UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________



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

For the quarterly period ended August ~~3, 2019~~1, 2020



☐	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
Columbus,	Ohio	43230
(Address of principal executive offices)		(Zip Code)
(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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

		Emerging growth company	☐

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. ☐

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 Par Value	LB	The New York Stock Exchange

As of August ~~30, 2019,~~28, 2020, the number of outstanding shares of the Registrant’s common stock, was ~~276,391,606~~277,889,018 shares.

L BRANDS, INC.

TABLE OF CONTENTS



	Page No.
Part I. Financial Information

Item 1. Financial Statements *

Consolidated Statements of Income (Loss) for the Thirteen-Weeks and Twenty-Six-Weeks Ended August ~~3, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 (Unaudited)	3

Consolidated Statements of Comprehensive Income (Loss) for the Thirteen-Weeks and Twenty-Six-Weeks Ended August ~~3, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 (Unaudited)	3

Consolidated Balance Sheets as of August ~~3, 2019~~1, 2020 (Unaudited), February ~~2, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 (Unaudited)	4

Consolidated Statements of Total Equity (Deficit) for the Thirteen-Weeks and Twenty-Six-Weeks Ended August ~~3, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 (Unaudited)	5

Consolidated Statements of Cash Flows for the Twenty-Six-Weeks Ended August ~~3, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 (Unaudited)	7

Notes to Consolidated Financial Statements (Unaudited)	8

Report of Independent Registered Public Accounting Firm	3221

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	3322

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3423

Item 3. Quantitative and Qualitative Disclosures About Market Risk	5042

Item 4. Controls and Procedures	5143

Part II. Other Information	5244

Item 1. Legal Proceedings	5244

Item 1A. Risk Factors	5244

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5245

Item 3. Defaults Upon Senior Securities	5245

Item 4. Mine Safety Disclosures	5245

Item 5. Other Information	5245

Item 6. Exhibits	5346

Signature	5447



*	The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of ~~2019”~~2020” and “second quarter of ~~2018”~~2019” refer to the thirteen-week periods ended August 1, 2020 and August 3, 2019, respectively. “Year-to-date 2020” and ~~August 4, 2018, respectively. "Year-to-date 2019" and "year-to-date 2018"~~“year-to-date 2019” refer to the twenty-six-week periods ending August ~~3, 2019~~1, 2020 and August ~~4, 2018,~~3, 2019, respectively.

PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions except per share amounts)

(Unaudited)



	Second Quarter						Year-to-Date
	2020			2019			2020			2019
Net Sales	$	2,319		$	2,902		$	3,974		$	5,530
Costs of Goods Sold, Buying and Occupancy	(1,608		)	(1,919		)	(2,974		)	(3,614		)
Gross Profit	711			983			1,000			1,916
General, Administrative and Store Operating Expenses	(667		)	(808		)	(1,274		)	(1,588		)
Operating Income (Loss)	44			175			(274		)	328
Interest Expense	(104		)	(95		)	(201		)	(194		)
Other Income (Loss)	0			(38		)	3			(31		)
Income (Loss) Before Income Taxes	(60		)	42			(472		)	103
Provision (Benefit) for Income Taxes	(11		)	4			(126		)	25
Net Income (Loss)	$	(49	)	$	38		$	(346	)	$	78
Net Income (Loss) Per Basic Share	$	(0.18	)	$	0.14		$	(1.25	)	$	0.28
Net Income (Loss) Per Dilutive Share	$	(0.18	)	$	0.14		$	(1.25	)	$	0.28
Dividends Per Share	$	0		$	0.30		$	0.30		$	0.60

Second Quarter Year-to-Date
2019 2018 2019 2018
Net Sales $ 2,902
$ 2,984
$ 5,530
$ 5,610
Costs of Goods Sold, Buying and Occupancy (1,919 ) (1,925 ) (3,614 ) (3,607 )
Gross Profit 983
1,059

1,916

2,003
General, Administrative and Store Operating Expenses (808 ) (831 ) (1,588 ) (1,620 )
Operating Income 175
228

328

383
Interest Expense (95 ) (98 ) (194 ) (196 )
Other Income (Loss) (38 ) (1 ) (31 ) 1
Income Before Income Taxes 42
129

103

188
Provision for Income Taxes 4
30
25
41
Net Income $ 38
$ 99

$ 78

$ 147
Net Income Per Basic Share $ 0.14
$ 0.36
$ 0.28
$ 0.53
Net Income Per Diluted Share $ 0.14
$ 0.36
$ 0.28
$ 0.52
Dividends Per Share $ 0.30
$ 0.60
$ 0.60
$ 1.20

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(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
	2020			2019			2020			2019
Net Income (Loss)	$	(49	)	$	38		$	(346	)	$	78
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	2			(7		)	(4		)	(11		)
Unrealized Gain (Loss) on Cash Flow Hedges	(3		)	2			2			4
Reclassification of Cash Flow Hedges to Earnings	(1		)	(1		)	(1		)	(3		)
Total Other Comprehensive Loss, Net of Tax	(2		)	(6		)	(3		)	(10		)
Total Comprehensive Income (Loss)	$	(51	)	$	32		$	(349	)	$	68

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 3, 2019			February 2, 2019			August 4, 2018			August 1, 2020			February 1, 2020			August 3, 2019
	(Unaudited)						(Unaudited)			(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	853		$	1,413		$	843		$	2,611		$	1,499		$	853
Accounts Receivable, Net	283			367			310			268			306			283
Inventories	1,329			1,248			1,315			1,476			1,287			1,329
Other	188			232			247			150			153			188
Total Current Assets	2,653			3,260			2,715			4,505			3,245			2,653
Property and Equipment, Net	2,756			2,818			2,949			2,292			2,486			2,756
Operating Lease Assets	3,209			—			—			2,635			3,053			3,209
Goodwill	1,348			1,348			1,348			628			628			1,348
Trade Names	411			411			411			411			411			411
Deferred Income Taxes	62			62			21			74			84			62
Other Assets	179			191			176			335			218			179
Total Assets	$	10,618		$	8,090		$	7,620		$	10,880		$	10,125		$	10,618
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	763		$	711		$	821		$	957		$	647		$	763
Accrued Expenses and Other	919			1,082			963			1,340			1,052			919
Current Debt	75			72			65			460			61			75
Current Operating Lease Liabilities	456			—			—			624			478			456
Income Taxes	3			121			7			52			134			3
Total Current Liabilities	2,216			1,986			1,856			3,433			2,372			2,216
Deferred Income Taxes	241			226			237			191			219			241
Long-term Debt	5,475			5,739			5,712			6,269			5,487			5,475
Long-term Operating Lease Liabilities	3,165			—			—			2,698			3,052			3,165
Other Long-term Liabilities	450			1,004			937			193			490			450
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—			—			—			0			0			0
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
Common Stock - $0.50 par value; 1,000 shares authorized; 286, 285 and 284 shares issued; 278, 277 and 276 shares outstanding, respectively										143			142			142
Paid-in Capital	806			771			718			869			847			806
Accumulated Other Comprehensive Income	49			59			12			49			52			49
Retained Earnings (Deficit)	(1,572		)	(1,482		)	(1,648		)	(2,611		)	(2,182		)	(1,572		)
Less: Treasury Stock, at Average Cost; 8, 8 and 8 shares, respectively	(358		)	(358		)	(348		)	(358		)	(358		)	(358		)
Total L Brands, Inc. Shareholders’ Equity (Deficit)	(933		)	(869		)	(1,124		)	(1,908		)	(1,499		)	(933		)
Noncontrolling Interest	4			4			2			4			4			4
Total Equity (Accumulated Deficit)	(929		)	(865		)	(1,122		)	(1,904		)	(1,495		)	(929		)
Total Liabilities and Equity (Deficit)	$	10,618		$	8,090		$	7,620		$	10,880		$	10,125		$	10,618

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 2020



	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 2, 2020	278	$	143	$	865	$	51		$	(2,562	)	$	(358	)	$	3	$	(1,858	)
Net Loss	—	0		0		0			(49		)	0			0		(49		)
Other Comprehensive Loss	—	0		0		(2		)	0			0			0		(2		)
Total Comprehensive Loss	—	0		0		(2		)	(49		)	0			0		(51		)
Share-based Compensation and Other	0	0		4		0			0			0			1		5
Balance, August 1, 2020	278	$	143	$	869	$	49		$	(2,611	)	$	(358	)	$	4	$	(1,904	)

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
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
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 )



	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	—	0		0		0			38			0			0		38
Other Comprehensive Loss	—	0		0		(6		)	0			0			0		(6		)
Total Comprehensive Income (Loss)	—	0		0		(6		)	38			0			0		32
Cash Dividends ($0.30 per share)	—	0		0		0			(83		)	0			0		(83		)
Share-based Compensation and Other	0	0		20		0			0			0			0		20
Balance, August 3, 2019	276	$	142	$	806	$	49		$	(1,572	)	$	(358	)	$	4	$	(929	)

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~~2020

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
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 )



	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 1, 2020	277	$	142	$	847	$	52		$	(2,182	)	$	(358	)	$	4	$	(1,495	)
Net Loss	—	0		0		0			(346		)	0			0		(346		)
Other Comprehensive Loss	—	0		0		(3		)	0			0			0		(3		)
Total Comprehensive Loss	—	0		0		(3		)	(346		)	0			0		(349		)
Cash Dividends ($0.30 per share)	—	0		0		0			(83		)	0			0		(83		)
Share-based Compensation and Other	1	1		22		0			0			0			0		23
Balance, August 1, 2020	278	$	143	$	869	$	49		$	(2,611	)	$	(358	)	$	4	$	(1,904	)

Year-to-Date ~~2018~~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
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 )



	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	—	0		0		0			(2		)	0			0		(2		)
Balance, February 3, 2019	275	141		771		59			(1,484		)	(358		)	4		(867		)
Net Income	—	0		0		0			78			0			0		78
Other Comprehensive Loss	—	0		0		(10		)	0			0			0		(10		)
Total Comprehensive Income (Loss)	—	0		0		(10		)	78			0			0		68
Cash Dividends ($0.60 per share)	—	0		0		0			(166		)	0			0		(166		)
Share-based Compensation and Other	1	1		35		0			0			0			0		36
Balance, August 3, 2019	276	$	142	$	806	$	49		$	(1,572	)	$	(358	)	$	4	$	(929	)

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
	2019			2018			2020			2019
Operating Activities:
Net Income	$	78		$	147
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Net Income (Loss)							$	(346	)	$	78
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation of Long-lived Assets	295			296			266			295
Amortization of Landlord Allowances	—			(22		)
Long-lived Store and Lease Asset Impairment Charges							214			0
Share-based Compensation Expense	44			50			28			44
Deferred Income Taxes							(19		)	15
Gain from Hong Kong Store Closure and Lease Termination							(39		)	0
Loss on Extinguishment of Debt	40			—			0			40
Deferred Income Taxes	15			—
Gains on Distributions from Easton Investments	(2		)	(7		)	0			(2		)
Unrealized Losses on Marketable Equity Securities	—			6
Changes in Assets and Liabilities:
Accounts Receivable	55			1			37			55
Inventories	(83		)	(81		)	(191		)	(83		)
Accounts Payable, Accrued Expenses and Other	(107		)	4			304			(107		)
Income Taxes Payable	(138		)	(209		)	(92		)	(138		)
Other Assets and Liabilities	(35		)	27			124			(35		)
Net Cash Provided by Operating Activities	162			212			286			162
Investing Activities:
Capital Expenditures	(244		)	(345		)	(124		)	(244		)
Other Investing Activities	7			15			8			7
Net Cash Used for Investing Activities	(237		)	(330		)	(116		)	(237		)
Financing Activities:
Proceeds from Issuance of Long-Term Debt, Net of Issuance Costs	486			—			1,231			486
Payments of Long-term Debt	(799		)	(52		)	0			(799		)
Borrowing from Credit Agreement							950			0
Repayment of Credit Agreement							(950		)	0
Borrowings from Foreign Facilities	25			89			33			25
Repayments of Foreign Facilities	(14		)	(57		)	(85		)	(14		)
Dividends Paid	(166		)	(335		)	(83		)	(166		)
Repurchases of Common Stock	—			(186		)
Tax Payments related to Share-based Awards	(11		)	(12		)	(6		)	(11		)
Proceeds from Exercise of Stock Options	1			1
Financing Costs and Other	(5		)	(2		)
Net Cash 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, Beginning of Period	1,413			1,515
Cash and Cash Equivalents, End of Period	$	853		$	843
Other Financing Activities							(19		)	(4		)
Net Cash Provided by (Used for) Financing Activities							1,071			(483		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash							(1		)	(2		)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash							1,240			(560		)
Cash and Cash Equivalents and Restricted Cash, Beginning of Period							1,499			1,413
Cash and Cash Equivalents and Restricted Cash, End of Period							$	2,739		$	853

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”~~(the "Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of home fragrance products, body care, soaps and sanitizers, women’s intimate and other apparel, and personal ~~care,~~and beauty ~~and home fragrance~~care 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),~~ 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:

Bath & Body Works

Victoria’s Secret

PINK

On February 20, 2020, the Company and an affiliate of Sycamore Partners Management, L.P. ("Sycamore"), entered into a Transaction Agreement (the "Transaction Agreement") pursuant to which, among other things, the Company would have sold a 55% interest in the Company's Victoria's Secret and PINK businesses (collectively, "Victoria's Secret"). On May 4, 2020, the Company and Sycamore mutually agreed to terminate the Transaction Agreement.

During the second quarter of 2020, the Company completed its comprehensive review of the home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. For additional information, see Note 4, “Restructuring."

Impacts of COVID-19

In March 2020, the coronavirus pandemic ("COVID-19") was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures and orders to “shelter-in-place.” The situation and preventative or protective actions that governments around the world have taken to contain the spread of COVID-19 have resulted in a period of disruption, including closure of the Company's stores, limited store operating hours, reduced customer traffic and consumer spending and delays in manufacturing and shipping of products and raw materials. During this period, the Company is focused on protecting the health and safety of its customers, employees, contractors, suppliers, and other business partners. The Company is also working with its suppliers to minimize potential disruptions, while managing the Company's business in response to a changing dynamic.

