
Operating Income (Loss)	114		169		(9		)	(46		)	228
Year-to-Date:
Net Sales	$	3,314	$	1,724	$	281		$	291		$	5,610
Operating Income (Loss)	197		293		(14		)	(93		)	383

Victoria’s
Secret

Bath &
Body Works

Victoria’s Secret
and
Bath & Body Works International
Other Total
(in millions)
2018
Second Quarter:
Net Sales $ 1,725
$ 964
$ 145
$ 150
$ 2,984
Operating Income (Loss) 114
169
(9 ) (46 ) 228
Year-to-Date:
Net Sales $ 3,314
$ 1,724
$ 281
$ 291
$ 5,610
Operating Income (Loss) 197
293
(14 ) (93 ) 383
2017
Second Quarter:
Net Sales $ 1,646
$ 860
$ 114
$ 135
$ 2,755
Operating Income (Loss) 183
156
2
(40 ) 301
Year-to-Date:

Net Sales $ 3,179
$ 1,539
$ 217
$ 257
$ 5,192
Operating Income (Loss) 342
258
1
(91 ) 510

The Company's international net sales include sales from company-owned stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales across all segments totaled ~~$400~~$357 million and ~~$350~~$400 million for the second quarter of ~~2018~~2019 and ~~2017,~~2018, respectively. The Company's international net sales across all segments totaled ~~$758~~$706 million and ~~$649~~$758 million for year-to-date ~~2018~~2019 and ~~2017,~~2018, respectively.

~~16.~~18. Subsequent Events

Subsequent to August ~~4, 2018,~~3, 2019, the Company ~~repurchased~~entered into an amendment and restatement of the Secured Revolving Facility. For additional ~~0.3 million shares of common stock for $10 million under the March 2018 repurchase program.~~information, see Note 11, “Long-term Debt and Borrowing Facilities.”

~~17.~~19. Supplemental Guarantor Financial Information

The Company’s ~~2020 Notes,~~ 2021 Notes, 2022 Notes, 2023 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2035 Notes, 2036 Notes, Secured Revolving Facility and Secured Foreign Facilities are jointly and severally guaranteed on a full and unconditional basis by the Guarantors. 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 August 3, 2019, February 2, 2019 and August 4, 2018, ~~February 3, 2018~~ ~~and~~ ~~July 29, 2017~~ and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended August 3, 2019 and August 4, 2018 ~~and~~ ~~July 29, 2017~~.

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)



	August 3, 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	355		$	498	$	—		$	853
Accounts Receivable, Net	—			173			110		—			283
Inventories	—			1,211			118		—			1,329
Other	12			55			121		—			188
Total Current Assets	12			1,794			847		—			2,653
Property and Equipment, Net	—			1,868			888		—			2,756
Operating Lease Assets	—			2,637			572		—			3,209
Goodwill	—			1,318			30		—			1,348
Trade Names	—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,418			20,582			2,315		(27,315		)	—
Deferred Income Taxes	—			9			53		—			62
Other Assets	126			11			654		(612		)	179
Total Assets	$	4,556		$	28,630		$	5,359	$	(27,927	)	$	10,618
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	2		$	418		$	343	$	—		$	763
Accrued Expenses and Other	81			529			309		—			919
Current Debt	—			—			75		—			75
Current Operating Lease Liabilities	—			370			86		—			456
Income Taxes	—			—			3		—			3
Total Current Liabilities	83			1,317			816		—			2,216
Deferred Income Taxes	1			(41		)	281		—			241
Long-term Debt	5,388			597			87		(597		)	5,475
Long-term Operating Lease Liabilities	—			2,636			529		—			3,165
Other Long-term Liabilities	62			374			29		(15		)	450
Total Equity (Deficit)	(978		)	23,747			3,617		(27,315		)	(929		)
Total Liabilities and Equity (Deficit)	$	4,556		$	28,630		$	5,359	$	(27,927	)	$	10,618

August 4, 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents $ —
$ 453
$ 390
$ —
$ 843
Accounts Receivable, Net —
166
144
—
310
Inventories —
1,139
176
—
1,315
Other 6
143
98
—
247
Total Current Assets 6
1,901
808
—
2,715
Property and Equipment, Net —
2,012
937
—
2,949
Goodwill —
1,318
30
—
1,348
Trade Names —
411
—
—
411
Net Investments in and Advances to/from Consolidated Affiliates 4,544
19,604
2,205
(26,353 ) —
Deferred Income Taxes —
10
11
—
21
Other Assets 128
14
645
(611 ) 176
Total Assets $ 4,678
$ 25,270
$ 4,636
$ (26,964 ) $ 7,620
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 3
$ 430
$ 388
$ —
$ 821
Accrued Expenses and Other 96
539
328
—
963
Current Debt —
—
65
—
65
Income Taxes —
—
7
—
7
Total Current Liabilities 99
969
788
—
1,856
Deferred Income Taxes (2 ) (38 ) 277
—
237
Long-term Debt 5,657
597
55
(597 ) 5,712
Other Long-term Liabilities 58
796
97
(14 ) 937
Total Equity (Deficit) (1,134 ) 22,946
3,419
(26,353 ) (1,122 )
Total Liabilities and Equity (Deficit) $ 4,678
$ 25,270
$ 4,636
$ (26,964 ) $ 7,620

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)



	February 2, 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	997		$	416	$	—		$	1,413
Accounts Receivable, Net	—			241			126		—			367
Inventories	—			1,093			155		—			1,248
Other	—			139			93		—			232
Total Current Assets	—			2,470			790		—			3,260
Property and Equipment, Net	—			1,922			896		—			2,818
Goodwill	—			1,318			30		—			1,348
Trade Names	—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,755			19,737			2,047		(26,539		)	—
Deferred Income Taxes	—			9			53		—			62
Other Assets	127			15			670		(621		)	191
Total Assets	$	4,882		$	25,882		$	4,486	$	(27,160	)	$	8,090
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	—		$	363		$	348	$	—		$	711
Accrued Expenses and Other	92			597			393		—			1,082
Current Debt	—			—			72		—			72
Income Taxes	(7		)	100			28		—			121
Total Current Liabilities	85			1,060			841		—			1,986
Deferred Income Taxes	1			(44		)	269		—			226
Long-term Debt	5,661			606			79		(607		)	5,739
Other Long-term Liabilities	59			852			107		(14		)	1,004
Total Equity (Deficit)	(924		)	23,408			3,190		(26,539		)	(865		)
Total Liabilities and Equity (Deficit)	$	4,882		$	25,882		$	4,486	$	(27,160	)	$	8,090

February 3, 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents $ —
$ 1,164
$ 351
$ —
$ 1,515
Accounts Receivable, Net —
186
124
—
310
Inventories —
1,095
145
—
1,240
Other —
132
96
—
228
Total Current Assets —
2,577
716
—
3,293
Property and Equipment, Net —
1,984
909
—
2,893
Goodwill —
1,318
30
—
1,348
Trade Names —
411
—
—
411
Net Investments in and Advances to/from Consolidated Affiliates 4,973
18,298
2,106
(25,377 ) —
Deferred Income Taxes —
10
4
—
14
Other Assets 129
18
654
(611 ) 190
Total Assets $ 5,102
$ 24,616
$ 4,419
$ (25,988 ) $ 8,149
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 2
$ 349
$ 366
$ —
$ 717
Accrued Expenses and Other 101
529
399
—
1,029
Current Debt —
—
87
—
87
Income Taxes 6
174
18
—
198
Total Current Liabilities 109
1,052
870
—
2,031
Deferred Income Taxes (2 ) (46 ) 286
—
238
Long-term Debt 5,706
597
1
(597 ) 5,707
Other Long-term Liabilities 64
774
100
(14 ) 924
Total Equity (Deficit) (775 ) 22,239
3,162
(25,377 ) (751 )
Total Liabilities and Equity (Deficit) $ 5,102
$ 24,616
$ 4,419
$ (25,988 ) $ 8,149

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)



	August 4, 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	453		$	390	$	—		$	843
Accounts Receivable, Net	—			166			144		—			310
Inventories	—			1,139			176		—			1,315
Other	6			143			98		—			247
Total Current Assets	6			1,901			808		—			2,715
Property and Equipment, Net	—			2,012			937		—			2,949
Goodwill	—			1,318			30		—			1,348
Trade Names	—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,544			19,604			2,205		(26,353		)	—
Deferred Income Taxes	—			10			11		—			21
Other Assets	128			14			645		(611		)	176
Total Assets	$	4,678		$	25,270		$	4,636	$	(26,964	)	$	7,620
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	3		$	430		$	388	$	—		$	821
Accrued Expenses and Other	96			539			328		—			963
Current Debt	—			—			65		—			65
Income Taxes	—			—			7		—			7
Total Current Liabilities	99			969			788		—			1,856
Deferred Income Taxes	(2		)	(38		)	277		—			237
Long-term Debt	5,657			597			55		(597		)	5,712
Other Long-term Liabilities	58			796			97		(14		)	937
Total Equity (Deficit)	(1,134		)	22,946			3,419		(26,353		)	(1,122		)
Total Liabilities and Equity (Deficit)	$	4,678		$	25,270		$	4,636	$	(26,964	)	$	7,620

July 29, 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents $ —
$ 1,008
$ 352
$ —
$ 1,360
Accounts Receivable, Net —
147
98
—
245
Inventories —
995
123
—
1,118
Other —
148
86
—
234
Total Current Assets —
2,298
659
—
2,957
Property and Equipment, Net —
1,997
844
—
2,841
Goodwill —
1,318
30
—
1,348
Trade Names —
411
—
—
411
Net Investments in and Advances to/from Consolidated Affiliates 4,753
17,731
1,834
(24,318 ) —
Deferred Income Taxes —
10
15
—
25
Other Assets 133
29
631
(612 ) 181
Total Assets $ 4,886
$ 23,794
$ 4,013
$ (24,930 ) $ 7,763
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 3
$ 414
$ 341
$ —
$ 758
Accrued Expenses and Other 101
452
307
—
860
Current Debt —
—
64
—
64
Income Taxes 1
18
57
—
76
Total Current Liabilities 105
884
769
—
1,758
Deferred Income Taxes (3 ) (78 ) 450
—
369
Long-term Debt 5,704
597
—
(597 ) 5,704
Other Long-term Liabilities 3
764
91
(14 ) 844
Total Equity (Deficit) (923 ) 21,627
2,703
(24,319 ) (912 )
Total Liabilities and Equity (Deficit) $ 4,886
$ 23,794
$ 4,013
$ (24,930 ) $ 7,763

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	Second Quarter 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,760		$	767		$	(625	)	$	2,902
Costs of Goods Sold, Buying and Occupancy	—			(1,865		)	(596		)	542			(1,919		)
Gross Profit	—			895			171			(83		)	983
General, Administrative and Store Operating Expenses	(3		)	(777		)	(87		)	59			(808		)
Operating Income (Loss)	(3		)	118			84			(24		)	175
Interest Expense	(93		)	(24		)	(2		)	24			(95		)
Other Income (Loss)	(40		)	5			(3		)	—			(38		)
Income (Loss) Before Income Taxes	(136		)	99			79			—			42
Provision for Income Taxes	(8		)	(2		)	14			—			4
Equity in Earnings (Loss), Net of Tax	166			192			131			(489		)	—
Net Income (Loss)	$	38		$	293		$	196		$	(489	)	$	38