The Company's business operations and financial performance for 2020 have been materially impacted by the COVID-19 pandemic. All the Company's stores in North America were closed on March 17th and almost all remained closed as of the beginning of the second quarter. Operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March, while Bath & Body Works Direct has remained open for the duration of 2020. The Company has re-opened approximately 1,600 Bath & Body Works stores and approximately 690 Victoria’s Secret stores in North America, representing the majority of its stores, as of August 1, 2020. On average, Bath & Body Works stores were closed for about half of the second quarter and Victoria’s Secret stores were closed for about 70% of the second quarter (including the impact of the approximately 250 stores which the Company plans to close). Additionally, the Company has dedicated resources to maximize capacity in its direct fulfillment centers to meet increased customer demand, while focusing on distribution, fulfillment and call center safety.

Since the global COVID-19 crisis began, the Company has taken prudent actions to manage expenses and to maintain its solid cash position and financial flexibility through the pandemic, including:

Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;

Suspending associate merit increases;

Temporarily reducing salaries for senior vice presidents and above by 20%;

Temporarily suspending cash compensation for all members of the Board of Directors;

Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;

Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;

Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;

Suspending most store and select office rent payments during the temporary closures. The Company is in active discussions with its landlords to negotiate with respect to these rent payments and go-forward occupancy costs;

Converting the revolving credit facility to an asset-backed loan facility and issuing $1.25 billion in new notes; and

Extending payment terms to vendors.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which, among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the coronavirus outbreak and options to defer payroll tax payments. Based on the Company's evaluation of the CARES Act, it qualifies for certain employer payroll tax credits, which will offset store operating expenses. Year-to-date the Company has recognized $54 million of qualified payroll tax credits.

For most stores and select office locations, rent from April through July was not paid, or only partially paid, due to the temporary closures during the COVID-19 pandemic. The Company is in active discussions with its landlords to negotiate with respect to these rent payments and go-forward occupancy costs. The Financial Accounting Standards Board (“FASB”) issued guidance in April, which allows COVID-19-related rent concessions to be treated as variable rent. The Company has not yet finalized negotiations with respect to the majority of its leases.

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “second quarter of ~~2019~~”2020” and “second quarter of ~~2018~~”2019” refer to the thirteen-week periods ended August 1, 2020 and August 3, 2019, ~~and~~ ~~August 4, 2018~~, respectively. ~~“Year-to-date 2019”~~“Year-to-Date 2020” and “year-to-date ~~2018”~~2019” refer to the twenty-six-week periods ending August ~~3, 2019~~1, 2020 and August ~~4, 2018,~~3, 2019, 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 in the Consolidated Statements of ~~Income.~~Income (Loss). The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) in the Consolidated Statements of ~~Income.~~Income (Loss). 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 1, 2020 and August 3, 2019 ~~and~~ ~~August 4, 2018~~ 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 ~~2018~~2019 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~~Due to the impacts of ~~Business~~

~~Due to~~COVID-19 and seasonal variations in the retail industry, the results of operations for ~~any~~the interim period ~~are~~is not necessarily indicative of the results expected for the full fiscal year.

Restricted Cash

During the second quarter, the Company placed cash on deposit with certain financial institutions as collateral for lending commitments. The amount of collateral required reduces over time as the Company makes certain paydowns. For additional information see Note 10, "Long-term Debt and Borrowing Facilities."

These deposits, totaling $128 million, are recorded in Other Assets on the August 1, 2020 Consolidated Balance Sheet. The Company's total Cash and Cash Equivalents and Restricted Cash was $2.739 billion as of August 1, 2020.

Derivative Financial Instruments

The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value.

The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all the 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. Amounts are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The fair value of designated cash flow hedges is not significant as of August 1, 2020.

Concentration of Credit Risk

The Company maintains cash and cash equivalents, restricted cash 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

~~Leases~~Credit Losses

In ~~February~~June 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards ~~Codification (“ASC”~~Update ("ASU") ~~842,~~2016-13, ~~Leases~~Financial Instruments - Credit Losses,, which requires ~~companies classified as lessees to account~~the use of a forward-looking expected loss impairment model for ~~most leases on their balance sheets but recognize expenses on their income statements in a manner similar to legacy accounting. The standard also requires enhanced quantitative~~accounts receivable and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of 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 did not require earlier periods to be restated upon adoption.

certain other financial instruments. The Company adopted the standard in the first quarter of 2019 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 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 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 2019.2020. 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~~Guarantor Reporting

In ~~January 2017,~~March 2020, the ~~FASB~~SEC issued ~~ASU 2017-04,~~a final rule, ~~Simplifying the Test for Goodwill Impairment~~Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, ~~which~~that simplifies the ~~subsequent measurement~~disclosure requirements related to registered securities under Rule 3-10 of ~~goodwill.~~Regulation S-X. The ~~standard eliminates~~rule replaces the ~~second step from the goodwill impairment test, which requires~~requirement to provide condensed consolidating financial information with a ~~hypothetical purchase price allocation~~requirement to ~~determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess~~present summarized financial information of the ~~reporting unit's carrying value over its fair value, not~~issuers and guarantors. It also requires qualitative disclosures with respect to ~~exceed~~information about guarantors, the ~~total amount~~terms and conditions of ~~goodwill allocated~~guarantees and the factors that may affect payment. These disclosures may be provided outside the footnotes to the ~~reporting unit. This guidance will be effective beginning in fiscal 2020, with early adoption permitted.~~Company’s consolidated financial statements. The Company ~~does not expect this standard~~early adopted the reporting requirements of the rule in the first quarter of 2020 and elected to ~~have a material impact on its consolidated results~~provide these disclosures in Management’s Discussion and Analysis of ~~operations, financial position or cash flows.~~Financial Condition and Results of Operations.

3. Revenue Recognition

Accounts receivable, net from revenue-generating activities were $186 million as of August 1, 2020, $152 million as of February 1, 2020 and $174 million as of August 3, ~~2019, $150 million as of February 2, 2019 and $165 million as of August 4, 2018.~~2019. 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 90 days. As a result of the COVID-19 pandemic, the Company has extended the payment terms for certain partners.

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. Deferred revenue was ~~$276~~$316 million as of

August ~~3, 2019, $331~~1, 2020, $342 million as of February ~~2, 2019~~1, 2020 and ~~$281~~$276 million as of August ~~4, 2018.~~3, 2019. The Company recognized ~~$167~~$132 million as revenue year-to-date ~~in 2019~~2020 from amounts recorded as deferred revenue at the beginning of the ~~period.~~year. As of August ~~3, 2019,~~1, 2020, the Company recorded deferred revenue of ~~$262~~$304 million within Accrued Expenses and Other, and ~~$14~~$12 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 ~~2019~~2020 and ~~2018:~~2019:


	Second Quarter				Year-to-Date				Second Quarter				Year-to-Date
	2019		2018		2019		2018		2020		2019		2020		2019
	(in millions)								(in millions)
Bath & Body Works Stores (a)									$	678	$	883	$	1,102	$	1,597
Bath & Body Works Direct									519		178		807		335
Total Bath & Body Works									1,197		1,061		1,909		1,932
Victoria’s Secret Stores (a)	$	1,233	$	1,365	$	2,381	$	2,601	364		1,233		877		2,381
Victoria’s Secret Direct	373		360		735		713		614		373		922		735
Total Victoria’s Secret	1,606		1,725		3,116		3,314		978		1,606		1,799		3,116
Bath & Body Works Stores (a)	883		824		1,597		1,473
Bath & Body Works Direct	178		140		335		251
Total Bath & Body Works	1,061		964		1,932		1,724
Victoria's Secret and Bath & Body Works International (b)	155		145		289		281		80		155		146		289
Other (c)	80		150		193		291		64		80		120		193
Total Net Sales	$	2,902	$	2,984	$	5,530	$	5,610	$	2,319	$	2,902	$	3,974	$	5,530

_______________


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


(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.


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

4. Restructuring

The Company remains committed to establishing Bath & Body Works as a pure-play public company and is taking the necessary steps to prepare Victoria's Secret to operate as a separate standalone company. Management of the Company is actively engaged in implementing a comprehensive profit improvement plan that will better position the Company to evaluate the next steps for the separation of the Victoria's Secret business. During the second quarter of 2020, the Company completed its comprehensive review of its home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. Pre-tax severance and related costs associated with these reductions, totaling $81 million, are included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss. Costs of $26 million and $5 million are recorded within the Victoria's Secret and Bath & Body Works segments, respectively, while the remaining $50 million is recorded within Other. As of August 1, 2020, a liability of $79 million related to these costs is included in Accrued Expenses and Other on the Consolidated Balance Sheet.

Victoria's Secret U.K.

The Company is actively working to reduce operating losses in the Victoria's Secret U.K. business. The Company entered into "Light Administration" in June to restructure store lease agreements and explore the sale of the business to a joint venture or franchise partner. The Company subsequently signed a non-binding term sheet with a major fashion retailer and is in an exclusive period of negotiation.

5. Earnings (Loss) Per Share and Shareholders’ Equity (Deficit)

Earnings (Loss) Per Share

Earnings (Loss) per basic share is computed based on the weighted-average number of outstanding common shares. Earnings (Loss) 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 (loss) per share for the second quarter and year-to-date ~~2019~~2020 and ~~2018~~2019:


	Second Quarter				Year-to-Date				Second Quarter				Year-to-Date
	2019		2018		2019		2018		2020		2019		2020		2019
	(in millions)								(in millions)
Weighted-average Common Shares:
Issued Shares	284		283		284		283		286		284		285		284
Treasury Shares	(8	)	(6	)	(8	)	(5	)	(8	)	(8	)	(8	)	(8	)
Basic Shares	276		277		276		278		278		276		277		276
Effect of Dilutive Options and Restricted Stock(a)	2		2		2		2		0		2		0		2
Diluted Shares	278		279		278		280		278		278		277		278
Anti-dilutive Options and Awards (a)	6		5		5		5		11		6		12		5

_______________


(a)	These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For 2020, the dilutive impact of outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the periods.

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 during year-to-date~~ ~~2018~~:

Amount
Authorized

Shares
Repurchased

Amount
Repurchased
Average Stock Price of Shares Repurchased within Program
Repurchase 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

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

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

~~The March 2018 repurchase program~~ had $79 million remaining as of August 3,1, 2020.

The Company did not repurchase any shares during 2020 or 2019.

~~There were $2 million of share repurchases reflected in Accounts Payable on the August 4, 2018 Consolidated Balance Sheet.~~

Dividends

Under the authority and declaration of the Board of Directors, the Company paid the following dividends during year-to-date ~~2019~~2020 and ~~2018:~~2019:


	Ordinary Dividends		Total Paid		Ordinary Dividends		Total Paid
	(per share)		(in millions)		(per share)		(in millions)
2020
Second Quarter					$	0	$	0
First Quarter					0.30		83
Total					$	0.30	$	83
2019
Second Quarter	$	0.30	$	83	$	0.30	$	83
First Quarter	0.30		83		0.30		83
Total	$	0.60	$	166	$	0.60	$	166
2018
Second Quarter	$	0.60	$	167
First Quarter	0.60		168
Total	$	1.20	$	335

~~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 Board of Directors suspended 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 definedquarterly cash dividend beginning in the ~~agreement. In the fourth~~second 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.

~~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.

2020.

6. Inventories

The following table provides details of inventories as of August 1, 2020, February 1, 2020 and August 3, 2019, ~~February 2, 2019~~ ~~and~~ ~~August 4, 2018~~:


	August 3, 2019		February 2, 2019		August 4, 2018		August 1, 2020		February 1, 2020		August 3, 2019
	(in millions)						(in millions)
Finished Goods Merchandise	$	1,132	$	1,107	$	1,143	$	1,259	$	1,152	$	1,132
Raw Materials and Merchandise Components	197		141		172		217		135		197
Total Inventories	$	1,329	$	1,248	$	1,315	$	1,476	$	1,287	$	1,329

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

7. ~~Property and Equipment, Net~~Long-Lived Assets

The following table provides details of property and equipment, net as of August ~~3, 2019~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018~~3, 2019:


	August 3, 2019			February 2, 2019			August 4, 2018			August 1, 2020			February 1, 2020			August 3, 2019
	(in millions)									(in millions)
Property and Equipment, at Cost	$	6,808		$	6,733		$	6,890		$	6,276		$	6,613		$	6,808
Accumulated Depreciation and Amortization	(4,052		)	(3,915		)	(3,941		)	(3,984		)	(4,127		)	(4,052		)
Property and Equipment, Net	$	2,756		$	2,818		$	2,949		$	2,292		$	2,486		$	2,756

Depreciation expense was ~~$150~~$127 million and ~~$148~~$150 million for the second quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. Depreciation expense was ~~$295~~$266 million and ~~$296~~$295 million for year-to-date ~~2019~~2020 and ~~2018,~~2019, respectively.

~~8. Leases~~

InLong-lived store assets, which include leasehold improvements, store related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the ~~first quarter~~carrying amount of ~~2019,~~the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, the Company ~~adopted ASC 842,~~ ~~Leases~~,recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group. For operating lease assets, the Company determines the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets are determined using Level 3 inputs within 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.fair value hierarchy.

The Company ~~leases retail space, office space, warehouse facilities, storage space, equipment and certain other items under operating leases. A substantial portion~~remains committed to taking the necessary steps to prepare the Victoria's Secret business to operate as a separate, standalone company. Management is actively working on implementing a comprehensive profit improvement plan that will better position the Company to evaluate the next steps for the separation 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 possessionVictoria's Secret business. A component of the ~~leased property.~~

~~At lease commencement,~~profit improvement plan includes a rationalization of the Victoria’s Secret company-owned store footprint. The Company expects that it will close approximately 250 stores in North America in 2020. Given the closures as well as the negative operating results of certain Victoria's Secret stores, the Company ~~recognizes an~~determined that the estimated undiscounted future cash flows were less than the carrying values for certain asset ~~for~~groups and, as a result, determined the ~~right to use the leased asset and a liability based on the present value~~estimated fair values 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,store asset groups using estimated discounted future cash flows 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~~estimated market rental rates. Long-lived 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 optionsasset impairment charges are included in ~~determining~~Costs of Goods Sold, Buying and Occupancy in 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~~Consolidated Statements 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.”~~Loss.

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~~pre-tax long-lived store asset impairment charges 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~~2020 Consolidated Statements of ~~February 2, 2019:~~Loss:

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



	Second Quarter						Year-to-Date
	Store Asset Impairment		Operating Lease Asset Impairment		Total Impairment		Store Asset Impairment		Operating Lease Asset Impairment		Total Impairment
	(in millions)
Victoria's Secret (a)	$	14	$	61	$	75	$	111	$	61	$	172
Victoria's Secret and Bath & Body Works International (b)	0		42		42		0		42		42
Total	$	14	$	103	$	117	$	111	$	103	$	214

~~_______________~~________________


(a)	~~Excludes additional payments covering taxes, common area costs~~Includes stores in the U.S. and ~~certain other expenses generally required by store lease terms.~~Canada.


(b)	Includes stores in the U.K., Ireland and Greater China.

~~Finance Leases~~Victoria's Secret Hong Kong

During the second quarter of 2020, the Company closed its unprofitable Victoria's Secret flagship store in Hong Kong. As a result of the store closure, the Company recognized a non-cash pre-tax gain of $39 million, primarily due to terminating the store lease and the related write-off of the operating lease liability in excess of the operating lease asset, which was partially impaired in fiscal 2019. This gain is included in Costs of Goods Sold, Buying and Occupancy in the 2020 Consolidated Statements of Loss. 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~~also recorded ~~$23 million and $32~~$3 million of ~~finance lease assets, net of accumulated amortization, in Property~~severance 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 arecosts, included in ~~Other Long-term Liabilities on~~General, Administrative and Store Operating Expenses in the 2020 Consolidated ~~Balance Sheets.~~Statements of Loss.

9.8. Equity 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 $124 million as of August 1, 2020, $118 million as of February 1, 2020 and $102 million as of August 3, 2019, ~~$89 million as of February 2, 2019, and $78 million as of August 4, 2018,~~ 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.

~~10.~~9. Income Taxes

The Company has historically calculated 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. Due to the impacts of the COVID-19 pandemic, the income tax expense for the twenty-six-weeks ended August 1, 2020 was computed on a year-to-date effective tax rate.

For the second quarter of ~~2019,~~2020, the Company’s effective tax rate was ~~10.1%~~17.7% compared to ~~23.2%~~10.1% in the second quarter of ~~2018. For year-to-date 2019, the Company’s effective tax~~2019. The second quarter of 2020 rate was ~~24.0% compared~~lower than the Company's combined estimated federal and state statutory rate primarily due to ~~21.7% year-to-date 2018.~~losses related to certain foreign subsidiaries, which generate no tax benefit, partially offset by recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit. The ~~rates for~~second quarter of 2019 ~~and 2018 were~~rate was lower than the Company's combined federal and state statutory rate primarily due to the resolution of certain tax matters.

For year-to-date 2020, the Company's effective tax rate was 26.7% compared to 24.0% year-to-date 2019. The year-to-date 2020 rate was generally consistent with the Company's combined estimated federal and state statutory rate due to the resolution of certain tax matters, which resulted in a $50 million tax benefit and recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit. The year-to-date 2019 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters.

Income taxes paid were ~~$169~~$13 million and ~~$255~~$169 million for the second quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. Income taxes paid were ~~$181~~$22 million and ~~$266~~$181 million for year-to-date ~~2019~~2020 and ~~2018,~~2019, respectively.

Uncertain Tax Positions

The Company had unrecognized tax benefits of ~~$114~~$88 million as of February ~~2, 2019,~~1, 2020, of which ~~$104~~$81 million, if recognized, would reduce the effective income tax rate. Through August ~~3, 2019,~~1, 2020, the Company had a net decrease to gross unrecognized tax benefits of ~~$33~~$31 million, primarily due to the resolution of certain tax matters. The changes to the unrecognized tax benefits resulted in a ~~$17~~$30 million benefit to the Company’s Provision for Income Taxes year-to-date.

Of the total unrecognized tax benefits as of August ~~3, 2019,~~1, 2020, it is reasonably possible that ~~$56~~$28 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 uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.

~~11.~~10. 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~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018~~3, 2019:


	August 3, 2019			February 2, 2019			August 4, 2018			August 1, 2020			February 1, 2020			August 3, 2019
	(in millions)									(in millions)
Senior Secured Debt with Subsidiary Guarantee
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")										$	739		$	0		$	0
Secured Foreign Facilities										101			103			95
Total Senior Secured Debt with Subsidiary Guarantee										$	840		$	103		$	95
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	990		$	990		$	990		$	991		$	991		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951			858			858			857
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693			693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498			498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495			496			496			496
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")										492			0			0
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	486			—			—			488			487			486
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776			450			450			449
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	274			273			272			277			276			274
$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		$	5,243		$	4,749		$	4,743
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348		$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297			298			298			297
Unsecured Foreign Facilities	67			60			40			0			50			67
Total Senior Debt	$	712		$	705		$	685		$	646		$	696		$	712
Total	$	5,550		$	5,811		$	5,777		$	6,729		$	5,548		$	5,550
Current Debt	(75		)	(72		)	(65		)	(460		)	(61		)	(75		)
Total Long-term Debt, Net of Current Portion	$	5,475		$	5,739		$	5,712		$	6,269		$	5,487		$	5,475

Issuance of Notes

In June ~~2019,~~2020, the Company issued $750 million of 6.875% senior secured notes due July 2025 (the “2025 Secured Notes”). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by the Company and certain of the Company's 100% owned subsidiaries. The 2025 Secured Notes are secured on a first-priority lien basis by substantially all of the assets of the Company and the guarantors, and on a second-priority lien basis by certain collateral securing the asset-backed revolving credit facility (“ABL Facility”), in each case, subject to certain exceptions. The proceeds from the issuance were $739 million, which were net of issuance costs of $11 million. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the August 1, 2020 Consolidated Balance Sheet.

In June 2020, the Company also issued $500 million of ~~7.50%~~9.375% notes due in ~~June 2029 ("2029~~July 2025 (the "2025 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by the Company and certain of the Company's 100% owned ~~subsidiaries (the “Guarantors”).~~subsidiaries. The proceeds from the issuance were ~~$486~~$492 million, which were net of ~~discounts and~~ issuance costs of ~~$14~~$8 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~~1, 2020 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), which includes redemption fees and the write-offs of unamortized issuance ~~costs and redemption fees.~~costs. 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 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.

~~Secured~~ Revolving Credit Facility

The Company and certain of the ~~Guarantors~~Company's 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility ("~~Secured Revolving Facility"~~Credit Agreement"). In April 2020, the Company entered into an amendment and restatement (“Amendment”) of the Credit Agreement to convert the Company’s credit facility into an asset-backed revolving credit facility. The ~~Secured Revolving Facility has~~Amendment maintains the aggregate ~~availability~~commitments at $1 billion, and maintains the expiration date in August of ~~$1 billion.~~2024. The ~~Secured Revolving~~ABL Facility allows ~~the Company~~borrowings and ~~certain of the Company's non-U.S. subsidiaries to borrow and obtain~~ letters of credit in U.S. dollars or Canadian ~~dollars, Euros, Hong Kong dollars~~dollars.

Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or ~~British pounds.~~(ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, the Company will be required to prepay the outstanding amounts under the ABL Facility to the extent of such excess. In addition, at any time that the Company's consolidated cash balance exceeds $350 million, it will be required to prepay outstanding amounts under the ABL Facility to the extent of such excess. As of August 1, 2020, the Company's borrowing base was $844 million but it was unable to draw upon the ABL Facility as its consolidated cash balance exceeded $350 million.

~~The Secured Revolving~~As of August 1, 2020, the ABL Facility fees related to committed and unutilized amounts ~~are 0.25%~~were 0.30% per annum, and the fees related to outstanding letters of credit ~~are 1.50%~~were 1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings iswas the London Interbank Offered Rate ~~(“LIBOR”)~~ plus ~~1.50%~~1.75% per annum. The interest rate on outstanding ~~foreign-denominated~~Canadian dollar-denominated borrowings iswas the ~~applicable benchmark rate~~Canadian Dollar Offered Rate plus ~~1.50%~~1.75% per annum.

The ~~Secured Revolving~~ABL Facility ~~contains fixed charge coverage and debt to EBITDA financial covenants. The~~requires the Company ~~is required~~ to maintain a fixed charge coverage ratio of not less than ~~1.75~~1.00 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~~during an event of ~~August 3, 2019, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitation~~default or any period commencing 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~~any day when specified excess availability is less than ~~3.00 to 1.00 and (b) no default~~the greater of (1) $100 million or ~~event~~(2) 15% of ~~default exists.~~the maximum borrowing amount. As of August ~~3, 2019,~~1, 2020, the Company was not required to maintain this ratio.

In March 2020, in ~~compliance with both~~an abundance of caution and as a proactive measure in response to the COVID-19 pandemic, the Company elected to borrow $950 million from its ~~financial covenants, and~~revolving facility, which was prepaid upon the ~~ratio~~completion of ~~consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.~~

the Amendment. As of August ~~3, 2019,~~1, 2020, there were 0 borrowings outstanding under the ~~Secured Revolving~~ABL Facility.

The ~~Secured Revolving~~ABL Facility supports the Company’s letter of credit program. The Company had ~~$10~~$61 million of outstanding letters of credit as of August ~~3, 2019~~1, 2020 that reduced its ~~remaining~~ availability under the ~~Secured Revolving~~ABL 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~~Certain of the ~~Guarantors guarantee and pledge collateral to secure~~Company's China subsidiaries utilize revolving and term loan bank facilities ~~("Secured Foreign Facilities") used by certain of the Company's Greater China subsidiaries~~ to support their ~~operations.~~operations ("Foreign Facilities"). The ~~Secured~~ Foreign Facilities ~~which~~ allow borrowings in U.S. dollars and Chinese Yuan, ~~have availability totaling $100 million. The~~and interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. Certain of these facilities are guaranteed by the Company and certain of the Company's 100% owned subsidiaries ("Secured Foreign Facilities"), and certain of these facilities were guaranteed by the Company only ("Unsecured Foreign Facilities").

The Secured Foreign Facilities have availability totaling $128 million. During ~~2019,~~2020, the Company borrowed ~~$12~~$20 million and made payments of $822 million under the Secured Foreign Facilities. ~~The maximum daily amount~~As of August 1, 2020, there were borrowings of $101 million outstanding ~~at any point in time during 2019 was $96 million.~~under the Secured Foreign Facilities, of which $10 million is included within Current Debt on the Consolidated Balance Sheet. Borrowings on the Secured Foreign Facilities mature between ~~December 2019~~September 2020 and ~~May 2022. As~~August 2024.

During the second quarter, the Company placed cash on deposit with certain financial institutions as collateral for their lending commitments under the Secured Foreign Facilities. The amount of ~~August 3, 2019, borrowings of $8~~collateral required reduces over time as the Company makes certain paydowns. These deposits, totaling $128 million, are ~~included within Current Debt~~recorded in Other Assets on the August 1, 2020 Consolidated Balance ~~Sheet, and the remaining borrowings are included within Long-term Debt.~~Sheet.

~~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, 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,~~2020, the Company borrowed $13 million and made payments of $6$63 million under the Unsecured Foreign Facilities. ~~The maximum daily amount~~During the second quarter of 2020, with 0 borrowings outstanding, ~~at any point in time during 2019 was $73 million. Borrowings on~~the Company terminated 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.~~

Facilities.

~~12. Derivative Financial 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 in the Consolidated Statements of Income.

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 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:~~

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

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:

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

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 2019 and 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

The Company estimates that $3 million of net gains included in accumulated other comprehensive income as of August 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.

~~13.~~11. Fair Value Measurements

~~The following table provides a summary~~Cash and Cash Equivalents and Restricted Cash include cash on hand, deposits with financial institutions and highly liquid investments with original maturities 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:~~

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

less than 90 days. The Company's Cash and Cash Equivalents and Restricted Cash are considered Level 1 fair value measurements ~~use~~as they are valued using 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.

The Company’s Level 2 fair value measurements use market approach valuation techniques. The primary inputs to these techniques include 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 publicly traded debt as of August ~~3, 2019,~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018:~~3, 2019:


	August 3, 2019		February 2, 2019		August 4, 2018		August 1, 2020		February 1, 2020		August 3, 2019
	(in millions)						(in millions)
Principal Value	$	5,458	$	5,722	$	5,722	$	6,708	$	5,458	$	5,458
Fair Value (a)	5,215		5,340		5,432
Fair Value, Estimated (a)							6,692		5,555		5,215

_______________


(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, 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 and accrued expenses ~~and current debt~~ approximate fair value because of their short maturity.

~~14.~~12. Comprehensive Income

The following table provides the rollforward of accumulated other comprehensive income for year-to-date ~~2019:~~2020:


	Foreign Currency Translation			Cash Flow Hedges			Accumulated Other Comprehensive Income			Foreign Currency Translation			Cash Flow Hedges			Accumulated Other Comprehensive Income
	(in millions)									(in millions)
Balance as of February 2, 2019	$	57		$	2		$	59
Balance as of February 1, 2020										$	52		$	0		$	52
Other Comprehensive Income (Loss) Before Reclassifications	(11		)	4			(7		)	(4		)	2			(2		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			(3		)	(3		)	0			(1		)	(1		)
Tax Effect	—			—			—			0			0			0
Current-period Other Comprehensive Income (Loss)	(11		)	1			(10		)	(4		)	1			(3		)
Balance as of August 3, 2019	$	46		$	3		$	49
Balance as of August 1, 2020										$	48		$	1		$	49

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


	Foreign Currency Translation			Cash Flow Hedges			Marketable Equity Securities			Accumulated Other Comprehensive Income			Foreign Currency Translation			Cash Flow Hedges			Accumulated Other Comprehensive Income
	(in millions)												(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
Balance as of February 2, 2019													$	57		$	2		$	59
Other Comprehensive Income (Loss) Before Reclassifications	(22		)	10			—			(12		)	(11		)	4			(7		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			3			—			3			0			(3		)	(3		)
Tax Effect	—			(1		)	—			(1		)	0			0			0
Current-period Other Comprehensive Income (Loss)	(22		)	12			—			(10		)	(11		)	1			(10		)
Balance as of August 4, 2018	$	10		$	2		$	—		$	12
Balance as of August 3, 2019													$	46		$	3		$	49

~~15.~~13. Commitments and Contingencies

The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

In 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. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief. In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel. The lead plaintiff filed a consolidated

amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint. The Company filed a motion to dismiss the consolidated amended complaint on February 18, 2020, the lead plaintiff filed an opposition to the Company's motion to dismiss on May 4, 2020, and the Company filed a reply brief in further support of its motion to dismiss on June 3, 2020. The Company's motion to dismiss the consolidated amended complaint is now fully briefed and pending before the court. The court will hear oral argument on the motion to dismiss on September 23, 2020. The Company views this lawsuit as meritless and intends to defend against this lawsuit vigorously.