Second Quarter 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Sales $ —
$ 2,797
$ 751
$ (564 ) $ 2,984
Costs of Goods Sold, Buying and Occupancy —
(1,835 ) (650 ) 560
(1,925 )
Gross Profit —
962
101
(4 ) 1,059
General, Administrative and Store Operating Expenses (2 ) (717 ) (118 ) 6
(831 )
Operating Income (Loss) (2 ) 245
(17 ) 2
228
Interest Expense (97 ) 2
(2 ) (1 ) (98 )
Other Income (Loss) —
3
(4 ) —
(1 )
Income (Loss) Before Income Taxes (99 ) 250
(23 ) 1
129
Provision for Income Taxes —
21
9
—
30
Equity in Earnings (Loss), Net of Tax 198
217
245
(660 ) —
Net Income (Loss) $ 99
$ 446
$ 213
$ (659 ) $ 99

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	Second Quarter 2019
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	38	$	293	$	196		$	(489	)	$	38
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(7		)	—			(7		)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		2			—			2
Reclassification of Cash Flow Hedges to Earnings	—		—		(1		)	—			(1		)
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(6		)	—			(6		)
Total Comprehensive Income (Loss)	$	38	$	293	$	190		$	(489	)	$	32

Second Quarter 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Income (Loss) $ 99
$ 446
$ 213
$ (659 ) $ 99
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation —
—
(9 ) —
(9 )
Unrealized Gain (Loss) on Cash Flow Hedges —
—
3
—
3
Reclassification of Cash Flow Hedges to Earnings —
—
1
—
1
Total Other Comprehensive Income (Loss), Net of Tax —
—
(5 ) —
(5 )
Total Comprehensive Income (Loss) $ 99
$ 446
$ 208
$ (659 ) $ 94

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	Second Quarter 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,797		$	751		$	(564	)	$	2,984
Costs of Goods Sold, Buying and Occupancy	—			(1,835		)	(650		)	560			(1,925		)
Gross Profit	—			962			101			(4		)	1,059
General, Administrative and Store Operating Expenses	(2		)	(717		)	(118		)	6			(831		)
Operating Income (Loss)	(2		)	245			(17		)	2			228
Interest Expense	(97		)	2			(2		)	(1		)	(98		)
Other Income (Loss)	—			3			(4		)	—			(1		)
Income (Loss) Before Income Taxes	(99		)	250			(23		)	1			129
Provision for Income Taxes	—			21			9			—			30
Equity in Earnings (Loss), Net of Tax	198			217			245			(660		)	—
Net Income (Loss)	$	99		$	446		$	213		$	(659	)	$	99

Second Quarter 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Sales $ —
$ 2,594
$ 829
$ (668 ) $ 2,755
Costs of Goods Sold, Buying and Occupancy —
(1,668 ) (642 ) 583
(1,727 )
Gross Profit —
926
187
(85 ) 1,028
General, Administrative and Store Operating Expenses (2 ) (693 ) (96 ) 64
(727 )
Operating Income (Loss) (2 ) 233
91
(21 ) 301
Interest Expense (100 ) (22 ) (3 ) 24
(101 )
Other Income —
2
15
—
17
Income (Loss) Before Income Taxes (102 ) 213
103
3
217
Provision for Income Taxes —
45
33
—
78
Equity in Earnings (Loss), Net of Tax 241
297
230
(768 ) —
Net Income (Loss) $ 139
$ 465
$ 300
$ (765 ) $ 139

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	Second Quarter 2018
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	99	$	446	$	213		$	(659	)	$	99
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(9		)	—			(9		)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		3			—			3
Reclassification of Cash Flow Hedges to Earnings	—		—		1			—			1
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(5		)	—			(5		)
Total Comprehensive Income (Loss)	$	99	$	446	$	208		$	(659	)	$	94

Second Quarter 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Income (Loss) $ 139
$ 465
$ 300
$ (765 ) $ 139
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation —
—
7
—
7
Unrealized Gain (Loss) on Cash Flow Hedges —
—
(26 ) —
(26 )
Reclassification of Cash Flow Hedges to Earnings —
—
12
—
12
Total Other Comprehensive Income (Loss), Net of Tax —
—
(7 ) —
(7 )
Total Comprehensive Income (Loss) $ 139
$ 465
$ 293
$ (765 ) $ 132

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	Year-to-Date 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	5,247		$	1,521		$	(1,238	)	$	5,530
Costs of Goods Sold, Buying and Occupancy	—			(3,514		)	(1,183		)	1,083			(3,614		)
Gross Profit	—			1,733			338			(155		)	1,916
General, Administrative and Store Operating Expenses	(8		)	(1,513		)	(176		)	109			(1,588		)
Operating Income (Loss)	(8		)	220			162			(46		)	328
Interest Expense	(190		)	(47		)	(3		)	46			(194		)
Other Income (Loss)	(40		)	12			(3		)	—			(31		)
Income (Loss) Before Income Taxes	(238		)	185			156			—			103
Provision for Income Taxes	(8		)	7			26			—			25
Equity in Earnings (Loss), Net of Tax	308			258			135			(701		)	—
Net Income (Loss)	$	78		$	436		$	265		$	(701	)	$	78

Year-to-Date 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Sales $ —
$ 5,263
$ 1,590
$ (1,243 ) $ 5,610
Costs of Goods Sold, Buying and Occupancy —
(3,457 ) (1,319 ) 1,169
(3,607 )
Gross Profit —
1,806
271
(74 ) 2,003
General, Administrative and Store Operating Expenses (6 ) (1,443 ) (227 ) 56
(1,620 )
Operating Income (Loss) (6 ) 363
44
(18 ) 383
Interest Expense (194 ) (18 ) (5 ) 21
(196 )
Other Income (Loss) —
7
(6 ) —
1
Income (Loss) Before Income Taxes (200 ) 352
33
3
188
Provision (Benefit) for Income Taxes (2 ) 34
9
—
41
Equity in Earnings (Loss), Net of Tax 345
432
397
(1,174 ) —
Net Income (Loss) $ 147
$ 750
$ 421
$ (1,171 ) $ 147

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	Year-to-Date 2019
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	78	$	436	$	265		$	(701	)	$	78
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(11		)	—			(11		)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		4			—			4
Reclassification of Cash Flow Hedges to Earnings	—		—		(3		)	—			(3		)
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(10		)	—			(10		)
Total Comprehensive Income (Loss)	$	78	$	436	$	255		$	(701	)	$	68

Year-to-Date 2018
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Income (Loss) $ 147
$ 750
$ 421
$ (1,171 ) $ 147
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation —
—
(22 ) —
(22 )
Unrealized Gain (Loss) on Cash Flow Hedges —
—
9
—
9
Reclassification of Cash Flow Hedges to Earnings —
—
3
—
3
Total Other Comprehensive Income (Loss), Net of Tax —
—
(10 ) —
(10 )
Total Comprehensive Income (Loss) $ 147
$ 750
$ 411
$ (1,171 ) $ 137

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	Year-to-Date 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	5,263		$	1,590		$	(1,243	)	$	5,610
Costs of Goods Sold, Buying and Occupancy	—			(3,457		)	(1,319		)	1,169			(3,607		)
Gross Profit	—			1,806			271			(74		)	2,003
General, Administrative and Store Operating Expenses	(6		)	(1,443		)	(227		)	56			(1,620		)
Operating Income (Loss)	(6		)	363			44			(18		)	383
Interest Expense	(194		)	(18		)	(5		)	21			(196		)
Other Income (Loss)	—			7			(6		)	—			1
Income (Loss) Before Income Taxes	(200		)	352			33			3			188
Provision for Income Taxes	(2		)	34			9			—			41
Equity in Earnings (Loss), Net of Tax	345			432			397			(1,174		)	—
Net Income (Loss)	$	147		$	750		$	421		$	(1,171	)	$	147

Year-to-Date 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Sales $ —
$ 4,890
$ 1,526
$ (1,224 ) $ 5,192
Costs of Goods Sold, Buying and Occupancy —
(3,140 ) (1,213 ) 1,092
(3,261 )
Gross Profit —
1,750
313
(132 ) 1,931
General, Administrative and Store Operating Expenses (6 ) (1,329 ) (186 ) 100
(1,421 )
Operating Income (Loss) (6 ) 421
127
(32 ) 510
Interest Expense (200 ) (33 ) (5 ) 37
(201 )
Other Income —
5
22
—
27
Income (Loss) Before Income Taxes (206 ) 393
144
5
336
Provision for Income Taxes —
65
38
—
103
Equity in Earnings (Loss), Net of Tax 439
476
380
(1,295 ) —
Net Income (Loss) $ 233
$ 804
$ 486
$ (1,290 ) $ 233

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	Year-to-Date 2018
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	147	$	750	$	421		$	(1,171	)	$	147
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(22		)	—			(22		)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		9			—			9
Reclassification of Cash Flow Hedges to Earnings	—		—		3			—			3
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(10		)	—			(10		)
Total Comprehensive Income (Loss)	$	147	$	750	$	411		$	(1,171	)	$	137

Year-to-Date 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Income (Loss) $ 233
$ 804
$ 486
$ (1,290 ) $ 233
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation —
—
10
—
10
Unrealized Gain (Loss) on Cash Flow Hedges —
—
(16 ) —
(16 )
Reclassification of Cash Flow Hedges to Earnings —
—
5
—
5
Total Other Comprehensive Income (Loss), Net of Tax —
—
(1 ) —
(1 )
Total Comprehensive Income (Loss) $ 233
$ 804
$ 485
$ (1,290 ) $ 232

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date 2018															Year-to-Date 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(219	)	$	471		$	(40	)	$	—		$	212		$	(240	)	$	(119	)	$	521		$	—	$	162
Investing Activities:
Capital Expenditures	—			(213		)	(132		)	—			(345		)	—			(153		)	(91		)	—		(244		)
Return of Capital from Easton Investments	—			—			13			—			13
Net Investments in Consolidated Affiliates	—			—			(11		)	11			—
Other Investing Activities	—			—			2			—			2			—			12			(5		)	—		7
Net Cash Provided by (Used for) Investing Activities	—			(213		)	(128		)	11			(330		)	—			(141		)	(96		)	—		(237		)
Financing Activities:
Payment of Long-term Debt	(52		)	—			—			—			(52		)
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs																486			—			—			—		486
Payments of Long-term Debt																(799		)	—			—			—		(799		)
Borrowings from Foreign Facilities	—			—			89			—			89			—			—			25			—		25
Repayments of Foreign Facilities	—			—			(57		)	—			(57		)	—			—			(14		)	—		(14		)
Dividends Paid	(335		)	—			—			—			(335		)	(166		)	—			—			—		(166		)
Repurchases of Common Stock	(186		)	—			—			—			(186		)
Tax Payments related to Share-based Awards	(12		)	—			—			—			(12		)	(11		)	—			—			—		(11		)
Proceeds from Exercise of Stock Options	1			—			—			—			1			1			—			—			—		1
Financing Costs and Other	(2		)	—			—			—			(2		)	(1		)	(4		)	—			—		(5		)
Net Financing Activities and Advances to/from Consolidated Affiliates	805			(969		)	175			(11		)	—			730			(378		)	(352		)	—		—
Net Cash Provided by (Used for) Financing Activities	219			(969		)	207			(11		)	(554		)	240			(382		)	(341		)	—		(483		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			—			—			—			—			—			(2		)	—		(2		)
Net Increase (Decrease) in Cash and Cash Equivalents	—			(711		)	39			—			(672		)	—			(642		)	82			—		(560		)
Cash and Cash Equivalents, Beginning of Period	—			1,164			351			—			1,515			—			997			416			—		1,413
Cash and Cash Equivalents, End of Period	$	—		$	453		$	390		$	—		$	843		$	—		$	355		$	498		$	—	$	853

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)



	Year-to-Date 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(219	)	$	471		$	(40	)	$	—		$	212
Investing Activities:
Capital Expenditures	—			(213		)	(132		)	—			(345		)
Net Investments in Consolidated Affiliates	—			—			(11		)	11			—
Other Investing Activities	—			—			15			—			15
Net Cash Provided by (Used for) Investing Activities	—			(213		)	(128		)	11			(330		)
Financing Activities:
Payments of Long-term Debt	(52		)	—			—			—			(52		)
Borrowings from Foreign Facilities	—			—			89			—			89
Repayments of Foreign Facilities	—			—			(57		)	—			(57		)
Dividends Paid	(335		)	—			—			—			(335		)
Repurchases of Common Stock	(186		)	—			—			—			(186		)
Tax Payments related to Share-based Awards	(12		)	—			—			—			(12		)
Proceeds from Exercise of Stock Options	1			—			—			—			1
Financing Costs and Other	(2		)	—			—			—			(2		)
Net Financing Activities and Advances to/from Consolidated Affiliates	805			(969		)	175			(11		)	—
Net Cash Provided by (Used for) Financing Activities	219			(969		)	207			(11		)	(554		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			—			—			—
Net Increase (Decrease) in Cash and Cash Equivalents	—			(711		)	39			—			(672		)
Cash and Cash Equivalents, Beginning of Period	—			1,164			351			—			1,515
Cash and Cash Equivalents, End of Period	$	—		$	453		$	390		$	—		$	843

Year-to-Date 2017
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities $ (196 ) $ 349
$ 68
$ —
$ 221
Investing Activities:
Capital Expenditures —
(301 ) (71 ) —
(372 )
Return of Capital from Easton Investments —
—
27
—
27
Other Investing Activities —
—
(5 ) —
(5 )
Net Cash Used for Investing Activities —
(301 ) (49 ) —
(350 )
Financing Activities:
Borrowings from Foreign Facilities —
—
36
—
36
Repayments of Foreign Facilities —
—
(8 ) —
(8 )
Dividends Paid (344 ) —
—
—
(344 )
Repurchases of Common Stock (132 ) —
—
—
(132 )
Tax Payments related to Share-based Awards (30 ) —
—
—
(30 )
Proceeds from Exercise of Stock Options 37
—
—
—
37
Financing Costs and Other (5 ) (3 ) —
—
(8 )
Net Financing Activities and Advances to/from Consolidated Affiliates 670
(599 ) (71 ) —
—
Net Cash Provided by (Used for) Financing Activities 196
(602 ) (43 ) —
(449 )
Effects of Exchange Rate Changes on Cash and Cash Equivalents —
—
4
—
4
Net Decrease in Cash and Cash Equivalents —
(554 ) (20 ) —
(574 )
Cash and Cash Equivalents, Beginning of Period —
1,562
372
—
1,934
Cash and Cash Equivalents, End of Period $ —
$ 1,008
$ 352
$ —
$ 1,360

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of L Brands, Inc.

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheets of L Brands, Inc. (the Company) as of August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ and the related consolidated statements of income, ~~and~~ comprehensive income, and total equity (deficit) for the thirteen and ~~twenty-six-week~~twenty-six week periods ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ and the consolidated statements of cash flows for the ~~twenty-six-week~~twenty-six week periods ended August 3, 2019 and August 4, 2018, ~~and July 29, 2017,~~ and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February ~~3, 2018,~~2, 2019, and the related consolidated statements of income, comprehensive income, total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March ~~23, 2018,~~22, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February ~~3, 2018,~~2, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Ernst & Young LLP

Grandview Heights, Ohio

September ~~7, 2018~~6, 2019

SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

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

We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our company or our management:

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

the seasonality of our business;

the dependence on mall traffic and the availability of suitable store locations on appropriate terms;

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

our ability to successfully expand internationally and related risks;

our independent franchise, license and wholesale partners;

our direct channel businesses;

our ability to protect our reputation and our brand images;

our ability to attract customers with marketing, advertising and promotional programs;

our ability to protect our trade names, trademarks and patents;

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

consumer acceptance of our products and our ability to manage the life cycle of our brands, keep up with fashion trends, develop new merchandise and launch new product lines successfully;

our ability to source, distribute and sell goods and materials on a global basis, including risks related to:

political instability, significant health hazards, environmental hazards or natural disasters;

duties, taxes and other charges;

legal and regulatory matters;

volatility in currency exchange rates;

local business practices and political issues;

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

disruption due to labor disputes; and

changing expectations regarding product safety due to new legislation;

our geographic concentration of vendor and distribution facilities in central Ohio;

fluctuations in foreign currency exchange rates;

stock price volatility;

our ability to pay dividends and related effects;

our ability to maintain our credit rating;

our ability to service or refinance our debt;

shareholder activism matters;

our ability to retain key personnel;

our ability to attract, develop and retain qualified associates and manage labor-related costs;

the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;

fluctuations in product input costs;

our ability to adequately protect our assets from loss and theft;

fluctuations in energy costs;

increases in the costs of mailing, paper and printing;

claims arising from our self-insurance;

liabilities arising from divested businesses;

our ability to implement and maintain information technology systems and to protect associated data;

our ability to maintain the security of customer, associate, third-party or company information;

our ability to comply with regulatory requirements;

legal and compliance matters; and

tax, trade and other regulatory matters.

We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in our ~~2017~~2018 Annual Report on Form 10-K.


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

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

Executive Overview

In the second quarter of ~~2018,~~2019, our operating income decreased ~~$73~~$53 million, or ~~24%~~23%, to ~~$228~~$175 million, and our operating income rate decreased to ~~7.6%~~6.0% from ~~10.9%~~7.6%. Net sales ~~increased $229~~decreased $82 million to ~~$2.984~~$2.902 billion, comparable sales ~~increased 3%~~decreased 1% and comparable store sales decreased 1%4%. Our performance was mixed. At Victoria's Secret, net sales ~~increased 5%~~decreased 7%, and operating income decreased ~~38%.~~$97 million. At Bath & Body Works, net sales increased ~~12%~~10%, and operating income increased ~~8%.~~$11 million. At Victoria's Secret and Bath & Body Works International, net sales increased ~~28%~~6%, and the operating ~~income decreased~~loss was reduced by ~~$11~~$8 million. For additional information related to our second quarter ~~2018~~2019 financial performance, see “Results of Operations.”

The global retail sector and our business continue to face an uncertain environment and, as a result, we will continue to manage our business thoughtfully, and we will focus on the execution of the retail fundamentals.

At the same time, we are aggressively focusing on bringing compelling merchandise assortments, marketing and ~~marketing,~~ store and online experiences to our customers. We will look for, and seek to capitalize on, those opportunities available to us.

Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Form 10-Q, provided below are non-GAAP measurements, which present net income and earnings per share in 2019 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ~~brands, which lead~~ongoing operations due to their ~~categories~~size and ~~offer high emotional content~~nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to ~~customers at accessible prices, are well positioned.~~

~~Company-Owned Store Data~~

replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of adjusted financial information may differ from similarly titled measures used by other companies. The ~~following~~ table ~~compares~~below reconciles the ~~second~~ ~~quarter of 2018 company-owned store data~~GAAP financial measures to the ~~second~~ ~~quarter of 2017 and year-to-date 2018 store data to year-to-date 2017:~~

non-GAAP financial measures.



	Second Quarter					Year-to-Date
(in millions, except per share amounts)	2019			2018		2019			2018
Detail of Special Items included in Other Income (Loss)
Loss on Extinguishment of Debt (a)	$	(40	)	$	—	$	(40	)	$	—

Detail of Special Items included in Provision for Income Taxes
Tax Effect of Special Items included in Other Income (Loss)	$	10		$	—	$	10		$	—

Reconciliation of Reported Net Income to Adjusted Net Income
Reported Net Income	$	38		$	99	$	78		$	147
Special Items included in Net Income	30			—		30			—
Adjusted Net Income	$	68		$	99	$	108		$	147

Reconciliation of Reported Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share
Reported Earnings Per Diluted Share	$	0.14		$	0.36	$	0.28		$	0.52
Special Items included in Earnings Per Diluted Share	0.11			—		0.11			—
Adjusted Earnings Per Diluted Share	$	0.24		$	0.36	$	0.39		$	0.52

Second Quarter Year-to-Date
2018 2017 % Change 2018 2017 % Change
Sales per Average Selling Square Foot (a)

Victoria’s Secret U.S. $ 177
$ 179
(1 )% $ 340
$ 347
(2 )%
Bath & Body Works U.S. 190
179
6 % 340
318
7 %
Sales per Average Store (in thousands) (a)

Victoria’s Secret U.S. $ 1,139
$ 1,143
— % $ 2,184
$ 2,207
(1 )%
Bath & Body Works U.S. 486
444
9 % 866
790
10 %
Average Store Size (selling square feet)
Victoria’s Secret U.S. 6,449
6,389
1 %
Bath & Body Works U.S. 2,559
2,504
2 %
Total Selling Square Feet (in thousands)
Victoria’s Secret U.S. 7,223
7,206
— %
Bath & Body Works U.S. 4,096
3,996
3 %

~~_______________~~ ________________

(a)

~~Calculated~~In the second quarter of 2019, we redeemed $764 million of outstanding notes maturing between 2020 and 2022, resulting in a pre-tax loss on ~~a fiscal basis as opposed to a comparable calendar period.~~extinguishment of $40 million (after-tax loss of $30 million). For additional information see Note 11, "Long-term Debt and Borrowing Facilities" included in Item 1. Financial Statements.