~~Guarantees~~On February 19, 2020, a plaintiff shareholder filed a complaint in the U.S. District Court for the Southern District of Ohio alleging derivative claims on behalf of the Company against certain of its current and former directors and officers. The Company was named as nominal defendant. The lawsuit asserts claims for breach of fiduciary duty, corporate waste and unjust enrichment in connection with alleged misstatements about the Company's quarterly dividend prior to the announced reduction of the dividend in November 2018. On July 21, 2020, the court so-ordered a stipulation staying all proceedings in this lawsuit, pending resolution of the motion to dismiss that the Company filed on February 18, 2020 in the putative class action lawsuit described above. The Company intends to seek dismissal of the lawsuit at the appropriate time.

On May 19, 2020, a purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Court of Common Pleas for Franklin County, Ohio. The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, that these defendants breached their fiduciary duties by violating law and/or company policies relating to workplace conduct. The Company was named as nominal defendant only, and there are no claims asserted against it. On June 16, 2020, the lawsuit was removed to the United States District Court for the Southern District of Ohio. On July 6, 2020, the court so-ordered a stipulation staying the lawsuit until December 29, 2020. The Company is currently evaluating potential options for responding to the lawsuit.

La Senza

In connection with the sale of La Senza in the fourth quarter of 2018, certain of the ~~Company has~~Company's subsidiaries have remaining ~~guarantees~~contingent obligations of ~~$67~~$36 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These ~~guarantees~~obligations 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 million~~asAs of August ~~3, 2019~~1, 2020, the Company has recorded reserves of $37 million related to these lease-related obligations and ~~February 2, 2019 representing~~certain other obligations related to the ~~estimated fair value~~La Senza business. As of ~~its obligation as guarantor in accordance with ASC 460,~~ ~~Guarantees~~. August 1, 2020, reserves of $6 million are included within Accrued Expenses and Other on the Consolidated Balance Sheet and the remaining reserves are included within Other Long-term Liabilities.

Other

In connection with the ~~disposition~~noncancelable operating lease of ~~a certain other business,~~an operating asset, the Company ~~has remaining guarantees of $5 million related to lease payments under the current terms of~~provides a noncancelable lease expiring in 2021, which may remain in effect if the term is extended. The Company has not recorded a liability with respect to this guarantee obligation as of August 3, 2019, February 2, 2019 or August 4, 2018 as it concluded that payments under this guarantee were not probable.

~~In connection with noncancelable operating leases of certain assets, the Company provided~~ residual value ~~guarantees~~guarantee to the lessor if the leased ~~assets~~asset 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~~lease expires in 2021, and the total amount of the ~~guarantees~~guarantee is ~~$94~~$28 million. The Company ~~recorded~~did not record a liability ~~of $11 million~~ as of August 3, 2019 and February 2, 2019, and $3 million as of August 4, 2018 related to these guarantee 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.

1, 2020.

~~16.~~14. 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~~$18 million for ~~both~~ the second quarter of ~~2019~~2020 and ~~2018.~~$20 million for the second quarter of 2019. Total expense recognized related to the qualified plan was $39 million for both year-to-date ~~2019~~2020 and ~~$38 million for year-to-date 2018.~~2019.

The Company sponsors a non-qualified supplemental retirement plan. 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~~On June 27, 2020 (the “Termination Date”), the Human Capital 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~~authorized the termination of the non-qualified plan. Subsequent to the ~~beginning of each year. Associate~~Termination Date, no additional employee contributions ~~and~~may be made to 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.non-qualified plan. The remaining ~~vested portion~~benefits and obligations are expected to be paid out in full approximately one year following the Termination Date. Accordingly, the liability of ~~associates’ accounts in~~$258 million related to the non-qualified 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.~~is included within Accrued Expenses and Other on the August 1, 2020 Consolidated Balance Sheet. Total expense recognized related to the non-qualified plan was $3 million for the second quarter of 2020 and $6 million for the second quarter of ~~2019 and $5 million for the second quarter of 2018.~~2019. Total expense recognized related to the non-qualified plan was $9 million for year-to-date 2020 and $12 million for year-to-date ~~2019 and $11 million for year-to-date 2018.~~2019.

~~17.~~15. Segment Information

The Company has 3 reportable segments: ~~Victoria’s Secret,~~ Bath & Body Works, Victoria's Secret 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, comprised of stores operated by partners under franchise, license and wholesale arrangements.

Other includes Mast Global, a merchandise sourcing and production function serving the Company and its international partners, 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 ~~2019~~2020 and ~~2018~~:2019:


	Victoria’s Secret		Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total		Bath & Body Works		Victoria’s Secret			Victoria’s Secret and Bath & Body Works International			Other			Total
	(in millions)												(in millions)
2020
Second Quarter:
Net Sales													$	1,197	$	978		$	80		$	64		$	2,319
Operating Income (Loss) (a)													326		(140		)	(19		)	(123		)	44
Year-to-Date:
Net Sales													$	1,909	$	1,799		$	146		$	120		$	3,974
Operating Income (Loss) (a)													395		(440		)	(54		)	(175		)	(274		)
2019
Second Quarter:
Net Sales	$	1,606	$	1,061	$	155		$	80		$	2,902	$	1,061	$	1,606		$	155		$	80		$	2,902
Operating Income (Loss)	17		180		(1		)	(21		)	$	175	180		17			(1		)	(21		)	175
Year-to-Date:
Net Sales	$	3,116	$	1,932	$	289		$	193		$	5,530	$	1,932	$	3,116		$	289		$	193		$	5,530
Operating Income (Loss)	49		335		(5		)	(51		)	328		335		49			(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

_______________

(a)

Victoria's Secret includes store and lease asset impairment charges of $75 million and $172 million for the second quarter and year-to-date 2020, respectively. Victoria's Secret and Bath & Body Works International includes lease asset impairment charges of $42 million. Additionally, Victoria's Secret and Bath & Body Works International includes a $36 million net gain related to the closure and lease termination of the Hong Kong flagship store. For additional information, see Note 7, “Long-Lived Assets." Bath & Body Works, Victoria's Secret and Other includes severance and related charges of $5 million, $26 million and $50 million, respectively. For additional information, see Note 4, “Restructuring."

The ~~Company's~~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 ~~$357~~$238 million and ~~$400~~$357 million for the second quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. The Company's international net sales across all segments totaled ~~$706~~$418 million and ~~$758~~$706 million for year-to-date 2020 and 2019, ~~and 2018,~~ respectively.

~~18. Subsequent Events~~

Subsequent to August 3, 2019, the Company entered into an amendment and restatement of the Secured Revolving Facility. For additional information, see Note 11, “Long-term Debt and Borrowing Facilities.”

~~19. Supplemental Guarantor Financial Information~~

The Company’s 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~~ ~~and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended~~ ~~August 3, 2019~~ ~~and~~ ~~August 4, 2018~~.

~~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

~~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

~~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

~~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

~~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

~~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

~~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

~~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

~~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

~~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

~~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

~~L BRANDS, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS~~

~~(in millions)~~

~~(Unaudited)~~

Year-to-Date 2019
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities $ (240 ) $ (119 ) $ 521
$ —
$ 162
Investing Activities:
Capital Expenditures —
(153 ) (91 ) —
(244 )
Other Investing Activities —
12
(5 ) —
7
Net Cash Provided by (Used for) Investing Activities —
(141 ) (96 ) —
(237 )
Financing Activities:
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs 486
—
—
—
486
Payments of Long-term Debt (799 ) —
—
—
(799 )
Borrowings from Foreign Facilities —
—
25
—
25
Repayments of Foreign Facilities —
—
(14 ) —
(14 )
Dividends Paid (166 ) —
—
—
(166 )
Tax Payments related to Share-based Awards (11 ) —
—
—
(11 )
Proceeds from Exercise of Stock Options 1
—
—
—
1
Financing Costs and Other (1 ) (4 ) —
—
(5 )
Net Financing Activities and Advances to/from Consolidated Affiliates 730
(378 ) (352 ) —
—
Net Cash Provided by (Used for) Financing Activities 240

(382 )
(341 )
—

(483 )
Effects of Exchange Rate Changes on Cash and Cash Equivalents —
—
(2 ) —
(2 )
Net Increase (Decrease) in Cash and Cash Equivalents —
(642 ) 82
—
(560 )
Cash and Cash Equivalents, Beginning of Period —
997
416
—
1,413
Cash and Cash Equivalents, End of Period $ —
$ 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

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~~1, 2020 and August ~~4, 2018,~~3, 2019, and the related consolidated statements of income (loss), comprehensive income (loss), and total equity (deficit) for the thirteen and twenty-six week periods ended August ~~3, 2019~~1, 2020 and August ~~4, 2018,~~3, 2019, and the consolidated statements of cash flows for the twenty-six week periods ended August ~~3, 2019~~1, 2020 and August ~~4, 2018,~~3, 2019, 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 ~~2, 2019,~~1, 2020, and the related consolidated statements of income (loss), comprehensive income (loss), total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March ~~22, 2019,~~27, 2020, 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 ~~2, 2019,~~1, 2020, 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 ~~6, 2019~~3, 2020

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 pandemics or significant health hazards, severe weather conditions, natural disasters, ~~health hazards,~~ terrorist activities, financial crises, political crises or other major events, or the prospect of these events;

divestitures or other dispositions, including any divestiture of Victoria’s Secret and related operations, could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements;

the seasonality of our business;

difficulties arising from turnover in company leadership or other key positions;

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

liabilities arising from divested businesses;

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;

significant health hazards or pandemics, which could result in closed factories, closed stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas;

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 laws and regulations or other obligations related to data privacy and security;

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 this Form 10-Q and in our ~~2018~~2019 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 ~~2019,~~2020, our operating income decreased ~~$53~~$131 million ~~or 23%,~~ to ~~$175~~$44 million, and our operating income rate decreased to ~~6.0%~~1.9% from ~~7.6%~~6.0%. Net sales decreased ~~$82~~$583 million to $2.902 billion, comparable sales decreased 1% and comparable store sales decreased 4%. Our performance was mixed. At Victoria's Secret, net sales decreased 7%, and operating income decreased $97 million.$2.319 billion. At Bath & Body Works, net sales increased ~~10%~~$136 million, or 13%, and operating income increased ~~$11~~$146 million, or 81%, to $326 million. At Victoria's Secret, net sales decreased $628 million, or 39%, and operating income decreased to a loss of $140 million, including store and lease asset impairment charges of $75 million. At Victoria's Secret and Bath & Body Works International, net sales ~~increased 6%~~decreased $75 million, or 48%, and the operating loss ~~was reduced~~increased by ~~$8 million.~~ $18 million, including lease asset impairment charges of $42 million partially offset by a $36 million net gain related to the closure and lease termination of the Hong Kong flagship store.

For additional information related to our second quarter ~~2019~~2020 financial performance, see “Results of Operations.”

Go-forward Plan for Victoria's Secret

During the second quarter, we took a number of important steps to prepare Victoria’s Secret and Bath & Body Works to operate as standalone separate companies, including:

Completed our comprehensive review of our home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of our home office headcount by approximately 15%, or about 850 associates;

Managed inventories with discipline, including working with suppliers to identify opportunities to reduce merchandise costs in order to increase merchandise margin rates at Victoria’s Secret. As a result of this effort already underway, Spring inventory receipts for Victoria’s Secret were down approximately 45% compared to last year, and Fall receipts are expected to be down approximately 50% compared to last year;

Began taking action to reduce Victoria’s Secret store selling costs through changes in the management structure and labor model;

Continued to execute our previously announced plan to close approximately 250 Victoria’s Secret stores in 2020 while also negotiating with landlords for ongoing rent relief;

Worked to reduce operating losses in the Victoria's Secret U.K. business. We entered into "Light Administration" in June to restructure store lease agreements and explore the sale of the business to a joint venture or franchise partner.

We subsequently signed a non-binding term sheet with a major fashion retailer and are in an exclusive period of negotiation;

We closed our unprofitable Victoria's Secret flagship store in Hong Kong and in China are restructuring lease terms on other unprofitable stores and have implemented a significant overhead expense reduction plan; and,

Subsequent to the end of the quarter, we retained financial advisors on the separation of Bath & Body Works and Victoria’s Secret.

We expect these actions will result in approximately $400 million of annualized cost reductions, about $175 million of which we expect to achieve in the remainder of 2020. Importantly, these actions will enable more efficient and faster decision making and set each business up independently, allowing for an easier future separation.

Impacts of COVID-19

In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures and orders to “shelter-in-place.” The ~~global retail sector~~situation and preventative or protective actions that governments around the world have taken to contain the spread of COVID-19 have resulted in a period of disruption, including closure of our stores, limited store operating hours, reduced customer traffic and consumer spending and delays in manufacturing and shipping of products and raw materials. During this period, we are focused on protecting the health and safety of our customers, employees, contractors, suppliers, and other business partners. We are also working with our suppliers to minimize potential disruptions, while managing our business in response to a changing dynamic.

Our business operations and financial performance for 2020 have been materially impacted by the COVID-19 pandemic. All of our stores in North America were closed on March 17th, and almost all remained closed as of the beginning of the second quarter. We have re-opened approximately 1,600 Bath & Body Works stores and approximately 690 Victoria’s Secret stores in North America, representing the majority of our stores, as of August 1, 2020. On average, Bath & Body Works stores were closed for about half of the second quarter and Victoria’s Secret stores were closed for about 70% of the second quarter (including the impact of the approximately 250 stores which we plan to close).

We adopted new operating models in our stores that focused on providing a safe shopping experience. At Bath & Body Works, we launched Buy Online Pick Up In Store ("BOPIS") capabilities in some locations and are able to operate stores as BOPIS only in jurisdictions that do not permit open shopping. Additionally, we have dedicated resources to maximize capacity in our direct fulfillment centers to meet increased customer demand, while focusing on distribution, fulfillment and call center safety. We will continue to ~~face~~follow local laws, to ensure a safe environment.

Since the global COVID-19 crisis began, we have taken prudent actions to manage expenses and to maintain our solid cash position and financial flexibility through the pandemic, including:

Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;

Suspending associate merit increases;

Temporarily reducing salaries for senior vice presidents and above by 20%;

Temporarily suspending cash compensation for all members of the Board of Directors;

Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;

Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;

Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;

Suspending most store and select office rent payments during the temporary closures. We are in active discussions with our landlords to negotiate with respect to these rent payments and go-forward occupancy costs;

Converting the revolving credit facility to an ~~uncertain environment~~asset-backed loan facility and ~~as a result,~~issuing $1.25 billion in new notes; and

Extending payment terms to vendors.