Company-Owned Store Data

The following table compares the second quarter of 2019 company-owned store data to the second quarter of 2018 and year-to-date 2019 store data to year-to-date 2018:



	Second Quarter						Year-to-Date
	2019		2018		% Change		2019		2018		% Change
Sales per Average Selling Square Foot
Victoria’s Secret U.S.	$	166	$	177	(6	%)	$	317	$	340	(7	%)
Bath & Body Works U.S.	196		190		3	%	356		340		5	%
Sales per Average Store (in thousands)
Victoria’s Secret U.S.	$	1,083	$	1,139	(5	%)	$	2,066	$	2,184	(5	%)
Bath & Body Works U.S.	510		486		5	%	925		866		7	%
Average Store Size (selling square feet)
Victoria’s Secret U.S.	6,543		6,449		1	%
Bath & Body Works U.S.	2,606		2,559		2	%
Total Selling Square Feet (in thousands)
Victoria’s Secret U.S.	6,961		7,223		(4	%)
Bath & Body Works U.S.	4,253		4,096		4	%

The following table represents company-owned store data for year-to-date 2019:



	Stores Operating at				Stores Operating at
	February 2, 2019	Opened	Closed		August 3, 2019
Victoria’s Secret U.S.	1,098	3	(37	)	1,064
Victoria’s Secret Canada	45	—	—		45
Total Victoria's Secret	1,143	3	(37	)	1,109
Bath & Body Works U.S.	1,619	23	(10	)	1,632
Bath & Body Works Canada	102	1	—		103
Total Bath & Body Works	1,721	24	(10	)	1,735
Victoria's Secret U.K. / Ireland	26	—	—		26
Victoria's Secret Beauty and Accessories	38	6	(5	)	39
Victoria's Secret China	15	3	—		18
Total Victoria's Secret and Bath & Body Works International	79	9	(5	)	83
Total L Brands Stores	2,943	36	(52	)	2,927

The following table represents company-owned store data for year-to-date 2018:


	Stores Operating at				Stores Operating at	Stores Operating at				Stores Operating at
	February 3, 2018	Opened	Closed		August 4, 2018	February 3, 2018	Opened	Closed		August 4, 2018
Victoria’s Secret U.S.	1,124	1	(5	)	1,120	1,124	1	(5	)	1,120
Victoria’s Secret Canada	46	—	(1	)	45	46	—	(1	)	45
Total Victoria's Secret	1,170	1	(6	)	1,165	1,170	1	(6	)	1,165
Bath & Body Works U.S.	1,592	22	(13	)	1,601	1,592	22	(13	)	1,601
Bath & Body Works Canada	102	—	—		102	102	—	—		102
Total Bath & Body Works	1,694	22	(13	)	1,703	1,694	22	(13	)	1,703
Victoria's Secret U.K. / Ireland	24	—	—		24	24	—	—		24
Victoria's Secret Beauty and Accessories China	29	—	(1	)	28
Victoria's Secret Beauty and Accessories						29	—	(1	)	28
Victoria's Secret China	7	3	—		10	7	3	—		10
Total Victoria's Secret and Bath & Body Works International	60	3	(1	)	62	60	3	(1	)	62
Henri Bendel	27	—	(4	)	23	27	—	(4	)	23
La Senza Canada	119	—	(1	)	118	119	—	(1	)	118
La Senza U.S.	5	—	—		5	5	—	—		5
Total L Brands Stores	3,075	26	(25	)	3,076	3,075	26	(25	)	3,076

~~The following table represents company-owned store data for year-to-date 2017:~~

Stores Operating at Stores Operating at
January 28, 2017 Opened Closed July 29, 2017
Victoria’s Secret U.S. 1,131
4
(7 ) 1,128
Victoria’s Secret Canada 46
2
(2 ) 46
Total Victoria's Secret 1,177
6
(9 ) 1,174
Bath & Body Works U.S. 1,591
17
(12 ) 1,596
Bath & Body Works Canada 102
—
—
102
Total Bath & Body Works 1,693
17
(12 ) 1,698
Victoria's Secret U.K. 18
1
—
19
Victoria's Secret Beauty and Accessories China 31
—
(1 ) 30
Victoria's Secret China —
2
—
2
Total Victoria's Secret and Bath & Body Works International 49

3

(1 )
51
Henri Bendel 29
—
—
29
La Senza Canada 122
1
(2 ) 121
La Senza U.S. 4
—
—
4
Total L Brands Stores 3,074
27
(24 ) 3,077

Noncompany-Owned Store Data

The following table represents noncompany-owned store data for year-to-date ~~2018:~~2019:


	Stores Operating at				Stores Operating at	Stores Operating at				Stores Operating at
	February 3, 2018	Opened	Closed		August 4, 2018	February 2, 2019	Opened	Closed		August 3, 2019
Victoria’s Secret Beauty & Accessories	397	23	(12	)	408	383	15	(21	)	377
Victoria's Secret	37	8	—		45	56	7	—		63
Bath & Body Works	185	22	(3	)	204	235	14	(2	)	247
La Senza	194	—	(7	)	187
Total	813	53	(22	)	844	674	36	(23	)	687

The following table represents noncompany-owned store data for year-to-date ~~2017:~~2018:


	Stores Operating at				Stores Operating at	Stores Operating at				Stores Operating at
	January 28, 2017	Opened	Closed		July 29, 2017	February 3, 2018	Opened	Closed		August 4, 2018
Victoria’s Secret Beauty & Accessories	391	18	(18	)	391	397	23	(12	)	408
Victoria's Secret	28	4	—		32	37	8	—		45
Bath & Body Works	159	15	(1	)	173	185	22	(3	)	204
La Senza	203	4	(9	)	198	194	—	(7	)	187
Total	781	41	(28	)	794	813	53	(22	)	844

Results of Operations

Second Quarter of ~~2018~~2019 Compared to Second Quarter of ~~2017~~2018

Operating Income

The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for the second quarter of ~~2018~~2019 in comparison to the second quarter of ~~2017~~2018:


							Operating Income Rate										Operating Income Rate
	2018			2017			2018		2017		2019			2018			2019		2018
Second Quarter	(in millions)										(in millions)
Victoria’s Secret	$	114		$	183		6.6	%	11.1	%	$	17		$	114		1.0	%	6.6	%
Bath & Body Works	169			156			17.5	%	18.2	%	180			169			17.0	%	17.5	%
Victoria’s Secret and Bath & Body Works International	(9		)	2			(6.5	)%	1.5	%	(1		)	(9		)	(0.8	%)	(6.5	%)
Other (a)	(46		)	(40		)	(30.3	)%	(29.9	)%	(21		)	(46		)	(26.0	%)	(30.3	%)
Total Operating Income	$	228		$	301		7.6	%	10.9	%	$	175		$	228		6.0	%	7.6	%

_______________


(a)	Includes Mast Global and corporate functions. Results for 2018 also include La Senza and Henri ~~Bendel and Corporate.~~Bendel.

For the second quarter of ~~2018~~2019, operating income decreased ~~$73~~$53 million, or ~~24%~~23%, to ~~$228~~$175 million, and the operating income rate decreased to ~~7.6%~~6.0% from ~~10.9%~~7.6%. The drivers of the operating income results are discussed in the following sections.

Net Sales

The following table provides net sales for the second quarter of ~~2018~~2019 in comparison to the second quarter of ~~2017~~2018:


	2018		2017		% Change		2019		2018		% Change
Second Quarter	(in millions)						(in millions)
Victoria’s Secret Stores (a)	$	1,365	$	1,351	1	%	$	1,233	$	1,365	(10	%)
Victoria’s Secret Direct	360		295		22	%	373		360		4	%
Total Victoria’s Secret	1,725		1,646		5	%	1,606		1,725		(7	%)
Bath & Body Works Stores (a)	824		753		9	%	883		824		7	%
Bath & Body Works Direct	140		107		30	%	178		140		28	%
Total Bath & Body Works	964		860		12	%	1,061		964		10	%
Victoria’s Secret and Bath & Body Works International(b)	145		114		28	%	155		145		6	%
Other ~~(b)~~(c)	150		135		12	%	80		150		(46	%)
Total Net Sales	$	2,984	$	2,755	8	%	$	2,902	$	2,984	(3	%)

_______________


(a)	Includes company-owned stores in the U.S. and Canada.


(b)	Includes ~~Mast Global,~~company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.


(c)	Includes wholesale revenues from our sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri Bendel.

The following table provides a reconciliation of net sales for the second quarter of ~~2018~~2019 to the second quarter of ~~2017~~:2018:


	Victoria’s Secret			Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total			Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total
Second Quarter	(in millions)														(in millions)
2017 Net Sales	$	1,646		$	860	$	114		$	135		$	2,755
2018 Net Sales															$	1,725		$	964		$	145		$	150		$	2,984
Comparable Store Sales	(63		)	50		(8		)	(1		)	(22		)	(108		)	31			(9		)	—			(86		)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	42			21		22			(1		)	84			(21		)	29			19			—			27
Divested/Closed Businesses															—			—			—			(77		)	(77		)
Foreign Currency Translation	1			1		2			1			5			(1		)	(1		)	(4		)	—			(6		)
Direct Channels	51			32		8			1			92			13			38			2			—			53
Private Label Credit Card	48			—		—			—			48			(2		)	—			—			—			(2		)
International Wholesale, Royalty and Other	—			—		7			15			22			—			—			2			7			9
2018 Net Sales	$	1,725		$	964	$	145		$	150		$	2,984
2019 Net Sales															$	1,606		$	1,061		$	155		$	80		$	2,902

The following table compares the second quarter of ~~2018~~2019 comparable sales to the second quarter of ~~2017~~2018:


Second Quarter	2018		2017		2019		2018
Comparable Sales (Stores and Direct) (a)
Victoria's Secret (b)	(1	)%	(14	)%	(6	%)	(1	%)
Bath & Body Works (b)	10	%	6	%	8	%	10	%
Total Comparable Sales	3	%	(8	)%	(1	%)	3	%

Comparable Store Sales (a)
Victoria’s Secret (b)	(5	)%	(11	)%	(9	%)	(5	%)
Bath & Body Works (b)	7	%	4	%	4	%	7	%
Total Comparable Store Sales	(1	)%	(6	)%	(4	%)	(1	%)

________

(a)

The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. A store is typically included in the calculation of comparable sales when it has been open or owned 12 months or more and it has not had a change in selling square footage of 20% or more. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.


(b)	Includes company-owned stores in the U.S. and Canada.

The results by segment are as follows:

Victoria's Secret

For the second quarter of ~~2018,~~2019, net sales ~~increased $79~~decreased $119 million to ~~$1.725~~$1.606 billion, comparable sales decreased 1%6%, and comparable store sales decreased 5%9%. ~~Net~~PINK comparable sales ~~increased primarily~~decreased in the low-double digit range, due to ~~increases~~merchandise performance in ~~beauty, sleep~~apparel and the exit of the swim business, partially offset by growth in sports bras. Victoria's Secret Lingerie comparable sales were down mid-single digit, due to declines in bras, apparel and panties, driven by merchandise performance. Victoria's Secret Beauty comparable sales were flat, as growth in the ~~merchandise assortment,~~PINK Beauty and accessories businesses were offset by a slight decline in the mist business, driven by a miss in fashion, and in ~~constructed bras as we continue to focus on that core~~the lip business. These results were partially offset by declines in unconstructed and sport bras, due to merchandise performance and category resets, and in PINK, driven by the exit of swim and declines in both lingerie and loungewear. Additionally, net sales increased as a result of the change in presentation for income received from our Victoria's Secret private label credit card arrangement.

The decrease in comparable ~~store~~ sales was driven by ~~lower~~declines in store traffic and average unit retail ~~and reduced traffic.~~prices.

Bath & Body Works

For the second quarter of ~~2018,~~2019, net sales increased ~~$104~~$97 million to ~~$964 million,~~$1.061 billion, comparable sales increased ~~10%~~8%, and comparable store sales increased 7%4%. Net sales increased in most categories including home fragrance, body care and soaps and sanitizers, which incorporated newness, innovation and fashion.

The increase in comparable ~~store~~ sales was driven by ~~higher average dollar sales~~an increase in store conversion and ~~conversion.~~digital traffic.

Victoria's Secret and Bath & Body Works International

For the second quarter of ~~2018,~~2019, net sales increased ~~$31~~$10 million to ~~$145~~$155 million ~~primarily related~~due to new company-owned Victoria's Secret stores and direct channel growth in Greater China, ~~and additional stores opened by our partners. These increases were~~ partially offset by a decline in Victoria's Secret U.K. ~~sales.~~

Other

For the second quarter of ~~2018,~~2019, net sales ~~increased $15~~decreased $70 million to ~~$150~~$80 million ~~primarily~~ due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increase in wholesale sales to our international partners.