Looking toward the second half of the year, we will remain disciplined in expense and inventory management, and focused on staying close to our customer while delivering compelling products. In accordance with continuously changing local regulatory requirements and guidelines, we will continue to operate both of our channels in a safe manner for our customers and associates.

Given the traffic constraints imposed by social distancing protocols in stores and capacity restraints in our direct channel distribution centers, we have a very cautious outlook about our ability to manage our ~~business thoughtfully,~~typical Holiday volumes, which

historically are about three times larger per week than the average week in the second quarter. We are evaluating and ~~we will focus on the execution~~testing ideas to spread our Holiday volume out over a broader time period.

We are forecasting meaningful expense pressure driven by increased store costs, including payroll and supplies, as a result of the ~~retail fundamentals.~~

Atnew labor model imposed by social distancing protocols, wage rate inflation in the ~~same time, we are aggressively focusing on bringing compelling merchandise assortments, marketing~~domestic supply chain and ~~store~~increased direct channel fulfillment and ~~online experiences to our customers. We will look for, and seek to capitalize on, those opportunities available to us.~~

shipping costs.

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 (loss) and earnings (loss) per share in 2020 and 2019 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and 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 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 table below reconciles the GAAP financial measures to the 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
(in millions, except per share amounts)	2020			2019			2020			2019
Detail of Special Items - Income (Expense)
Victoria's Secret Store and Lease Asset Impairment (a)	$	(117	)	$	—		$	(214	)	$	—
Restructuring Charges (b)	(81		)	—			(81		)	—
Hong Kong Store Closure and Lease Termination (c)	36			—			36			—
Special Items included in Operating Income (Loss)	(162		)	—			(258		)	—
Loss on Extinguishment of Debt (d)	—			(40		)	—			(40		)
Special Items included in Other Income (Loss)	—			(40		)	—			(40		)
Tax Benefit from the Resolution of Certain Tax Matters and Changes in Tax Legislation (e)	21			—			71			—
Tax Effect of Special Items included in Operating Income (Loss) and Other Income (Loss)	22			10			47			10
Special Items included in Net Income (Loss)	$	(119	)	$	(30	)	$	(140	)	$	(30	)

Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income (Loss)
Reported Operating Income (Loss)	$	44		$	175		$	(274	)	$	328
Special Items included in Operating Income (Loss)	162			—			258			—
Adjusted Operating Income (Loss)	$	206		$	175		$	(15	)	$	328

Reconciliation of Reported Net Income (Loss) to Adjusted Net Income (Loss)
Reported Net Income (Loss)	$	(49	)	$	38		$	(346	)	$	78
Special Items included in Net Income (Loss)	119			30			140			30
Adjusted Net Income (Loss)	$	69		$	68		$	(206	)	$	108

Reconciliation of Reported Earnings (Loss) Per Diluted Share to Adjusted Earnings (Loss) Per Diluted Share
Reported Earnings (Loss) Per Diluted Share	$	(0.18	)	$	0.14		$	(1.25	)	$	0.28
Special Items included in Earnings (Loss) Per Diluted Share	0.42			0.11			0.50			0.11
Adjusted Earnings (Loss) Per Diluted Share	$	0.25		$	0.24		$	(0.74	)	$	0.39

________________


(a)	We recognized pre-tax impairment charges of $117 million ($99 million after tax) and $97 million ($72 million after tax) related to certain Victoria's Secret store and lease assets in the second and first quarter of 2020, respectively. For additional information see Note 7, "Long-Lived Assets" included in Item 1. Financial Statements.


(b)	In the second quarter of 2020, we recognized pre-tax severance charges of $81 million ($65 million after tax) related to headcount reductions as a result of restructuring activities. For additional information, see Note 4, “Restructuring" included in Item 1. Financial Statements.


(c)	In the second quarter of 2020, we recognized a net pre-tax gain of $36 million ($25 million after tax) related to the closure and termination of our lease for the Victoria’s Secret Hong Kong flagship store. For additional information, see Note 7, "Long-Lived Assets" included in Item 1. Financial Statements.


(d)	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 extinguishment of $40 million (after-tax loss of $30 million). For additional information see Note ~~11,~~10, "Long-term Debt and Borrowing Facilities" included in Item 1. Financial Statements.


(e)	In the second quarter of 2020, we recognized a $21 million income tax benefit related to recent changes in tax legislation included in the CARES Act. In the first quarter of 2020, we recognized a $50 million tax benefit related to the resolution of certain tax matters. For additional information see Note 9, "Income Taxes" included in Item 1. Financial Statements.

Company-Owned Store Data

The following table compares the second quarter of ~~2019~~2020 company-owned store data to the second quarter of ~~2018~~2019 and year-to-date ~~2019~~2020 store data to year-to-date ~~2018:~~2019:


	Second Quarter						Year-to-Date						Second Quarter						Year-to-Date
	2019		2018		% Change		2019		2018		% Change		2020		2019		% Change		2020		2019		% Change
Sales per Average Selling Square Foot(a)
Bath & Body Works U.S.													$	148	$	196	(24	%)	$	240	$	356	(33	%)
Victoria’s Secret U.S.	$	166	$	177	(6	%)	$	317	$	340	(7	%)	54		166		(67	%)	129		317		(59	%)
Sales per Average Store (in thousands)(a)
Bath & Body Works U.S.	196		190		3	%	356		340		5	%	$	389	$	510	(24	%)	$	634	$	925	(32	%)
Sales per Average Store (in thousands)(a)
Victoria’s Secret U.S.	$	1,083	$	1,139	(5	%)	$	2,066	$	2,184	(5	%)	364		1,083		(66	%)	867		2,066		(58	%)
Average Store Size (selling square feet)
Bath & Body Works U.S.	510		486		5	%	925		866		7	%	2,638		2,606		1	%
Average Store Size (selling square feet)
Victoria’s Secret U.S.	6,543		6,449		1	%							6,937		6,543		6	%
Total Selling Square Feet (in thousands)
Bath & Body Works U.S.	2,606		2,559		2	%							4,308		4,253		1	%
Total Selling Square Feet (in thousands)
Victoria’s Secret U.S.	6,961		7,223		(4	%)							5,952		6,961		(14	%)
Bath & Body Works U.S.	4,253		4,096		4	%

________________

(a)

Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively. As a result of the COVID-19 pandemic, all our stores in the U.S. were closed on March 17, and almost all remained closed as of the beginning of the second quarter. As of August 1, 2020 we have reopened the majority of our U.S. stores for both businesses. As a result, comparisons of year-over-year trends are not a meaningful way to discuss our operating results this quarter.

The following table represents company-owned store data for year-to-date ~~2019:~~2020:


	Stores Operating at				Stores Operating at	Stores at				Stores at
	February 2, 2019	Opened	Closed		August 3, 2019	February 1, 2020	Opened	Closed		August 1, 2020
Bath & Body Works U.S.						1,637	10	(14	)	1,633
Bath & Body Works Canada						102	—	—		102
Total Bath & Body Works						1,739	10	(14	)	1,735
Victoria’s Secret U.S.	1,098	3	(37	)	1,064	1,053	3	(198	)	858
Victoria’s Secret Canada	45	—	—		45	38	—	(12	)	26
Total Victoria's Secret	1,143	3	(37	)	1,109	1,091	3	(210	)	884
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	26	—	—		26
Victoria's Secret Beauty and Accessories	38	6	(5	)	39	41	1	(3	)	39
Victoria's Secret China	15	3	—		18
Victoria's Secret Greater China						23	3	(1	)	25
Total Victoria's Secret and Bath & Body Works International	79	9	(5	)	83	90	4	(4	)	90
Total L Brands Stores	2,943	36	(52	)	2,927	2,920	17	(228	)	2,709

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

2019:

Stores Operating at Stores Operating at
February 3, 2018 Opened Closed August 4, 2018
Victoria’s Secret U.S. 1,124
1
(5 ) 1,120
Victoria’s Secret Canada 46
—
(1 ) 45
Total Victoria's Secret 1,170
1
(6 ) 1,165
Bath & Body Works U.S. 1,592
22
(13 ) 1,601
Bath & Body Works Canada 102
—
—
102
Total Bath & Body Works 1,694
22
(13 ) 1,703
Victoria's Secret U.K. / Ireland 24
—
—
24
Victoria's Secret Beauty and Accessories 29
—
(1 ) 28
Victoria's Secret China 7
3
—
10
Total Victoria's Secret and Bath & Body Works International 60

3

(1 )
62
Henri Bendel 27
—
(4 ) 23
La Senza Canada 119
—
(1 ) 118
La Senza U.S. 5
—
—
5
Total L Brands Stores 3,075
26
(25 ) 3,076



	Stores at				Stores at
	February 2, 2019	Opened	Closed		August 3, 2019
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.S.	1,098	3	(37	)	1,064
Victoria’s Secret Canada	45	—	—		45
Total Victoria's Secret	1,143	3	(37	)	1,109
Victoria's Secret U.K. / Ireland	26	—	—		26
Victoria's Secret Beauty and Accessories	38	6	(5	)	39
Victoria's Secret Greater 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

Noncompany-Owned Store Data

~~The following table represents noncompany-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 Beauty & Accessories 383
15
(21 ) 377
Victoria's Secret 56
7
—
63
Bath & Body Works 235
14
(2 ) 247
Total 674
36
(23 ) 687

The following table represents noncompany-owned store data for year-to-date ~~2018:~~2020:


	Stores Operating at				Stores Operating at	Stores at				Stores at
	February 3, 2018	Opened	Closed		August 4, 2018	February 1, 2020	Opened	Closed		August 1, 2020
Bath & Body Works						278	7	(1	)	284
Victoria’s Secret Beauty & Accessories	397	23	(12	)	408	360	2	(13	)	349
Victoria's Secret	37	8	—		45	84	4	—		88
Bath & Body Works	185	22	(3	)	204
La Senza	194	—	(7	)	187
Total	813	53	(22	)	844	722	13	(14	)	721

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



	Stores at				Stores at
	February 2, 2019	Opened	Closed		August 3, 2019
Bath & Body Works	235	14	(2	)	247
Victoria’s Secret Beauty & Accessories	383	15	(21	)	377
Victoria's Secret	56	7	—		63
Total	674	36	(23	)	687

Results of Operations

Second Quarter of ~~2019~~2020 Compared to Second Quarter of ~~2018~~2019

Operating Income (Loss)

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 ~~2019~~2020 in comparison to the second quarter of ~~2018~~2019:


							Operating Income Rate										Operating Income (Loss) Rate
	2019			2018			2019		2018		2020			2019			2020		2019
Second Quarter	(in millions)										(in millions)
Bath & Body Works											$	326		$	180		27.2	%	17.0	%
Victoria’s Secret	$	17		$	114		1.0	%	6.6	%	(140		)	17			(14.4	%)	1.0	%
Bath & Body Works	180			169			17.0	%	17.5	%
Victoria’s Secret and Bath & Body Works International	(1		)	(9		)	(0.8	%)	(6.5	%)
Victoria's Secret and Bath & Body Works International											(19		)	(1		)	(23.3	%)	(0.8	%)
Other (a)	(21		)	(46		)	(26.0	%)	(30.3	%)	(123		)	(21		)	(187.6	%)	(26.0	%)
Total Operating Income	$	175		$	228		6.0	%	7.6	%
Total Operating Income (Loss)											$	44		$	175		1.9	%	6.0	%

_______________


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

For the second quarter of ~~2019~~,2020, operating income decreased ~~$53~~$131 million, ~~or 23%,~~ to ~~$175~~$44 million, and the operating income rate decreased to ~~6.0%~~1.9% from ~~7.6%~~6.0%. The drivers of the operating income (loss) results are discussed in the following sections.

Net Sales

The following table provides net sales for the second quarter of ~~2019~~2020 in comparison to the second quarter of ~~2018~~2019:


	2019		2018		% Change		2020		2019		% Change
Second Quarter	(in millions)						(in millions)
Bath & Body Works Stores (a)							$	678	$	883	(23	%)
Bath & Body Works Direct							519		178		191	%
Total Bath & Body Works							1,197		1,061		13	%
Victoria’s Secret Stores (a)	$	1,233	$	1,365	(10	%)	364		1,233		(70	%)
Victoria’s Secret Direct	373		360		4	%	614		373		65	%
Total Victoria’s Secret	1,606		1,725		(7	%)	978		1,606		(39	%)
Bath & Body Works Stores (a)	883		824		7	%
Bath & Body Works Direct	178		140		28	%
Total Bath & Body Works	1,061		964		10	%
Victoria’s Secret and Bath & Body Works International (b)	155		145		6	%
Victoria's Secret and Bath & Body Works International (b)							80		155		(48	%)
Other (c)	80		150		(46	%)	64		80		(19	%)
Total Net Sales	$	2,902	$	2,984	(3	%)	$	2,319	$	2,902	(20	%)

~~_______________~~________________


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


(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.


(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 ~~2019~~2020 to the second quarter of ~~2018:~~2019:


	Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total			Bath & Body Works			Victoria’s Secret			Victoria’s Secret and Bath & Body Works International			Other			Total
Second Quarter	(in millions)															(in millions)
2018 Net Sales	$	1,725		$	964		$	145		$	150		$	2,984
2019 Net Sales																$	1,061		$	1,606		$	155		$	80		$	2,902
Comparable Store Sales	(108		)	31			(9		)	—			(86		)	294			(37		)	(13		)	—			244
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	(21		)	29			19			—			27			(497		)	(810		)	(27		)	—			(1,334		)
Divested/Closed Businesses	—			—			—			(77		)	(77		)
Foreign Currency Translation	(1		)	(1		)	(4		)	—			(6		)	(1		)	(1		)	(1		)	—			(3		)
Direct Channels	13			38			2			—			53			340			238			(1		)	—			577
Private Label Credit Card	(2		)	—			—			—			(2		)	—			(18		)	—			—			(18		)
International Wholesale, Royalty and Other	—			—			2			7			9			—			—			(33		)	(16		)	(49		)
2019 Net Sales	$	1,606		$	1,061		$	155		$	80		$	2,902
2020 Net Sales																$	1,197		$	978		$	80		$	64		$	2,319

The following table compares the second quarter of ~~2019~~2020 comparable sales to the second quarter of ~~2018~~:2019:


Second Quarter	2019		2018		2020		2019
Comparable Sales (Stores and Direct) (a)
Bath & Body Works (b)					123	%	8	%
Victoria's Secret (b)	(6	%)	(1	%)	28	%	(6	%)
Bath & Body Works (b)	8	%	10	%
Total Comparable Sales	(1	%)	3	%	63	%	(1	%)

Comparable Store Sales (a)
Bath & Body Works (b)					87	%	4	%
Victoria’s Secret (b)	(9	%)	(5	%)	(10	%)	(9	%)
Bath & Body Works (b)	4	%	7	%
Total Comparable Store Sales	(4	%)	(1	%)	33	%	(4	%)

________

(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. Stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Therefore, comparable sales results for the second quarter of 2020 exclude stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. 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 2019, net sales decreased $119 million to $1.606 billion, comparable sales decreased 6%, and comparable store sales decreased 9%. PINK comparable sales decreased in the low-double digit range, due to merchandise performance in 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 PINK Beauty and accessories businesses were offset by a slight decline in the mist business, driven by a miss in fashion, and in the lip business.