Gross Profit

For the second quarter of ~~2018,~~2019, our gross profit ~~increased $31~~decreased $76 million to ~~$1.059 billion,~~$983 million, and our gross profit rate (expressed as a percentage of net sales) decreased to ~~35.5%~~33.9% from ~~37.3%~~35.5%, primarily driven by the following:

Victoria's Secret

For the second quarter of ~~2018,~~2019, the gross profit decrease was ~~driven by~~primarily due to lower merchandise margin dollars ~~as a result of~~related to the decrease in net sales and increased promotional activity to ~~drive traffic and clear inventory, and higher occupancy expenses, due to distribution and fulfillment expenses related to higher direct channel sales.~~liquidate non-go-forward merchandise.

The gross profit rate decrease was driven by ~~a decline in the merchandise margin rate due to~~ increased promotional ~~activity.~~activity and buying and occupancy expense deleverage on lower net sales.

Bath & Body Works

For the second quarter of ~~2018,~~2019, the gross profit increase was ~~driven by~~due to higher merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to investments in store real estate and ~~distribution~~increases in supply chain and ~~fulfillment expenses related to higher direct channel sales.~~sourcing costs.

The gross profit rate decrease was driven by ~~channel~~increases in supply chain and sourcing costs and the sales mix ~~and higher distribution and fulfillment expenses.~~shift into the direct business.

Victoria's Secret and Bath & Body Works International

For the second quarter of ~~2018,~~2019, the gross profit increase was ~~driven by increased~~primarily due to higher merchandise margin dollars related to higher net sales in Greater China, ~~and additional stores opened by our partners,~~ partially offset by higher occupancy expenses due to investments in store real estate in Greater ~~China and the U.K.~~China.

The gross profit rate ~~decrease~~increase was ~~primarily~~ driven by ~~an increase in occupancy expenses due to the investments in store real estate and a decline~~increases in the merchandise margin ~~rate at~~rates in the Victoria's Secret U.K. ~~due to increased promotional activity.~~and Victoria's Secret Beauty & Accessories travel retail businesses.

General, Administrative and Store Operating Expenses

For the second quarter of ~~2018,~~2019, our general, administrative and store operating expenses ~~increased $104~~decreased $23 million to ~~$831~~$808 million ~~primarily driven by~~due to the ~~change in presentation for income received from our~~elimination of the La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret, ~~private label credit card arrangement, incremental wage investments,~~partially offset by higher selling expenses related to higher sales ~~volumes~~volume at Bath & Body ~~Works and new company-owned stores in Greater China.~~Works.

The general, administrative and store operating expense rate ~~increased to 27.8% from 26.4% due to the presentation change for income received from our Victoria's Secret private label credit card and increased wage investments.~~remained flat.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for the second quarter of ~~2018~~2019 and ~~2017~~2018:


Second Quarter	2018			2017			2019			2018
Average daily borrowings (in millions)	$	5,846		$	5,804		$	5,792		$	5,846
Average borrowing rate (in percentages)	6.8		%	7.0		%	6.6		%	6.8		%

For the second quarter of ~~2018,~~2019, our interest expense decreased $3 million to ~~$98~~$95 million due to lower average daily borrowings and a lower average borrowing ~~rate partially offset by higher average daily borrowings.~~rate.

Other Income (Loss)

For the second quarter of ~~2018,~~2019, our other income (loss) decreased ~~$18~~$37 million to a ~~loss of $1~~$38 million ~~primarily~~loss due to a $40 million pre-tax loss associated with the ~~negative impacts~~early extinguishment of ~~foreign currency, unrealized losses on our marketable equity securities~~$764 million in outstanding notes maturing between 2020 and ~~fewer distributions received from our Easton investments.~~

2022.

Provision for Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates. The TCJA reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

For the second quarter of ~~2018,~~2019, our effective tax rate was ~~23.2%~~10.1% compared to ~~36.0%~~23.2% in the second quarter of ~~2017.~~2018. The second quarter 2019 rate and the second quarter 2018 rate ~~was~~were lower than the Company's combined federal and state statutory rate primarily due to the resolution of certain tax matters. ~~The second quarter 2017 rate was lower than the Company's combined federal and state statutory rate primarily due to the domestic manufacturing deduction.~~

Results of Operations

Year-to-Date ~~2018~~2019 Compared to Year-to-Date ~~2017~~2018

Operating Income

The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for year-to-date ~~2018~~2019 in comparison to year-to-date ~~2017:~~2018:


							Operating Income Rate										Operating Income Rate
	2018			2017			2018		2017		2019			2018			2019		2018
Year-to-Date	(in millions)										(in millions)
Victoria’s Secret	$	197		$	342		6.0	%	10.8	%	$	49		$	197		1.6	%	6.0	%
Bath & Body Works	293			258			17.0	%	16.8	%	335			293			17.3	%	17.0	%
Victoria’s Secret and Bath & Body Works International	(14		)	1			(5.1	)%	0.5	%	(5		)	(14		)	(1.8	%)	(5.1	%)
Other (a)	(93		)	(91		)	(31.9	)%	(35.5	)%	(51		)	(93		)	(26.5	%)	(31.9	%)
Total Operating Income	$	383		$	510		6.8	%	9.8	%	$	328		$	383		5.9	%	6.8	%

_______________


(a)	Includes Mast Global and corporate functions. Results for 2018 also include La Senza and Henri ~~Bendel and Corporate.~~Bendel.

For year-to-date ~~2018,~~2019, operating income decreased ~~$127~~$55 million, or ~~25%~~14%, to ~~$383~~$328 million, and the operating income rate decreased to ~~6.8%~~5.9% from ~~9.8%~~6.8%. The drivers of the operating income results are discussed in the following sections.

Net Sales

The following table provides net sales for year-to-date ~~2018~~2019 in comparison to year-to-date ~~2017:~~2018:


	2018		2017		% Change		2019		2018		% Change
Year-to-Date	(in millions)						(in millions)
Victoria’s Secret Stores (a)	$	2,601	$	2,597	—	%	$	2,381	$	2,601	(9	%)
Victoria’s Secret Direct	713		582		23	%	735		713		3	%
Total Victoria’s Secret	3,314		3,179		4	%	3,116		3,314		(6	%)
Bath & Body Works Stores (a)	1,473		1,342		10	%	1,597		1,473		8	%
Bath & Body Works Direct	251		197		28	%	335		251		33	%
Total Bath & Body Works	1,724		1,539		12	%	1,932		1,724		12	%
Victoria’s Secret and Bath & Body Works International(b)	281		217		29	%	289		281		3	%
Other ~~(b)~~(c)	291		257		13	%	193		291		(34	%)
Total Net Sales	$	5,610	$	5,192	8	%	$	5,530	$	5,610	(1	%)

_______________


(a)	Includes company-owned stores in the U.S. and Canada.


(b)	Includes ~~Mast Global,~~company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.


(c)	Includes wholesale revenues from our sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri ~~Bendel and Corporate.~~Bendel.

The following table provides a reconciliation of net sales for year-to-date ~~2018~~2019 to year-to-date ~~2017:~~2018:


	Victoria’s Secret			Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total			Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total
Year-to-Date	(in millions)														(in millions)
2017 Net Sales	$	3,179		$	1,539	$	217		$	257		$	5,192
2018 Net Sales															$	3,314		$	1,724		$	281		$	291		$	5,610
Comparable Store Sales	(118		)	79		(19		)	(2		)	(60		)	(194		)	75			(15		)	—			(134		)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	67			50		42			(1		)	158			(33		)	52			36			—			55
Divested/Closed Businesses															—			—			—			(145		)	(145		)
Foreign Currency Translation	3			2		7			2			14			(3		)	(3		)	(9		)	—			(15		)
Direct Channels	110			54		17			4			185			17			84			4			—			105
Private Label Credit Card	73			—		—			—			73			15			—			—			—			15
International Wholesale, Royalty and Other	—			—		17			31			48			—			—			(8		)	47			39
2018 Net Sales	$	3,314		$	1,724	$	281		$	291		$	5,610
2019 Net Sales															$	3,116		$	1,932		$	289		$	193		$	5,530

The following table compares year-to-date ~~2018~~2019 comparable sales to year-to-date ~~2017:~~2018:


Year-to-Date	2018		2017		2019		2018
Comparable Sales (Stores and Direct) (a)
Victoria's Secret (b)	—	%	(14	)%	(6	%)	—	%
Bath & Body Works (b)	9	%	4	%	10	%	9	%
Total Comparable Sales	3	%	(9	)%	(1	%)	3	%

Comparable Store Sales (a)
Victoria’s Secret (b)	(5	)%	(11	)%	(8	%)	(5	%)
Bath & Body Works (b)	6	%	2	%	6	%	6	%
Total Comparable Store Sales	(2	)%	7	%	(3	%)	(2	%)

________

(a)


(b)	Includes company-owned stores in the U.S. and Canada.

The results by segment are as follows:

Victoria's Secret

For year-to-date ~~2018,~~2019, net sales ~~increased $135~~decreased $198 million to ~~$3.314~~$3.116 billion, comparable sales ~~were flat,~~decreased 6%, and comparable store sales decreased 5%8%. ~~Net~~PINK comparable sales ~~increased primarily due to increases~~decreased in ~~beauty, sleep and panties, driven by~~ the ~~merchandise assortment, and in constructed bras as we continue to focus on that core business. These results were partially offset by declines in unconstructed and sport bras,~~low-double digit range, due to merchandise performance ~~and category resets, and~~ in ~~PINK, driven by~~apparel and the exit of the swim ~~and~~business, partially offset by growth in sports bras. Victoria's Secret Lingerie comparable sales were down mid-single digit, due to declines in ~~both lingerie~~bras and ~~loungewear. Additionally, net sales increased as a result of the change~~apparel, driven by merchandise performance, partially offset by an increase in ~~presentation for income received from our~~sleep. Victoria's Secret ~~private label credit card arrangement.~~Beauty comparable sales were about flat, as growth in accessories was offset by a decline in the lip business.

The decrease in comparable ~~store~~ sales was driven by ~~lower~~declines in store traffic and average unit retail ~~and reduced traffic.~~prices.

Bath & Body Works

For year-to-date ~~2018,~~2019, net sales increased ~~$185~~$208 million to ~~$1.724~~$1.932 billion, comparable sales increased 9%10%, and comparable store sales increased 6%. Net sales increased in most categories including home fragrance, body care and soaps and sanitizers, which incorporated newness, innovation and fashion.

The increase in comparable ~~store~~ sales was driven by ~~higher average dollar sales~~an increase in store conversion and ~~conversion.~~digital traffic.

Victoria's Secret and Bath & Body Works International

For year-to-date ~~2018,~~2019, net sales increased ~~$64~~$8 million to ~~$281~~$289 million ~~primarily related~~due to new company-owned Victoria's Secret stores and direct channel growth in Greater China, ~~and additional stores opened by our partners. These increases were~~ partially offset by ~~a decline~~declines in the Victoria's Secret ~~U.K. sales.~~Beauty & Accessories travel retail business.

Other

For year-to-date ~~2018,~~2019, net sales ~~increased $34~~decreased $98 million to ~~$291~~$193 million ~~primarily~~ due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increase in wholesale sales to our international partners.

Gross Profit

For year-to-date ~~2018,~~2019, our gross profit ~~increased $72~~decreased $87 million to ~~$2.003~~$1.916 billion, and our gross profit rate (expressed as a percentage of net sales) decreased to ~~35.7%~~34.6% from ~~37.2%~~35.7%, primarily driven by the following:

Victoria's Secret

For year-to-date ~~2018,~~2019, the gross profit decrease was ~~driven by~~primarily due to lower merchandise margin dollars ~~as a result of~~related to the decrease in net sales and increased promotional activity to drive traffic and ~~attract new customers, and higher occupancy expenses, due to distribution and fulfillment expenses related to higher direct channel sales.~~clear inventory.