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

Bath & Body Works

For the second quarter of ~~2019,~~2020, net sales increased ~~$97~~$136 million to ~~$1.061~~$1.197 billion, comparable sales increased ~~8%,~~123% and comparable store sales increased 4%87% (during the period the stores were open). Net sales increased primarily as a result of an increase in ~~most~~our direct channel, which increased 191% to $519 million. During the quarter, we focused on increasing our direct fulfillment capacity to meet the significant increase in demand and, as a result, are achieving strong productivity and maintaining standard delivery times for our customers after experiencing delays earlier in the year. In both channels, sales were strong across all regions, store types and merchandise categories, ~~including home fragrance,~~driven by continued high demand for soaps and sanitizers and also strong comparable sales performance in body care and ~~soaps and sanitizers, which incorporated newness, innovation and fashion.~~home fragrance. These increases were partially offset by the COVID-19-related store closures as, on average, Bath & Body Works stores were closed for about half of the quarter.

The increase in comparable sales was driven by increases in digital traffic, conversion and average unit retail.

Victoria's Secret

For the second quarter of 2020, net sales decreased $628 million to $978 million, comparable sales increased 28% and comparable store sales decreased 10% (during the period stores were open). Net sales decreased primarily as a result of the COVID-19-related store closures as, on average, Victoria’s Secret stores were closed for about 70% of the quarter (including the impact of the approximately 250 stores which we plan to close). This was partially offset by an increase in ~~store~~Victoria's Secret Direct channel sales, which increased 65% to $614 million, reflecting significant growth in the Lingerie, PINK and Beauty businesses.

The increase in comparable sales was driven by increases in digital traffic, conversion and ~~digital traffic.~~average unit retail.

Victoria's Secret and Bath & Body Works International

For the second quarter of ~~2019,~~2020, net sales ~~increased $10~~decreased $75 million to ~~$155~~$80 million primarily due to ~~new company-owned Victoria's Secret stores~~the significant number of COVID-19-related store closures impacting Company-owned and ~~direct channel growth in Greater China, partially offset by a decline in Victoria's Secret U.K.~~partner-operated stores.

Other

For the second quarter of ~~2019,~~2020, net sales decreased ~~$70~~$16 million to ~~$80~~$64 million due ~~to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increase~~a decrease in wholesale sales to our international ~~partners.~~partners, impacted significantly by COVID-19-related store closures.

Gross Profit

For the second quarter of ~~2019,~~2020, our gross profit decreased ~~$76~~$272 million to ~~$983~~$711 million, and our gross profit rate (expressed as a percentage of net sales) decreased to ~~33.9%~~30.7% from ~~35.5%~~33.9%, primarily driven by the following:

Bath & Body Works

For the second quarter of 2020, the gross profit increase was due to increased merchandise margin dollars related to the increase in net sales and a decrease in promotional activity, partially offset by higher occupancy expenses due to increased direct channel fulfillment and shipping costs.

The gross profit rate increase was driven by an increase in the merchandise margin rate due to a more profitable semi-annual sale period and less promotional activity.

Victoria's Secret

For the second quarter of ~~2019,~~2020, the gross profit decrease was ~~primarily~~ due to lower merchandise margin dollars related to the decrease in net sales due to the COVID-19-related store closures and ~~increased~~store and lease asset impairment charges of $75 million. These decreases were partially offset by a meaningful pullback in promotional activity, better pricing during semi-annual sale and reduced occupancy expenses due to ~~liquidate non-go-forward merchandise.~~the store closures.

The gross profit rate decrease was primarily driven by ~~increased promotional activity~~the store and lease asset impairment charges and buying and occupancy ~~expense~~ deleverage on lower ~~net sales.~~

~~Bath & Body Works~~

~~For the second quarter of 2019, the gross profit increase was due to higher merchandise margin dollars related to the increase in~~ net sales, partially offset by a higher ~~occupancy expenses due to investments~~merchandise margin rate reflecting a meaningful pullback in ~~store real estate~~promotional activity and ~~increases in supply chain and sourcing costs.~~

~~The gross profit rate decrease was driven by increases in supply chain and sourcing costs and the sales mix shift into the direct business.~~better pricing during semi-annual sale.

Victoria's Secret and Bath & Body Works International

For the second quarter of ~~2019,~~2020, the gross profit ~~increase~~decrease was ~~primarily~~ due to ~~higher~~lower merchandise margin dollars related to ~~higher~~the decrease in net sales ~~in Greater China,~~due to the COVID-19-related store closures and lease asset impairment charges of $42 million, partially offset by ~~higher occupancy expenses~~a $36 million net gain related to the closure and termination of our lease for the Victoria’s Secret Hong Kong flagship store and reduced depreciation expense due to ~~investments~~store and lease asset impairments recognized in ~~store real estate in Greater China.~~prior periods.

The gross profit rate ~~increase~~decrease was driven by ~~increases in~~ the ~~merchandise margin rates in the Victoria's Secret U.K.~~lease asset impairment charges and ~~Victoria's Secret Beauty & Accessories travel retail businesses.~~buying and occupancy deleverage on lower net sales.

General, Administrative and Store Operating Expenses

For the second quarter of ~~2019,~~2020, our general, administrative and store operating expenses decreased ~~$23~~$141 million to ~~$808~~$667 million due to ~~the elimination~~declines in store selling payroll, supplies, credit card fees and marketing expenses as a result of the ~~La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret,~~COVID-19-related store closures, partially offset by ~~higher selling expenses~~severance and related ~~to higher sales volume at Bath & Body Works.~~costs associated with headcount reductions totaling $81 million and increased credit card fees in our direct businesses.

The general, administrative and store operating expense rate ~~remained flat.~~increased to 28.8% from 27.8% due to the severance and related costs.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for the second quarter of ~~2019~~2020 and ~~2018~~:2019:


Second Quarter	2019			2018			2020			2019
Average daily borrowings (in millions)	$	5,792		$	5,846		$	6,173		$	5,792
Average borrowing rate (in percentages)	6.6		%	6.8		%	6.8		%	6.6		%

For the second quarter of ~~2019,~~2020, our interest expense ~~decreased $3~~increased $9 million to ~~$95~~$104 million due to ~~lower~~both higher average daily borrowings and ~~a lower~~ average borrowing rate.

Other Income (Loss)

For the second quarter of ~~2019,~~2020, our other ~~income (loss)~~loss decreased ~~$37 million to a~~ $38 million ~~loss~~primarily due to a $40 million ~~pre-tax~~ loss associated with the early extinguishment of ~~$764 million in~~ outstanding notes ~~maturing between 2020 and 2022.~~recognized in the second quarter of 2019.

Provision (Benefit) for Income Taxes

For the second quarter of ~~2019,~~2020, our effective tax rate was ~~10.1%~~17.7% compared to ~~23.2%~~10.1% in the second quarter of ~~2018.~~2019. The second quarter of 2020 rate was lower than our combined estimated federal and state statutory rate primarily due to losses related to certain foreign subsidiaries, which generate no tax benefit, partially offset by recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit. The second quarter of 2019 rate ~~and the second quarter 2018 rate were~~was lower than ~~the Company's~~our combined federal and state statutory rate primarily due to the resolution of certain tax matters.

Results of Operations

Year-to-Date ~~2019~~2020 Compared to Year-to-Date ~~2018~~2019

Operating Income (Loss)

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 ~~2019~~2020 in comparison to year-to-date ~~2018:~~2019:


							Operating Income Rate										Operating Income (Loss) Rate
	2019			2018			2019		2018		2020			2019			2020		2019
Year-to-Date	(in millions)										(in millions)
Bath & Body Works											$	395		$	335		20.7	%	17.3	%
Victoria’s Secret	$	49		$	197		1.6	%	6.0	%	(440		)	49			(24.5	%)	1.6	%
Bath & Body Works	335			293			17.3	%	17.0	%
Victoria’s Secret and Bath & Body Works International	(5		)	(14		)	(1.8	%)	(5.1	%)	(54		)	(5		)	(37.1	%)	(1.8	%)
Other (a)	(51		)	(93		)	(26.5	%)	(31.9	%)	(175		)	(51		)	(145.2	%)	(26.5	%)
Total Operating Income	$	328		$	383		5.9	%	6.8	%
Total Operating Income (Loss)											$	(274	)	$	328		(6.9	%)	5.9	%

_______________


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

For year-to-date ~~2019,~~2020, operating income (loss) decreased ~~$55~~$602 million, or ~~14%~~184%, to ~~$328~~a loss of $274 million, and the operating income (loss) rate decreased to ~~5.9%~~(6.9%) from ~~6.8%~~5.9%. 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 ~~2019~~2020 in comparison to year-to-date ~~2018:~~2019:


	2019		2018		% Change		2020		2019		% Change
Year-to-Date	(in millions)						(in millions)
Bath & Body Works Stores (a)							$	1,102	$	1,597	(31	%)
Bath & Body Works Direct							807		335		141	%
Total Bath & Body Works							1,909		1,932		(1	%)
Victoria’s Secret Stores (a)	$	2,381	$	2,601	(9	%)	877		2,381		(63	%)
Victoria’s Secret Direct	735		713		3	%	922		735		25	%
Total Victoria’s Secret	3,116		3,314		(6	%)	1,799		3,116		(42	%)
Bath & Body Works Stores (a)	1,597		1,473		8	%
Bath & Body Works Direct	335		251		33	%
Total Bath & Body Works	1,932		1,724		12	%
Victoria’s Secret and Bath & Body Works International (b)	289		281		3	%	146		289		(50	%)
Other (c)	193		291		(34	%)	120		193		(38	%)
Total Net Sales	$	5,530	$	5,610	(1	%)	$	3,974	$	5,530	(28	%)

_______________


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


(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.


(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 year-to-date ~~2019~~2020 to year-to-date ~~2018:~~

2019:


	Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total			Bath & Body Works			Victoria's Secret			Victoria’s Secret and Bath & Body Works International			Other			Total
Year-to-Date	(in millions)															(in millions)
2018 Net Sales	$	3,314		$	1,724		$	281		$	291		$	5,610
2019 Net Sales																$	1,932		$	3,116		$	289		$	193		$	5,530
Comparable Store Sales	(194		)	75			(15		)	—			(134		)	359			(121		)	(39		)	—			199
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	(33		)	52			36			—			55			(848		)	(1,342		)	(40		)	—			(2,230		)
Divested/Closed Businesses	—			—			—			(145		)	(145		)
Foreign Currency Translation	(3		)	(3		)	(9		)	—			(15		)	(7		)	(4		)	(8		)	—			(19		)
Direct Channels	17			84			4			—			105			473			185			(2		)	—			656
Private Label Credit Card	15			—			—			—			15			—			(35		)	—			—			(35		)
International Wholesale, Royalty and Other	—			—			(8		)	47			39			—			—			(54		)	(73		)	(127		)
2019 Net Sales	$	3,116		$	1,932		$	289		$	193		$	5,530
2020 Net Sales																$	1,909		$	1,799		$	146		$	120		$	3,974

The following table compares year-to-date ~~2019~~2020 comparable sales to year-to-date ~~2018:~~2019:


Year-to-Date	2019		2018		2020		2019
Comparable Sales (Stores and Direct) (a)
Bath & Body Works (b)					84	%	10	%
Victoria's Secret (b)	(6	%)	—	%	6	%	(6	%)
Bath & Body Works (b)	10	%	9	%
Total Comparable Sales	(1	%)	3	%	32	%	(1	%)

Comparable Store Sales (a)
Bath & Body Works (b)					54	%	6	%
Victoria’s Secret (b)	(8	%)	(5	%)	(13	%)	(8	%)
Bath & Body Works (b)	6	%	6	%
Total Comparable Store Sales	(3	%)	(2	%)	12	%	(3	%)

________

(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. Stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Therefore, comparable sales results for 2020 exclude stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. 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 year-to-date 2019, net sales decreased $198 million to $3.116 billion, comparable sales decreased 6%, and comparable store sales decreased 8%. PINK comparable sales decreased in the low-double digit range, due to merchandise performance in 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 and apparel, driven by merchandise performance, partially offset by an increase in sleep. Victoria's Secret Beauty comparable sales were about flat, as growth in accessories was offset by a decline in the lip business.

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

Bath & Body Works

For year-to-date ~~2019,~~2020, net sales ~~increased $208~~decreased $23 million to ~~$1.932~~$1.909 billion, comparable sales increased ~~10%,~~84% and comparable store sales increased 6%54% (during the period the stores were open). Net sales ~~increased~~decreased as a result of the COVID-19-related store closures. The Bath & Body Works Direct channel, which remained open throughout the period, grew sales by 141% to $807 million as we focused on increasing our fulfillment capacity to meet the significant increase in ~~most~~demand. In both channels, sales were strong across all regions, store types and merchandise categories, ~~including home fragrance, body care and~~driven by continued high demand for soaps and sanitizers ~~which incorporated newness, innovation~~ and ~~fashion.~~also strong comparable sales performance in home fragrance and body care.

The increase in comparable sales was driven by increases in digital traffic, conversion and average unit retail.

Victoria's Secret

For year-to-date 2020, net sales decreased $1.317 billion to $1.799 billion, comparable sales increased 6% and comparable store sales decreased 13% (during the period the stores were open). Net sales decreased primarily as a result of the COVID-19-related store closures. This decline was partially offset by an increase in ~~store~~Victoria's Secret Direct channel sales, which increased 25% to $922 million despite a temporary suspension of operations in March, reflecting significant growth in the Lingerie, PINK and Beauty businesses.

The increase in comparable sales was driven by increases in digital traffic, conversion and ~~digital traffic.~~average unit retail.

Victoria's Secret and Bath & Body Works International

For year-to-date ~~2019,~~2020, net sales ~~increased $8~~decreased $143 million to ~~$289~~$146 million due to ~~new company-owned Victoria's Secret stores~~the significant number of COVID-19-related store closures impacting Company-owned and ~~direct channel growth in Greater China, partially offset by declines in the Victoria's Secret Beauty & Accessories travel retail business.~~partner-operated stores.

Other

For year-to-date ~~2019,~~2020, net sales decreased ~~$98~~$73 million to ~~$193~~$120 million due ~~to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increase~~a decrease in wholesale sales to our international ~~partners.~~partners, impacted significantly by COVID-19-related store closures.

Gross Profit

For year-to-date ~~2019,~~2020, our gross profit decreased ~~$87~~$916 million to ~~$1.916~~$1.000 billion, and our gross profit rate (expressed as a percentage of net sales) decreased to ~~34.6%~~25.2% from ~~35.7%~~34.6%, primarily driven by the following:

~~Victoria's Secret~~

Bath & Body Works

For year-to-date ~~2019,~~2020, the gross profit decrease was ~~primarily~~ due to lower merchandise margin dollars related to the decrease in net sales ~~and increased~~due to the COVID-19-related store closures. This decrease was partially offset by a decrease in promotional activity.

The gross profit rate remained about flat as a meaningful reduction in promotional activity was offset by buying and occupancy deleverage in the stores channel on lower net sales.

Victoria's Secret

For year-to-date 2020, the gross profit decrease was due to ~~drive traffic~~lower merchandise margin dollars related to the decrease in net sales due to the COVID-19-related store closures and ~~clear inventory.~~store and lease asset impairment charges of $172 million. These decreases were partially offset by reduced occupancy expenses due to the store closures, and a meaningful pullback in promotional activity and better pricing during semi-annual sale.

The gross profit rate decrease was driven by ~~increased promotional activity~~the store and lease asset impairment charges and buying and occupancy ~~expense~~ deleverage on lower net sales.

~~Bath & Body Works~~

For year-to-date 2019, the gross profit increase was 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 increases in supply chain and sourcing costs.

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

Victoria's Secret and Bath & Body Works International

For year-to-date ~~2019,~~2020, the gross profit ~~increase~~decrease was ~~primarily~~ due to ~~higher~~lower merchandise margin dollars related to ~~higher~~the decrease in net sales ~~in Greater China,~~due to the COVID-19-related store closures and lease asset impairment charges of $42 million, partially offset by ~~higher occupancy expenses~~a $36 million net gain related to the closure and termination of our lease for the Victoria’s Secret Hong Kong flagship store and reduced depreciation expense due to ~~investments~~store and lease asset impairments recognized in ~~store real estate in Greater China.~~prior periods.

The gross profit rate ~~increase~~decrease was driven by ~~increases in~~ the ~~merchandise margin rate in the Victoria's Secret U.K.~~lease asset impairment charges and ~~China businesses,~~buying and ~~leverage in~~ occupancy ~~expenses due to higher~~deleverage on lower net ~~sales in Greater China.~~sales.

General, Administrative and Store Operating Expenses

For year-to-date ~~2019,~~2020, our general, administrative and store operating expenses decreased ~~$32~~$314 million to ~~$1.588~~$1.274 billion due to ~~the elimination~~declines in store selling payroll, supplies, credit card fees and marketing expenses as a result of the ~~La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret,~~COVID-19-related store closures, partially offset by ~~higher selling expenses~~severance and related ~~to higher sales volume at Bath & Body Works.~~costs associated with headcount reductions totaling $81 million and increased credit card fees in our direct businesses.

The general, administrative and store operating expense rate ~~decreased~~increased to 32.1% from 28.7% ~~from 28.9% driven by~~due to deleverage on lower net sales and the ~~absence of the higher-rate La Senza~~severance and ~~Henri Bendel businesses and a decline in marketing expense at Victoria's Secret.~~related costs.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for year-to-date ~~2019~~2020 and ~~2018:~~2019:


Year-to-Date	2019			2018			2020			2019
Average daily borrowings (in millions)	$	5,835		$	5,845		$	6,125		$	5,835
Average borrowing rate (in percentages)	6.6		%	6.6		%	6.5		%	6.6		%

For year-to-date ~~2019,~~2020, our interest expense ~~decreased $2~~increased $7 million to ~~$194~~$201 million due to ~~lower~~higher average daily borrowings.

Other Income (Loss)

For year-to-date ~~2019,~~2020, our other income (loss) ~~decreased $32~~increased $34 million to ~~a $31~~income of $3 million ~~loss~~primarily due to 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~~recognized in the ~~average interest rate received on cash deposits.~~second quarter of 2019.

Provision (Benefit) for Income Taxes

For year-to-date ~~2019,~~2020, our effective tax rate was ~~24.0%~~26.7% compared to ~~21.7%~~24.0% year-to-date ~~2018.~~2019. The year-to-date 2020 rate was generally consistent with our combined estimated federal and state statutory rate due to the resolution of certain tax matters, which resulted in a $50 million tax benefit, and recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit. The year-to-date 2019 ~~year-to-date~~ rate ~~and the 2018 year-to-date rate were~~was lower than ~~the Company's~~our combined estimated federal and state statutory rate primarily due to the resolution of certain tax matters.

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 (loss) and working capital changes. Our net income (loss) 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. Our cash and cash equivalents held by foreign subsidiaries were ~~$493~~$149 million as of August ~~3, 2019.~~1, 2020.

COVID-19 Response

Since the global COVID-19 crisis began, we have taken prudent actions to manage expenses and to maintain our solid cash position and financial flexibility through the pandemic, including:

Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;

Suspending associate merit increases;

Temporarily reducing salaries for senior vice presidents and above by 20%;

Temporarily suspending cash compensation for all members of the Board of Directors;

Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;

Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;

Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;

Converting the revolving credit facility to an asset-backed loan facility and issuing $1.25 billion in new notes; and

Extending payment terms to vendors.

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,~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018:~~3, 2019:


	August 3, 2019			February 2, 2019			August 4, 2018			August 1, 2020			February 1, 2020			August 3, 2019
	(in millions)									(in millions)
Net Cash Provided by Operating Activities (a)	$	162		$	1,377		$	212		$	286		$	1,236		$	162
Capital Expenditures (a)	244			629			345			124			458			244
Working Capital	437			1,274			859			1,072			873			437
Capitalization:
Long-term Debt	5,475			5,739			5,712			6,269			5,487			5,475
Shareholders’ Equity (Deficit)	(933		)	(869		)	(1,124		)	(1,908		)	(1,499		)	(933		)
Total Capitalization	$	4,542		$	4,870		$	4,588		$	4,361		$	3,988		$	4,542
Remaining Amounts Available Under Credit Agreements (b)	$	990		$	991		$	991
Amounts Available Under the Credit Agreement (b)										$	—		$	981		$	990

_______________


(a)	The February ~~2, 2019~~1, 2020 amounts represent a ~~52-week~~fifty-two-week period, and the August ~~3, 2019~~1, 2020 and August ~~4, 2018~~3, 2019 amounts represent twenty-six-week periods.

(b)

~~Letters~~As of ~~credit issued reduce~~August 1, 2020, our ~~remaining availability under~~borrowing base was $844 million but we were unable to draw upon the ~~Secured Revolving Facility.~~Credit Agreement as our consolidated cash balance exceeded $350 million. We had outstanding letters of credit, ~~that reduced~~which reduce our ~~remaining~~ availability under the ~~Secured Revolving Facility~~Credit Agreement, of $61 million as of August 1, 2020, $19 million as of February 1, 2020 and $10 million as of August 3, ~~2019, and $9 million as of February 2, 2019 and August 4, 2018.~~2019.

Cash Flow

The following table provides a summary of our cash flow activity for year-to-date ~~2019~~2020 and ~~2018:~~2019:

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



	Year-to-Date
	2020			2019
	(in millions)
Cash and Cash Equivalents and Restricted Cash, Beginning of Period	$	1,499		$	1,413
Net Cash Flows Provided by Operating Activities	286			162
Net Cash Flows Used for Investing Activities	(116		)	(237		)
Net Cash Flows Provided by (Used for) Financing Activities	1,071			(483		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash	(1		)	(2		)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash	1,240			(560		)
Cash and Cash Equivalents and Restricted Cash, End of Period	$	2,739		$	853

Operating Activities

Net cash provided by operating activities in 2020 was $286 million, including a net loss of $346 million. Net loss included depreciation of $266 million, store and lease asset impairment charges of $214 million, gain from Victoria's Secret Hong Kong store closure and lease termination of $39 million and share-based compensation expense of $28 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 and COVID-19-related changes in Accounts Payable, Accrued Expenses and Other, Inventories, Income Taxes Payable and Accounts Receivable.

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 2020 was $116 million consisting primarily of capital expenditures of $124 million. The capital expenditures were primarily related to spending on technology and logistics to support our digital businesses and other retail capabilities. Capital expenditures of $45 million related to the opening of new stores or the remodeling and improving of existing stores, primarily for Bath & Body Works.

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 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.

Financing Activities

Net cash ~~used for investing~~provided by financing activities in ~~2018~~2020 was ~~$330 million~~$1.071 billion consisting primarily of ~~capital expenditures~~net proceeds of ~~$345 million~~$1.231 billion from the issuance of new notes, partially offset by ~~a $13~~dividend payments of $0.30 per share, or $83 million, ~~return~~and $52 million of ~~capital from certain of~~net repayments under our ~~Easton investments. The capital expenditures included $276~~Foreign Facilities. We also borrowed and repaid $950 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.~~

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 supportingunder our ~~direct businesses and other retail capabilities.~~

~~Financing Activities~~Credit Agreement during 2020.

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 share-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 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 our exchange of notes of $52 million and tax payments related to share-based awards of $12 million, partially offset by $32 million of net new borrowings under our 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 during year-to-date 2018:~~

We did not repurchase any shares during ~~year-to-date~~2020 or 2019.

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

~~The March 2018 repurchase program~~ had $79 million remaining as of August ~~3, 2019.~~

~~There were $2 million of share repurchases reflected in Accounts Payable on the August 4, 2018 Consolidated Balance Sheet.~~1, 2020.

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 and financing activities to fund our ~~dividends~~dividends.

Our Board of Directors suspended our quarterly cash dividend beginning in the second quarter of fiscal 2020 as a proactive measure to strengthen our financial flexibility and ~~share repurchase programs.~~manage through the COVID-19 pandemic.

Under the authority and declaration of our Board of Directors, we paid the following dividends during year-to-date ~~2019~~2020 and ~~2018:~~2019:

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)
2020
Second Quarter	$	—	$	—
First Quarter	0.30		83
Total	$	0.30	$	83
2019
Second Quarter	$	0.30	$	83
First Quarter	0.30		83
Total	$	0.60	$	166

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,~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018:~~3, 2019:


	August 3, 2019			February 2, 2019			August 4, 2018			August 1, 2020			February 1, 2020			August 3, 2019
	(in millions)									(in millions)
Senior Secured Debt with Subsidiary Guarantee
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")										$	739		$	—		$	—
Secured Foreign Facilities										101			103			95
Total Senior Secured Debt with Subsidiary Guarantee										$	840		$	103		$	95
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	990		$	990		$	990		$	991		$	991		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951			858			858			857
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693			693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498			498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495			496			496			496
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")										492			—			—
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	486			—			—			488			487			486
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776			450			450			449
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	274			273			272			277			276			274
$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		$	5,243		$	4,749		$	4,743
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348		$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297			298			298			297
Unsecured Foreign Facilities	67			60			40			—			50			67
Total Senior Debt	$	712		$	705		$	685		$	646		$	696		$	712
Total	$	5,550		$	5,811		$	5,777		$	6,729		$	5,548		$	5,550
Current Debt	(75		)	(72		)	(65		)	(460		)	(61		)	(75		)
Total Long-term Debt, Net of Current Portion	$	5,475		$	5,739		$	5,712		$	6,269		$	5,487		$	5,475

Issuance of Notes

In June ~~2019,~~2020, we issued ~~$500~~$750 million of ~~7.50%~~6.875% senior secured notes due ~~in June 2029.~~July 2025. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned ~~subsidiaries (the “Guarantors”).~~subsidiaries. The 2025 Secured Notes are secured on a first-priority lien basis by substantially all of our and the guarantors' assets, and on a second-priority lien basis by certain collateral securing the ABL Facility, in each case, subject to certain exceptions. The proceeds from the issuance were ~~$486~~$739 million, which were net of ~~discounts and~~ issuance costs of ~~$14~~$11 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~~1, 2020 Consolidated Balance Sheet.

In June 2020, we also issued $500 million of 9.375% notes due in July 2025 (the "2025 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries. The proceeds from the issuance were $492 million, which were net of issuance costs of $8 million. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the August 1, 2020 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 redemption fees and the write-offs of unamortized issuance ~~costs and redemption fees.~~costs. 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.

~~Secured~~ Revolving Credit Facility

We and ~~the Guarantors~~certain of our 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility. In April 2020, we entered into an amendment and restatement of the Credit Agreement to convert our credit facility into an asset-backed revolving credit facility. The ~~Secured Revolving Facility has~~Amendment maintains the aggregate ~~availability~~commitments at $1 billion, and maintains the expiration date in August of ~~$1 billion.~~2024. The ~~Secured Revolving~~ABL Facility allows usborrowings and ~~certain of our non-U.S. subsidiaries to borrow and obtain~~ letters of credit in U.S. dollars or Canadian ~~dollars, Euros, Hong Kong dollars~~dollars.

Availability under the ABL Facility is the lesser of (i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or ~~British pounds.~~(ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, we will be required to prepay the outstanding amounts under the ABL Facility to the extent of such excess. In addition, at any time that our consolidated cash balance exceeds $350 million, we will be required to prepay outstanding amounts under the ABL Facility to the extent of such excess. As of August 1, 2020, our borrowing base was $844 million but we were unable to draw upon the ABL Facility as our consolidated cash balance exceeded $350 million.

The ~~Secured Revolving~~ABL Facility ~~contains fixed charge coverage and debt to EBITDA financial covenants. We are required~~requires us to maintain a fixed charge coverage ratio of not less than ~~1.75~~1.00 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~~during an event of ~~August 3, 2019, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitation~~default or any period commencing 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~~any day when specified excess availability is less than ~~3.00 to 1.00 and (b) no default~~the greater of (1) $100 million or ~~event~~(2) 15% of ~~default exists.~~the maximum borrowing amount. As of August ~~3, 2019,~~1, 2020, we were not required to maintain this ratio.