Bath & Body Works

For year-to-date ~~2018,~~2019, the gross profit increase was ~~driven by~~due to higher merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to investments in store real estate and ~~distribution~~increases in supply chain and ~~fulfillment expenses related to higher direct channel sales.~~sourcing costs.

The gross profit rate increase was driven by ~~buying and~~ occupancy leverage on higher net ~~sales.~~sales, partially offset by increases in supply chain and sourcing costs.

Victoria's Secret and Bath & Body Works International

For year-to-date ~~2018,~~2019, the gross profit increase was ~~driven by increased~~primarily due to higher merchandise margin dollars related to higher net sales in Greater China, ~~and additional stores opened by our partners,~~ partially offset by higher occupancy expenses due to investments in store real estate in Greater ~~China and the U.K.~~China.

The gross profit rate ~~decrease~~increase was ~~primarily~~ driven by ~~an increase~~increases in the merchandise margin rate in the Victoria's Secret U.K. and China businesses, and leverage in occupancy expenses due to ~~the investments~~higher net sales in ~~store real estate.~~Greater China.

General, Administrative and Store Operating Expenses

For year-to-date ~~2018,~~2019, our general, administrative and store operating expenses ~~increased $199~~decreased $32 million to ~~$1.620~~$1.588 billion ~~driven by~~due to the ~~change in presentation for income received from our~~elimination of the La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret, ~~private label credit card arrangement, incremental wage investments,~~partially offset by higher selling expenses related to higher sales ~~volumes~~volume at Bath & Body ~~Works and higher selling expenses related to new company-owned stores in Greater China.~~Works.

The general, administrative and store operating expense rate ~~increased~~decreased to 28.7% from 28.9% ~~from 27.4% due to~~driven by the ~~presentation change for income received from our~~absence of the higher-rate La Senza and Henri Bendel businesses and a decline in marketing expense at Victoria's ~~Secret private label credit card and increased wage investments.~~Secret.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for year-to-date ~~2018~~2019 and ~~2017:~~2018:


Year-to-Date	2018			2017			2019			2018
Average daily borrowings (in millions)	$	5,845		$	5,797		$	5,835		$	5,845
Average borrowing rate (in percentages)	6.6		%	7.0		%	6.6		%	6.6		%

For year-to-date ~~2018,~~2019, our interest expense decreased $5$2 million to ~~$196~~$194 million due to a lower ~~average borrowing rate partially offset by higher~~ average daily borrowings.

Other Income (Loss)

For year-to-date ~~2018,~~2019, our other income (loss) decreased ~~$26~~$32 million to $1a $31 million ~~primarily~~loss due to ~~fewer distributions~~a $40 million pre-tax loss associated with the early extinguishment of $764 million in outstanding notes maturing between 2020 and 2022, partially offset by an increase in the average interest rate received ~~from our Easton investments, the negative impacts of foreign currency and unrealized losses~~ on ~~marketable equity securities.~~

cash deposits.

Provision for Income Taxes

On December 22, 2017, the TCJA was enacted into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates. The TCJA reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

For year-to-date ~~2018,~~2019, our effective tax rate was ~~21.7%~~24.0% compared to ~~30.6%~~21.7% year-to-date ~~2017.~~2018. The 2019 year-to-date rate and the 2018 year-to-date rate ~~was~~were lower than ~~our~~the Company's combined federal and state statutory rate primarily due to the resolution of certain tax matters. ~~The year-to-date 2017 rate was lower than our combined federal and state statutory rate primarily due to the recognition of tax benefits resulting from stock options exercised.~~

FINANCIAL CONDITION

Liquidity and Capital Resources

Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. ~~The majority of our cash and cash equivalents are held by domestic subsidiaries.~~ Our cash and cash equivalents held by foreign subsidiaries were ~~$388~~$493 million as of August ~~4, 2018.~~

We believe in returning value to our shareholders through a combination of dividends and share repurchase programs. During year-to-date 2018, we paid $335 million in regular dividends and repurchased $186 million of our common stock. We use cash flow generated from operating and financing activities to fund our dividends and share repurchase programs.

~~The following table provides our outstanding debt balance, net of unamortized debt issuance costs and discounts, as of August 4, 2018, February~~ 3, ~~2018 and July 29, 2017:~~

August 4,
2018 February 3,
2018 July 29,
2017
(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”) $ 990
$ 990
$ 990
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”) 951
994
993
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”) 776
994
993
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”) 693
693
692
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”) 498
497
497
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”) 495
495
—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019 (“2019 Notes”)(a) —
—
497
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”) 337
398
397
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”) 272
—
—
Secured Foreign Facilities 80
1
—
Total Senior Debt with Subsidiary Guarantee $ 5,092
$ 5,062
$ 5,059
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”) $ 348
$ 348
$ 348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”) 297
297
297
Unsecured Foreign Facilities 40
87
64
Total Senior Debt $ 685
$ 732
$ 709
Total $ 5,777
$ 5,794
$ 5,768
Current Debt (65 ) (87 ) (64 )
Total Long-term Debt, Net of Current Portion $ 5,712
$ 5,707
$ 5,704

~~_______________~~


~~(a)~~	~~The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $2 million as of July 29, 2017.~~

~~Exchange of Notes~~

In June 2018, we completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470 and no gain or loss was recognized. The exchange premium will be amortized through the maturity date of January 2027 and is included within Long-term Debt on the August 4, 2018 Consolidated Balance Sheet. The obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by certain of our 100% owned subsidiaries (the “Guarantors”).

~~Issuance of Notes~~

In January 2018, we issued $500 million of 5.25% notes due in February 2028. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors. The proceeds from the issuance were $495 million, which were net of issuance costs of $5 million. These issuance costs are being amortized through the maturity date of February 2028 and are included within Long-term Debt on the August 4, 2018 and February 3, 2018 Consolidated Balance Sheets.

~~Redemption of Notes~~

In January 2018, we used the proceeds from the 2028 Notes to redeem the $500 million 2019 Notes for $540 million. In the fourth quarter of 2017, we recognized a pre-tax loss on extinguishment of this debt of $45 million (after-tax loss of $29 million), which includes write-offs of unamortized issuance costs and discounts and losses related to terminated interest rate swaps associated with the 2019 Notes.

~~Secured Revolving Facility~~

We and the Guarantors guarantee and pledge collateral to secure a revolving credit facility. The Revolving Facility has aggregate availability of $1 billion and expires in May 2022. The Revolving Facility allows us and certain of our non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.

The Revolving Facility fees related to committed and unutilized amounts are 0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings is LIBOR plus 1.50% per annum. The interest rate on outstanding foreign denominated borrowings is the applicable benchmark rate plus 1.50% per annum.

The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of August 4, 2018, we were in compliance with both of our financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

~~As of August 4, 2018, there were no borrowings outstanding under the Revolving Facility.~~

The Revolving Facility supports our letter of credit program. We had $9 million of outstanding letters of credit as of August 4, 2018 that reduced our remaining availability under the Revolving Facility.

~~Secured Foreign Facilities~~

We and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. For year-to-date 2018, we borrowed $79 million under the Secured Foreign Facilities. Borrowings on the Secured Foreign Facilities mature between August 2018 and May 2022. As of August 4, 2018, borrowings of $25 million are included within Current Debt on the Consolidated Balance Sheet and the remaining borrowings are included within Long-term Debt.

~~Unsecured Foreign Facilities~~

We guarantee unsecured revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. For year-to-date 2018, we borrowed $10 million and made payments of $57 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time in 2018 was $90 million. Borrowings on the Unsecured Foreign Facilities mature between August 2018 and December 2018. As of August 4, 2018, borrowings of $40 million are included within Current Debt on the Consolidated Balance Sheet.

2019.

Working Capital and Capitalization

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

The following table provides a summary of our working capital position and capitalization as of August 3, 2019, February 2, 2019 and August 4, ~~2018, February 3, 2018 and July 29, 2017:~~2018:



	August 3, 2019			February 2, 2019			August 4, 2018
	(in millions)
Net Cash Provided by Operating Activities (a)	$	162		$	1,377		$	212
Capital Expenditures (a)	244			629			345
Working Capital	437			1,274			859
Capitalization:
Long-term Debt	5,475			5,739			5,712
Shareholders’ Equity (Deficit)	(933		)	(869		)	(1,124		)
Total Capitalization	$	4,542		$	4,870		$	4,588
Remaining Amounts Available Under Credit Agreements (b)	$	990		$	991		$	991

August 4,
2018 February 3, 2018 July 29,
2017
(in millions)
Net Cash Provided by Operating Activities (a) $ 212
$ 1,406
$ 221
Capital Expenditures (a) 345
707
372
Working Capital 859
1,262
1,199
Capitalization:
Long-term Debt 5,712
5,707
5,704
Shareholders’ Equity (Deficit) (1,124 ) (753 ) (914 )
Total Capitalization $ 4,588
$ 4,954
$ 4,790
Remaining Amounts Available Under Credit Agreements (b) $ 991
$ 991
$ 992

_______________


(a)	The February ~~3, 2018~~2, 2019 amounts represent a ~~fifty-three week-period,~~52-week period, and the August 3, 2019 and August 4, 2018 ~~and July 29, 2017~~ amounts represent twenty-six-week periods.


(b)	Letters of credit issued reduce our remaining availability under the Secured Revolving Facility. We had outstanding letters of credit that ~~reduce~~reduced our remaining availability under the Secured Revolving Facility of $10 million as of August 3, 2019, and $9 million as of February 2, 2019 and August 4, ~~2018 and February 3, 2018, and $8 million as of July 29, 2017.~~2018.

~~Credit Ratings~~

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

The following table provides a summary of our ~~credit ratings as of August 4,~~cash flow activity for year-to-date 2019 and 2018:



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



	Year-to-Date
	2019			2018
	(in millions)
Cash and Cash Equivalents, Beginning of Period	$	1,413		$	1,515
Net Cash Flows Provided by Operating Activities	162			212
Net Cash Flows Used for Investing Activities	(237		)	(330		)
Net Cash Flows Used for Financing Activities	(483		)	(554		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	(2		)	—
Net Decrease in Cash and Cash Equivalents	(560		)	(672		)
Cash and Cash Equivalents, End of Period	$	853		$	843

Operating Activities

~~Subsequent~~Net cash provided by operating activities in 2019 was $162 million, including net income of $78 million. Net income included depreciation of $295 million, share-based compensation expense of $44 million and loss on extinguishment of debt of $40 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Income Taxes Payable and Inventories, and the changes in Accounts Payable, Accrued Expenses and Other and Accounts Receivable.

Net cash provided by operating activities in 2018 was $212 million, including net income of $147 million. Net income included depreciation of $296 million and share-based compensation expense of $50 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Income Taxes Payable and Inventories, and the changes in Other Assets and Liabilities.

Investing Activities

Net cash used for investing activities in 2019 was $237 million consisting primarily of capital expenditures of $244 million, partially offset by proceeds of $12 million related to ~~August 4,~~our divestiture of La Senza. The capital expenditures included $169 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and logistics to support our digital businesses and other retail capabilities.