In March 2020, in ~~compliance with both~~an abundance of caution and as a proactive measure in response to the COVID-19 pandemic, we elected to borrow $950 million from our ~~financial covenants, and~~revolving facility, which was prepaid upon the ~~ratio~~completion of ~~consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.~~

the Amendment. As of August ~~3, 2019,~~1, 2020, there were no borrowings outstanding under the ~~Secured Revolving~~ABL Facility.

The ~~Secured Revolving~~ABL Facility supports our letter of credit program. We had ~~$10~~$61 million of outstanding letters of credit as of August ~~3, 2019~~1, 2020 that reduced our ~~remaining~~ availability under the ~~Secured Revolving~~ABL 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~~Certain of our China subsidiaries utilize 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~~and interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. Certain of these facilities are guaranteed by us and certain of our 100% owned subsidiaries, and certain of these facilities were guaranteed by us only.

The Secured Foreign Facilities have availability totaling $128 million. During ~~2019,~~2020, we borrowed ~~$12~~$20 million and made payments of $822 million ~~million~~ under the Secured Foreign Facilities. ~~The maximum daily amount~~As of August 1, 2020, there were borrowings of $101 million outstanding ~~at any point in time during 2019 was $96 million.~~under the Secured Foreign Facilities, of which $10 million is included within Current Debt on the Consolidated Balance Sheet. Borrowings on the Secured Foreign Facilities mature between ~~December 2019~~September 2020 and ~~May 2022. As~~August 2024.

During the second quarter, we placed cash on deposit with certain financial institutions as collateral for their lending commitments under the Secured Foreign Facilities. The amount of ~~August 3, 2019, borrowings of $8~~collateral required reduces over time as we make certain paydowns. These deposits, totaling $128 million, are ~~included within Current Debt~~recorded in Other Assets on the August 1, 2020 Consolidated Balance ~~Sheet, and the remaining borrowings are included within Long-term Debt.~~Sheet.

~~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,~~2020, we borrowed $13 million and made payments of $6$63 million under the Unsecured Foreign Facilities. ~~The maximum daily amount~~During the second quarter of 2020, with no borrowings outstanding, ~~at any point in time during 2019 was $73 million. Borrowings on~~we terminated 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.~~Facilities.

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 our credit ratings as of August ~~3, 2019:~~1, 2020:



	Moody’s	S&P
~~Corporate~~Senior Secured Debt	~~Ba1~~Ba2	BB
Corporate	B2	B+
Senior Unsecured Debt with Subsidiary Guarantee	~~Ba1~~B2	BBB+
Senior Unsecured Debt	~~Ba2~~Caa1	B+B-
Outlook	Negative	Negative

Subsequent to August 1, 2020, S&P updated our outlook to Stable.

Guarantor Summarized Financial Information

Certain of our subsidiaries, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q, have guaranteed our obligations under the 2021 Notes, 2022 Notes, 2023 Notes, 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2035 Notes and the 2036 Notes (collectively, the "Unsecured Notes") and the 2025 Secured Notes (the “Secured Notes” and together with the Unsecured Notes, the “Notes”).

The Notes have been issued by L Brands, Inc. (the “Parent Company”). The Unsecured Notes are its senior unsecured obligations and the Secured Notes are its senior secured obligations. The Unsecured Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Unsecured Notes. The Secured Notes rank equally in right of payment with all of our existing and future senior obligations, senior to any of our future subordinated indebtedness, are effectively senior to all of our existing and future indebtedness that is secured by a lien on collateral that ranks junior to the lien on such collateral securing the Secured Notes, are effectively senior to all of our existing and future unsecured indebtedness to the extent of the value of the assets securing the Secured Notes, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien on assets that do not constitute collateral or that is secured by a first-priority lien on certain collateral, in each case to the extent of the value of such assets, and structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Unsecured Notes.

The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including each subsidiary that also guarantees our obligations under certain of our senior secured credit facilities (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.

The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries:



SUMMARIZED BALANCE SHEETS	August 1, 2020		February 1, 2020
	(in millions)
ASSETS
Current Assets (a)	$	5,202	$	3,728
Noncurrent Assets	5,007		5,357

LIABILITIES
Current Liabilities (b)	$	4,923	$	4,163
Noncurrent Liabilities (c)	9,293		8,772

_______________


(a)	Includes amounts due from non-Guarantor subsidiaries of $1.255 billion and $1.091 billion as of August 1, 2020 and February 1, 2020, respectively.


(b)	Includes amounts due to non-Guarantor subsidiaries of $2.269 billion and $2.684 billion as of August 1, 2020 and February 1, 2020, respectively.


(c)	Includes amounts due to non-Guarantor subsidiaries of $476 million as of both August 1, 2020 and February 1, 2020.



SUMMARIZED STATEMENT OF LOSS	Year-to-Date
	2020
	(in millions)
Net Sales (a)	$	3,802
Gross Profit	970
Operating Loss	(173		)
Loss Before Income Taxes	(407		)
Net Loss (b)	(263		)

_______________


(a)	Includes net sales of $101 million to non-Guarantor subsidiaries.


(b)	Includes net loss of $7 million related to transactions with non-Guarantor subsidiaries.

In addition to the Subsidiary Guarantors, a certain subsidiary, which is listed on Exhibit 22 to this Quarterly Report on Form 10-Q, has only guaranteed our obligations under the 2025 Notes and the 2025 Secured Notes. This subsidiary had assets, all of which were noncurrent, of $239 million and $244 million as of August 1, 2020 and February 1, 2020, respectively. In addition, this subsidiary had current liabilities of $2 million as of August 1, 2020 and $119 million as of February 1, 2020, which included $93 million due to the Subsidiary Guarantors. Year-to-date 2020 Statement of Loss activity for this subsidiary is immaterial.

Contingent Liabilities and Contractual Obligations

La Senza

In connection with the sale of La Senza in the fourth quarter of 2018, wecertain of our subsidiaries have remaining ~~guarantees~~contingent obligations of ~~$67~~$36 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These ~~guarantees~~obligations 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 million~~asAs of August ~~3, 2019~~1, 2020, we have recorded reserves of $37 million related to these lease-related obligations and ~~February 2, 2019 representing~~certain other obligations related to the ~~estimated fair value~~La Senza business. As of ~~our obligation as guarantor in accordance with ASC 460,~~ ~~Guarantees~~. August 1, 2020, reserves of $6 million are included within Accrued Expenses and Other on the Consolidated Balance Sheet and the remaining reserves are included within Other Long-term Liabilities.

Other

In connection with the disposition of a certain 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 is extended. We have not recorded a liability with respect to this guarantee obligation as of August 3, 2019, February 2, 2019 or August 4, 2018 as we concluded that payments under this guarantee were not probable.

~~In connection with~~ noncancelable operating ~~leases~~lease of ~~certain assets,~~an operating asset, we ~~provided~~provide a residual value ~~guarantees~~guarantee to the lessor if the leased ~~assets~~asset 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~~lease expires in 2021, and the total amount of the ~~guarantees~~guarantee is ~~$94~~$28 million. We ~~recorded~~did not record a liability ~~of $11 million~~ as of August 3, 2019 and February 2, 2019, and $3 million as of August 4, 2018 related to these guarantee 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.1, 2020.

Contractual Obligations

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 ~~2, 2019,~~1, 2020, as discussed in ~~“Contingent~~��Contingent Liabilities and Contractual Obligations” in our ~~2018~~2019 Annual Report on Form 10-K, other ~~that~~than the newly issued ~~2029 Notes, repurchase of the 2020~~2025 Secured Notes and ~~repurchases of certain of the 2021 and 2022~~2025 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

~~Leases~~Credit Losses

In ~~February~~June 2016, the FASB issued ~~ASC 842,~~ASU 2016-13, ~~Leases~~Financial Instruments - Credit Losses,, which requires ~~companies classified as lessees to account~~the use of a forward-looking expected loss impairment model for ~~most leases on their balance sheets but recognize expenses on their income statements in a manner similar to legacy accounting. The standard also requires enhanced quantitative~~accounts receivable and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of 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 did not require earlier periods to be restated upon adoption.

certain other financial instruments. We adopted the standard in the first quarter of 2019 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 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 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 2019.2020. The adoption of this standard did not have a material impact on our consolidated results of operations, financial position or cash flows.

~~Goodwill~~

Guarantor Reporting

In ~~January 2017,~~March 2020, the ~~FASB~~SEC issued ~~ASU 2017-04,~~a final rule, ~~Simplifying the Test for Goodwill Impairment~~Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, ~~which~~that simplifies the ~~subsequent measurement~~disclosure requirements related to registered securities under Rule 3-10 of ~~goodwill.~~Regulation S-X. The ~~standard eliminates~~rule replaces the ~~second step from the goodwill impairment test, which requires~~requirement to provide condensed consolidating financial information with a ~~hypothetical purchase price allocation~~requirement to ~~determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess~~present summarized financial information of the ~~reporting unit's carrying value over its fair value, not~~issuers and guarantors. It also requires qualitative disclosures with respect to ~~exceed~~information about guarantors, the ~~total amount~~terms and conditions of ~~goodwill allocated~~guarantees and the factors that may affect payment. These disclosures may be provided outside the footnotes to our consolidated financial statements. We early adopted the reporting ~~unit. This guidance will be effective beginning~~requirements of the rule in ~~fiscal~~the first quarter of 2020 ~~with early adoption permitted. We do not expect this standard~~and elected to ~~have a material impact on our consolidated results~~provide these disclosures in Management’s Discussion and Analysis of ~~operations, financial position or cash flows.~~Financial Condition and Results of Operations.

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 ~~2018~~2019 Annual Report on Form ~~10-K, other than the adoption of ASC 842,~~ ~~Leases.~~

10-K.


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, cross-currency swaps 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 ~~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 our operations in Canada and 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 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 ~~3, 2019~~1, 2020 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 ~~3, 2019,~~1, 2020, we believe that the carrying values of accounts receivable, accounts payable and 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 publicly traded debt ~~and other financial instruments~~ as of August ~~3, 2019,~~1, 2020, February ~~2, 2019~~1, 2020 and August ~~4, 2018:~~3, 2019:

August 3,
2019 February 2,
2019 August 4,
2018
(in millions)
Long-term Debt:
Principal Value $ 5,458
$ 5,722
$ 5,722
Fair Value, Estimated (a) 5,215
5,340
5,432
Foreign Currency Cash Flow Hedges (b) (3 ) (2 ) (2 )
Marketable Equity Securities (b) (2 ) (11 ) (11 )



	August 1, 2020		February 1, 2020		August 3, 2019
	(in millions)
Principal Value	$	6,708	$	5,458	$	5,458
Fair Value, Estimated (a)	6,692		5,555		5,215

_______________


(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)~~	~~Financial instruments are in a net asset position.~~

Concentration of Credit Risk

We maintain cash and cash equivalents, restricted cash 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 of ~~2019~~2020 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. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief. In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel. The lead plaintiff filed a consolidated amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint. We filed a motion to dismiss the consolidated amended complaint on February 18, 2020, the lead plaintiff filed an opposition to our motion to dismiss on May 4, 2020, and we filed a reply brief in further support of its motion to dismiss on June 3, 2020. Our motion to dismiss the consolidated amended complaint is now fully briefed and pending before the court. The court will hear oral argument on the motion to dismiss on September 23, 2020. We view this lawsuit as meritless and intend to defend against this lawsuit vigorously.

On February 19, 2020, a plaintiff shareholder filed a complaint in the U.S. District Court for the Southern District of Ohio alleging derivative claims on our behalf against certain of our current and former directors and officers. We were named as nominal defendant. The lawsuit asserts claims for breach of fiduciary duty, corporate waste and unjust enrichment in connection with alleged misstatements about our quarterly dividend prior to the announced reduction of the dividend in November 2018. On July 21, 2020, the court so-ordered a stipulation staying all proceedings in this lawsuit, pending resolution of the motion to dismiss that we filed on February 18, 2020 in the putative class action lawsuit described above. We intend to seek dismissal of the lawsuit at the appropriate time.

On May 19, 2020, a purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Court of Common Pleas for Franklin County, Ohio. The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, that these defendants breached their fiduciary duties by violating law and/or company policies relating to workplace conduct. We were named as nominal defendant only, and there are no claims asserted against us. On June 16, 2020, the lawsuit was removed to the United States District Court for the Southern District of Ohio. On July 6, 2020, the court so-ordered a stipulation staying the lawsuit until December 29, 2020. We are currently evaluating potential options for responding to the lawsuit.


Item 1A.	RISK FACTORS

The following information supplements the risk factors ~~that affect our business and financial results are discussed~~described in “Item 1A: Risk Factors” in our 2019 Annual Report on Form 10-K and should be read in conjunction with the ~~2018~~risk factors described in the 2019 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors” in our ~~2018~~2019 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.

Divestitures or other dispositions, including any divestiture of Victoria’s Secret and related operations, could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements.

We continually assess the shareholder value and the strategic fit of our existing businesses, and may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan, or are not achieving the desired shareholder value or return on investment. These transactions, including any divestiture of Victoria’s Secret and related operations, pose risks and challenges that could negatively impact our business. For example, we may be unable to do so on satisfactory terms within our anticipated timeframe or at all, and even after reaching a definitive agreement to sell or dispose a business, the sale is typically subject to satisfaction of pre-closing conditions which may not become satisfied. In addition, divestitures or other dispositions may dilute our earnings per share, have other adverse financial and accounting impacts and distract management, and disputes may arise with buyers. In addition, we may be required to indemnify buyers against known and unknown contingent liabilities related to any businesses we have sold or disposed of. The resolution of these contingencies may have a material effect on our financial statements. Uncertainty about the effect of any potential divestiture of Victoria’s Secret on employees, commercial partners and

vendors may have an adverse effect on us. These uncertainties may impair our ability to retain and motivate key personnel and could cause commercial partners, vendors and others that deal with us to defer or decline entering into contracts with us or seek to change existing business relationships with us. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of any potential divestiture of Victoria’s Secret, our business could be harmed. If we are unable to divest any such businesses, including Victoria’s Secret, we will continue to be subject to the risks of operating such businesses.


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 ~~2019:~~2020:

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
—



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 2020	74	$	10.31	—	$	78,677
June 2020	23	17.50		—	78,677
July 2020	4	20.39		—	78,677
Total	101			—

_______________


(a)	The total number of shares repurchased includes 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 4,5, “Earnings (Loss) 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.

22		List of Guarantor Subsidiaries.

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 ~~6, 2019~~3, 2020


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

5447



	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



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



	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



	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



	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



	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 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