Net cash used for investing activities in 2018 ~~S&P downgraded~~was $330 million consisting primarily of capital expenditures of $345 million partially offset by a $13 million return of capital from certain of our ~~Corporate rating~~Easton investments. The capital expenditures included $276 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to ~~BB,~~spending on technology and infrastructure to support growth.

We anticipate spending approximately $550 million for capital expenditures in 2019 relating to remodeling and improving existing stores and opening new stores, as well as investments in technology and logistics for initiatives supporting our ~~Senior Unsecured Debt with Subsidiary Guarantee rating~~direct businesses and other retail capabilities.

Financing Activities

Net cash used for financing activities in 2019 was $483 million consisting primarily of $799 million in payments for the early extinguishment of outstanding notes maturing between 2020 and 2022, quarterly dividend payments of $0.60 per share, or $166 million, and tax payments related to BBshare-based awards of $11 million, partially offset by the net proceeds of $486 million from the issuance of the 2029 Notes and $11 million of net new borrowings under our ~~Senior Unsecured Debt rating~~Foreign Facilities.

Net cash used for financing activities in 2018 was $554 million consisting primarily of quarterly dividend payments of $1.20 per share, or $335 million, payments for repurchases of common stock of $186 million, payment of long-term debt related to ~~B+,~~our exchange of notes of $52 million and ~~also updated~~tax payments related to share-based awards of $12 million, partially offset by $32 million of net new borrowings under our Outlook to Negative. Additionally, for commercial reasons, Fitch withdrew our ratings on August 29, 2018. In conjunction with the withdrawal, Fitch issued final ratings that downgraded our Corporate rating to BB, our Senior Unsecured Debt with Subsidiary Guarantee rating to BB and our Senior Unsecured Debt rating to BB-.Foreign Facilities.

Common Stock Share Repurchases

Our Board of Directors will determine share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.

Under the authority of our Board of Directors, we repurchased shares of our common stock under the following repurchase programs ~~for~~during year-to-date ~~2018 and 2017:~~2018:


	Amount Authorized		Shares Repurchased		Amount Repurchased				Average Stock Price of Shares Repurchased within Program				Amount Authorized		Shares Repurchased			Amount Repurchased			Average Stock Price of Shares Repurchased within Program
Repurchase Program	Amount Authorized		2018	2017	2018		2017		2018		2017		Amount Authorized					Amount Repurchased			Average Stock Price of Shares Repurchased within Program
	(in millions)		(in thousands)		(in millions)								(in millions)		Shares Repurchased		(in thousands)			(in millions)
March 2018	$	250	4,538	NA	$	161	NA		$	35.53	NA		$	250		4,538		$	161		$	35.53
September 2017	250		527	NA	25		NA		$	46.98	NA		250			527		25			$	46.98
February 2017	250		NA	2,605	NA		$	129	NA		$	49.58
February 2016	500		NA	51	NA		3		NA		$	58.95
Total			5,065	2,656	$	186	$	132								5,065		$	186

We did not repurchase any shares during year-to-date 2019.

In March 2018, our Board of Directors approved a ~~new~~ $250 million share repurchase program, which included the $23 million remaining under the September 2017 repurchase program.

~~In September 2017, our Board of Directors approved a $250 million share repurchase program, which included the $10 million remaining under the February 2017 repurchase program.~~

~~In February 2017, our Board of Directors approved a $250 million share repurchase program, which included the $59 million remaining under the February 2016 repurchase program.~~

~~In February 2016, our Board of Directors approved a $500 million share repurchase program, which included the $17 million remaining under the June 2015 repurchase program.~~

The March 2018 repurchase program had ~~$89~~$79 million remaining as of August ~~4, 2018. Subsequent to August 4, 2018, we repurchased an additional 0.3 million shares of common stock for $10 million under this program.~~3, 2019.

Sheet.

Dividend Policy and Procedures

Our Board of Directors will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating ~~activities to fund our ordinary dividends and a combination of cash flow generated from operating activities~~ and financing activities to fund our ~~special dividends.~~dividends and share repurchase programs.

Under the authority and declaration of our Board of Directors, we paid the following dividends during year-to-date ~~2018~~2019 and ~~2017:~~2018:


	Ordinary Dividends		Total Paid		Ordinary Dividends		Total Paid
	(per share)		(in millions)		(per share)		(in millions)
2019
Second Quarter					$	0.30	$	83
First Quarter					0.30		83
Total					$	0.60	$	166
2018
Second Quarter	$	0.60	$	167	$	0.60	$	167
First Quarter	0.60		168		0.60		168
2018 Total	$	1.20	$	335
2017
Second Quarter	$	0.60	$	172
First Quarter	0.60		172
2017 Total	$	1.20	$	344
Total					$	1.20	$	335

Long-term Debt and Borrowing Facilities

The following table provides our outstanding debt balance, net of unamortized debt issuance costs and discounts, as of August 3, 2019, February 2, 2019 and August 4, 2018:



	August 3, 2019			February 2, 2019			August 4, 2018
	(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	990		$	990		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	486			—			—
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	274			273			272
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	—			337			337
Secured Foreign Facilities	95			91			80
Total Senior Debt with Subsidiary Guarantee	$	4,838		$	5,106		$	5,092
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297
Unsecured Foreign Facilities	67			60			40
Total Senior Debt	$	712		$	705		$	685
Total	$	5,550		$	5,811		$	5,777
Current Debt	(75		)	(72		)	(65		)
Total Long-term Debt, Net of Current Portion	$	5,475		$	5,739		$	5,712

Issuance of Notes

In June 2019, we issued $500 million of 7.50% notes due in June 2029. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by certain of our 100% owned subsidiaries (the “Guarantors”). The proceeds from the issuance were $486 million, which were net of discounts and issuance costs of $14 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the August 3, 2019 Consolidated Balance Sheet.

Repurchases of Notes

In June 2019, we completed the early settlement of tender offers to repurchase $212 million of outstanding 2020 Notes, $330 million of outstanding 2021 Notes and $96 million of outstanding 2022 Notes for $669 million. We used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, we redeemed the remaining $126 million of outstanding 2020 Notes for $130 million.

In the second quarter of 2019, we recognized a pre-tax loss on extinguishment of debt of $40 million (after-tax loss of $30 million), which includes write-offs of unamortized issuance costs and redemption fees. This loss is included in Other Income (Loss) in the 2019 Consolidated Statements of Income.

Exchange of Notes

In June 2018, we completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain or loss was recognized. The exchange premium is being amortized through the maturity date of January 2027 and is included within Long-term Debt on the Consolidated Balance Sheets. The obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors.

~~Cash Flow~~Secured Revolving Facility

We and the Guarantors guarantee and pledge collateral to secure a revolving credit facility. The Secured Revolving Facility has aggregate availability of $1 billion. The Secured Revolving Facility allows us and certain of our non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.

The Secured Revolving Facility fees related to committed and unutilized amounts are 0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings is the London Interbank Offered Rate (“LIBOR”) plus 1.50% per annum. The interest rate on outstanding foreign-denominated borrowings is the applicable benchmark rate plus 1.50% per annum.

The Secured Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, as of August 3, 2019, the Secured Revolving Facility provided 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 August 3, 2019, we were in compliance with both of our financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

As of August 3, 2019, there were no borrowings outstanding under the Secured Revolving Facility.

The Secured Revolving Facility supports our letter of credit program. We had $10 million of outstanding letters of credit as of August 3, 2019 that reduced our remaining availability under the Secured Revolving Facility.

Subsequent to August 3, 2019, we entered into an amendment and restatement of the Secured Revolving Facility. The Amendment maintains the aggregate availability under the Secured Revolving Facility at $1 billion and extends the expiration date from May 2022 to August 2024. The Amendment also raises the threshold of consolidated debt to consolidated EBITDA in which investments and restricted payments may be made without limitation to 3.50 to 1.00.

Secured Foreign Facilities

We and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, we borrowed $12 million and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between December 2019 and May 2022. As of August 3, 2019, borrowings of $8 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.

Unsecured Foreign Facilities

We guarantee unsecured revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, we borrowed $13 million and made payments of $6 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $73 million. Borrowings on the Unsecured Foreign Facilities mature between September 2019 and December 2019. As of August 3, 2019, borrowings of $67 million are included within Current Debt on the Consolidated Balance Sheet.

Credit Ratings

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

The following table provides ~~a summary~~our credit ratings as of ~~our cash flow activity for year-to-date 2018 and 2017:~~August 3, 2019:

Year-to-Date
2018 2017
(in millions)
Cash and Cash Equivalents, Beginning of Period $ 1,515
$ 1,934
Net Cash Flows Provided by Operating Activities 212
221
Net Cash Flows Used for Investing Activities (330 ) (350 )
Net Cash Flows Used for Financing Activities (554 ) (449 )
Effects of Exchange Rate Changes on Cash and Cash Equivalents —
4
Net Decrease in Cash and Cash Equivalents (672 ) (574 )
Cash and Cash Equivalents, End of Period $ 843
$ 1,360

~~Operating Activities~~

Net cash provided by operating activities in 2017 was $221 million, including net income of $233 million. Net income included depreciation of $282 million and share-based compensation expense of $50 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Income Taxes Payable and Inventories, and the changes in Accounts Payable, Accrued Expenses and Other, Accounts Receivable and Other Assets and Liabilities.

~~Investing Activities~~

Net cash used for investing activities in 2018 was $330 million consisting primarily of capital expenditures of $345 million partially offset by a $13 million return of capital from certain of our Easton investments. The capital expenditures included $276 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.

Net cash used for investing activities in 2017 was $350 million consisting primarily of capital expenditures of $372 million partially offset by a $27 million return of capital from certain of our Easton investments. The capital expenditures included $329 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.

~~Financing Activities~~

Net cash used for financing activities in 2017 was $449 million consisting primarily of quarterly dividend payments of $1.20 per share, or $344 million, payments for repurchases of common stock of $132 million and tax payments related to share-based awards of $30 million, partially offset by proceeds from the exercise of stock options of $37 million and $28 million of net new borrowings under our Foreign Facilities.



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

Contingent Liabilities and Contractual Obligations

In connection with the ~~disposition~~sale of ~~a certain business,~~La Senza in the fourth quarter of 2018, we have remaining guarantees of $8$67 million related to lease payments under the current terms of noncancelable leases expiring at various dates through ~~2021.~~2028. 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 business. We recorded a liability of $5 millionas of August 3, 2019 and February 2, 2019 representing the estimated fair value of our obligation as guarantor in accordance with ASC 460, Guarantees. In connection with the disposition of a certain ~~instances, our guarantee~~other business, we have remaining guarantees of $5 million related to lease payments under the current terms of a noncancelable lease expiring in 2021, which may remain in effect if the term ~~of a lease~~ is extended. We have not recorded a liability with respect to ~~these~~this guarantee ~~obligations~~obligation as of August 3, 2019, February 2, 2019 or August 4, 2018 ~~February 3, 2018 or July 29, 2017~~ as we concluded that payments under ~~these guarantees~~this guarantee were not probable.

In connection with noncancelable operating leases of certain assets, we provided residual value guarantees to the lessor if the leased assets cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The leases expire at various dates through 2021, and the total amount of the guarantees is ~~$104~~$94 million. We recorded a liability of

$ $11 million as of August 3, 2019 and February 2, 2019, and $3 million as of August 4, 2018 ~~and February 3, 2018, and a liability of less than $1 million as of July 29, 2017~~ related to these guarantee ~~obligations, which are~~obligations. This liability is included in Current Operating Lease Liabilities on the August 3, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and August 4, 2018 Consolidated Balance Sheets.

Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since February ~~3, 2018,~~2, 2019, as discussed in “Contingent Liabilities and Contractual Obligations” in our ~~2017~~2018 Annual Report on Form 10-K, other ~~than~~that the ~~exchange~~newly issued 2029 Notes, repurchase of the 2020 Notes and repurchases of certain of ~~our 2020 Notes,~~the 2021 ~~Notes~~ and 2022 ~~Notes for newly issued 2027~~ Notes. Certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

~~Revenue from Contracts with Customers~~

~~In May 2014, the FASB issued ASC 606,~~ ~~Revenue from Contracts with Customers~~, which was further clarified and amended in 2015 and 2016. This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also results in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

We adopted the standard in the first quarter of 2018 under the modified retrospective approach. Under the standard, income from the Victoria's Secret private label credit card arrangement, which was historically presented as a reduction to General, Administrative and Store Operating Expenses, is presented as revenue. Further, historical accounting related to loyalty points earned under the Victoria's Secret customer loyalty program changed as we now defer revenue associated with customer loyalty points until the points are redeemed using a relative stand-alone selling price method. The standard also changed accounting for sales returns which requires balance sheet presentation on a gross basis.

In the first quarter of 2018, we recorded a cumulative catch-up adjustment resulting in a reduction to opening retained earnings, net of tax, of $28 million. The cumulative adjustment primarily related to the deferral of revenue related to outstanding points, net of estimated forfeitures, under our Victoria's Secret customer loyalty program. In addition, Net Sales and General, Administrative and Store Operating Expenses both increased $48 million and $73 million in the second quarter and year-to-date 2018 Consolidated Statements of Income, respectively. Further, gross presentation of our sales return reserve resulted in a $4 million increase in Other Current Assets and Accrued Expenses and Other on the August 4, 2018 Consolidated Balance Sheet.

~~Fair Value of Financial Instruments~~

~~In January 2016, the FASB issued ASC 321,~~ ~~Investments - Equity Securities~~, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard requires the recognition of changes in the fair value of marketable equity securities in net income as compared to historical treatment in accumulated other comprehensive income on the balance sheet. We adopted the standard in the first quarter of 2018 and recorded an increase to opening retained earnings, net of tax, of $2 million.

Leases

In February 2016, the FASB issued ASC 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheets but recognize expenses on their income statements in a manner similar to ~~today’s~~legacy accounting. The standard also ~~will result in~~requires enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of ~~revenue and~~ expense recognized and expected to be recognized from existing leases. In July 2018, the FASB approved an amendment to the standard that provides companies a modified retrospective transition option that ~~would~~did not require earlier periods to be restated upon adoption. ~~The standard is effective beginning in fiscal 2019, with early adoption permitted.~~

We are currently evaluating the impacts that this standard will have on our Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows. We currently expect that most of our operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the standard. Thus, we expect adoption will result in a material increase to the assets and liabilities on our Consolidated Balance Sheet. We will adoptadopted the standard in the first quarter of 2019 ~~and~~under the modified retrospective approach. As allowed by the new standard, we elected the package of transition practical expedients but elected to not apply the ~~standard prospectively~~hindsight practical expedient to our leases at transition.

Upon adoption at the beginning of 2019, we recorded operating lease liabilities of $3.7 billion and operating lease assets for our leases of $3.3 billion. The operating lease assets are net of $470 million of liabilities for deferred rent and unamortized landlord construction allowances that were previously recorded as Other Long-term Liabilities on the Consolidated Balance Sheet. We also recorded a decrease to opening retained earnings, net of tax, of $2 million. The adoption of the ~~adoption date.~~standard did not materially impact the Consolidated Statements of Income or Cash Flows.

Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements. We adopted the standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on our consolidated results of operations, financial position or cash flows.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This guidance will be effective beginning in fiscal ~~2019,~~2020, with early adoption permitted. We ~~are currently evaluating the impact of~~do not expect this standard to have a material impact on our ~~Consolidated Statements~~consolidated results of ~~Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows.~~operations, financial position or cash flows.

IMPACT OF INFLATION

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

There have been no material changes to the critical accounting policies and estimates disclosed in our ~~2017~~2018 Annual Report on Form 10-K, other than the adoption of ASC ~~606,~~ ~~Revenue from Contracts with Customers.~~842, Leases.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

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

Foreign Exchange Rate Risk

We have operations in foreign countries which expose us to market risk associated with foreign currency exchange rate fluctuations. Our Canadian dollar, British pound, Chinese ~~yuan,~~Yuan, Hong Kong dollar and Euro denominated earnings are subject to exchange rate risk as substantially all our merchandise sold in Canada, the U.K., Ireland and Greater China is sourced through U.S. dollar transactions. Although we utilize foreign currency forward contracts to partially offset risks associated with ~~Canadian dollar~~our operations in Canada and ~~British pound denominated earnings,~~the U.K., these measures may not succeed in offsetting all the short-term impact of foreign currency rate movements and generally may not be effective in offsetting the long-term impact of sustained shifts in foreign currency rates.

Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency. As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations.

Interest Rate Risk

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

Excluding our Foreign Facilities, all of our long-term debt as of August ~~4, 2018,~~3, 2019 has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.

Fair Value of Financial Instruments

As of August ~~4, 2018,~~3, 2019, we believe that the carrying values of accounts receivable, accounts payable, accrued expenses and current debt approximate fair value because of their short maturity.

The following table provides a summary of the principal value and estimated fair value of outstanding ~~long-term~~publicly traded debt ~~excluding Foreign Facility borrowings~~ and ~~swap arrangements,~~other financial instruments as of August 3, 2019, February 2, 2019 and August 4, ~~2018~~, ~~February 3, 2018~~ ~~and~~ ~~July 29, 2017~~:2018:


	August 4, 2018			February 3, 2018		July 29, 2017			August 3, 2019			February 2, 2019			August 4, 2018
	(in millions)								(in millions)
Long-term Debt:
Principal Value	$	5,722		$	5,750	$	5,750		$	5,458		$	5,722		$	5,722
Fair Value, Estimated (a)	5,432			5,943		5,929			5,215			5,340			5,432
Foreign Currency Cash Flow Hedges (b)	(2		)	9		3			(3		)	(2		)	(2		)
Interest Rate Fair Value Hedges (b)	—			—		(2		)
Marketable Equity Securities (b)									(2		)	(11		)	(11		)

_______________


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


(b)	~~Hedge arrangements~~Financial instruments are in a net ~~liability (asset)~~asset position.

Concentration of Credit Risk

We maintain cash and cash equivalents and derivative contracts with various major financial institutions. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Typically, our investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.


Item 4.	CONTROLS AND PROCEDURES

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

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred in the second quarter ~~2018~~of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

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

In July 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that we made false and/or misleading statements relating to the November 2018 announcement that we were reducing our quarterly dividend. We view this lawsuit as meritless and intend to defend against this lawsuit vigorously.


Item 1A.	RISK FACTORS

The risk factors that affect our business and financial results are discussed in “Item 1A: Risk Factors” in the ~~2017~~2018 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors” in our ~~2017~~2018 Annual Report on Form 10-K and those described elsewhere in this report or other SEC filings, could cause actual results to differ materially from those stated in any forward-looking statements.


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

The following table provides our repurchases of our common stock during the second quarter of ~~2018:~~2019:

Period
Total
Number of
Shares
Purchased (a)

Average Price
Paid per
Share (b)
Total Number of Shares Purchased as Part of Publicly Announced Programs (c) Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
(in thousands) (in thousands)
May 2018 1,217
$ 34.09
1,120
$ 154,067
June 2018 1,233
36.66
1,231
108,928
July 2018 626
32.49
624
88,669
Total 3,076
2,975



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Programs (c)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
	(in thousands)			(in thousands)
May 2019	81	$	21.98	—	$	78,677
June 2019	3	26.64		—	78,677
July 2019	4	23.81		—	78,677
Total	88			—

_______________


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


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


(c)	For additional share repurchase program information, see Note 4, “Earnings Per Share and Shareholders' Equity (Deficit)” included in Item 1. Financial Statements.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.


Item 5.	OTHER INFORMATION

None.

Item 6. EXHIBITS



Exhibits

4.1		Fourth Supplemental Indenture between U.S. Bank and L Brands and Guarantors, dated as of June 30, 2019.

4.2		Tenth Supplemental Indenture between BNY and L Brands and Guarantors, dated as of June 30, 2019.

4.3		Amendment and Restatement Agreement dated August 13, 2019 among L Brands, Inc., a Delaware corporation, the Borrowing Subsidiaries party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (the “Administrative Agent”), in respect of the Amended and Restated Revolving Credit Agreement dated as of May 11, 2017 among the Company, the lenders from time to time party thereto and the Administrative Agent, incorporated by reference to Exhibit 4.1 to the Company's Form 8-K dated August 14, 2019.

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

31.1		Section 302 Certification of CEO.

31.2		Section 302 Certification of CFO.

32		Section 906 Certification (by CEO and CFO).

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	L BRANDS, INC.
	(Registrant)
	By:	/s/ STUART B. BURGDOERFER
		Stuart B. Burgdoerfer Executive Vice President and Chief Financial Officer *

Date: September ~~7, 2018~~6, 2019


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

5154



Details About Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income										Location on Consolidated Statements of Income
	Second Quarter					Year-to-Date
	2018		2017			2018		2017
	(in millions)
(Gain) Loss on Cash Flow Hedges	$	1	$	(1	)	$	3	$	(3	)	Costs of Goods Sold, Buying and Occupancy
	—		13			—		8			Other Income (Loss)
	—		—			—		—			Provision for Income Taxes
	$	1	$	12		$	3	$	5		Net Income



	Second Quarter 2017
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,594		$	829		$	(668	)	$	2,755
Costs of Goods Sold, Buying and Occupancy	—			(1,668		)	(642		)	583			(1,727		)
Gross Profit	—			926			187			(85		)	1,028
General, Administrative and Store Operating Expenses	(2		)	(693		)	(96		)	64			(727		)
Operating Income (Loss)	(2		)	233			91			(21		)	301
Interest Expense	(100		)	(22		)	(3		)	24			(101		)
Other Income	—			2			15			—			17
Income (Loss) Before Income Taxes	(102		)	213			103			3			217
Provision for Income Taxes	—			45			33			—			78
Equity in Earnings (Loss), Net of Tax	241			297			230			(768		)	—
Net Income (Loss)	$	139		$	465		$	300		$	(765	)	$	139



	Year-to-Date 2017
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	4,890		$	1,526		$	(1,224	)	$	5,192
Costs of Goods Sold, Buying and Occupancy	—			(3,140		)	(1,213		)	1,092			(3,261		)
Gross Profit	—			1,750			313			(132		)	1,931
General, Administrative and Store Operating Expenses	(6		)	(1,329		)	(186		)	100			(1,421		)
Operating Income (Loss)	(6		)	421			127			(32		)	510
Interest Expense	(200		)	(33		)	(5		)	37			(201		)
Other Income	—			5			22			—			27
Income (Loss) Before Income Taxes	(206		)	393			144			5			336
Provision for Income Taxes	—			65			38			—			103
Equity in Earnings (Loss), Net of Tax	439			476			380			(1,295		)	—
Net Income (Loss)	$	233		$	804		$	486		$	(1,290	)	$	233