Bath & Body Works, Inc. - Quarter Report: 2019 November (Form 10-Q)

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 November 2, 2019



☐	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 November 29, 2019, the number of outstanding shares of the Registrant’s common stock, was 276,474,678 shares.

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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 Thirty-Nine-Weeks Ended November 2, 2019 and November 3, 2018 (Unaudited)	3

Consolidated Statements of Comprehensive Income (Loss) for the Thirteen-Weeks and Thirty-Nine-Weeks Ended November 2, 2019 and November 3, 2018 (Unaudited)	3

Consolidated Balance Sheets as of November 2, 2019 (Unaudited), February 2, 2019 and November 3, 2018 (Unaudited)	4

Consolidated Statements of Total Equity (Deficit) for the Thirteen-Weeks and Thirty-Nine-Weeks Ended November 2, 2019 and November 3, 2018 (Unaudited)	5

Consolidated Statements of Cash Flows for the Thirty-Nine-Weeks Ended November 2, 2019 and November 3, 2018 (Unaudited)	7

Notes to Consolidated Financial Statements (Unaudited)	8

Report of Independent Registered Public Accounting Firm	35

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	36

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3. Quantitative and Qualitative Disclosures About Market Risk	55

Item 4. Controls and Procedures	56

Part II. Other Information	57

Item 1. Legal Proceedings	57

Item 1A. Risk Factors	57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3. Defaults Upon Senior Securities	57

Item 4. Mine Safety Disclosures	57

Item 5. Other Information	57

Item 6. Exhibits	58

Signature	59



*	The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2019” and “third quarter of 2018” refer to the thirteen-week periods ended November 2, 2019 and November 3, 2018, respectively. "Year-to-date 2019" and "year-to-date 2018" refer to the thirty-nine-week periods ending November 2, 2019 and November 3, 2018, respectively.

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PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in millions except per share amounts)

(Unaudited)



	Third Quarter						Year-to-Date
	2019			2018			2019			2018
Net Sales	$	2,677		$	2,775		$	8,207		$	8,385
Costs of Goods Sold, Buying and Occupancy	(1,936		)	(1,847		)	(5,550		)	(5,454		)
Gross Profit	741			928			2,657			2,931
General, Administrative and Store Operating Expenses	(892		)	(874		)	(2,480		)	(2,494		)
Operating Income (Loss)	(151		)	54			177			437
Interest Expense	(92		)	(96		)	(286		)	(292		)
Other Income (Loss)	(34		)	1			(66		)	1
Income (Loss) Before Income Taxes	(277		)	(41		)	(175		)	146
Provision (Benefit) for Income Taxes	(25		)	2			(1		)	42
Net Income (Loss)	$	(252	)	$	(43	)	$	(174	)	$	104
Net Income (Loss) Per Basic Share	$	(0.91	)	$	(0.16	)	$	(0.63	)	$	0.37
Net Income (Loss) Per Diluted Share	$	(0.91	)	$	(0.16	)	$	(0.63	)	$	0.37
Dividends Per Share	$	0.30		$	0.60		$	0.90		$	1.80

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Third Quarter						Year-to-Date
	2019			2018			2019			2018
Net Income (Loss)	$	(252	)	$	(43	)	$	(174	)	$	104
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	6			(2		)	(5		)	(24		)
Unrealized Gain (Loss) on Cash Flow Hedges	(2		)	1			2			10
Reclassification of Cash Flow Hedges to Earnings	—			—			(3		)	3
Total Other Comprehensive Income (Loss), Net of Tax	4			(1		)	(6		)	(11		)
Total Comprehensive Income (Loss)	$	(248	)	$	(44	)	$	(180	)	$	93

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

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L BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)



	November 2, 2019			February 2, 2019			November 3, 2018
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	340		$	1,413		$	348
Accounts Receivable, Net	295			367			321
Inventories	2,032			1,248			1,963
Other	259			232			301
Total Current Assets	2,926			3,260			2,933
Property and Equipment, Net	2,571			2,818			2,934
Operating Lease Assets	3,130			—			—
Goodwill	1,318			1,348			1,348
Trade Names	411			411			411
Deferred Income Taxes	63			62			20
Other Assets	211			191			183
Total Assets	$	10,630		$	8,090		$	7,829
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	1,024		$	711		$	1,060
Accrued Expenses and Other	980			1,082			1,018
Current Debt	75			72			56
Current Operating Lease Liabilities	460			—			—
Income Taxes	4			121			8
Total Current Liabilities	2,543			1,986			2,142
Deferred Income Taxes	246			226			234
Long-term Debt	5,477			5,739			5,814
Long-term Operating Lease Liabilities	3,108			—			—
Other Long-term Liabilities	494			1,004			951
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—			—			—
Common Stock - $0.50 par value; 1,000 shares authorized; 284, 283 and 283 shares issued; 276, 275 and 275 shares outstanding, respectively	142			141			142
Paid-in Capital	828			771			747
Accumulated Other Comprehensive Income	53			59			11
Retained Earnings (Deficit)	(1,907		)	(1,482		)	(1,856		)
Less: Treasury Stock, at Average Cost; 8, 8 and 8 shares, respectively	(358		)	(358		)	(358		)
Total L Brands, Inc. Shareholders’ Equity (Deficit)	(1,242		)	(869		)	(1,314		)
Noncontrolling Interest	4			4			2
Total Equity (Accumulated Deficit)	(1,238		)	(865		)	(1,312		)
Total Liabilities and Equity (Deficit)	$	10,630		$	8,090		$	7,829

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

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L BRANDS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Third Quarter 2019



	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value		Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, August 3, 2019	276	$	142	$	806	$	49	$	(1,572	)	$	(358	)	$	4	$	(929	)
Net Loss	—	—		—		—		(252		)	—			—		(252		)
Other Comprehensive Income	—	—		—		4		—			—			—		4
Total Comprehensive Income (Loss)	—	—		—		4		(252		)	—			—		(248		)
Cash Dividends ($0.30 per share)	—	—		—		—		(83		)	—			—		(83		)
Share-based Compensation and Other	—	—		22		—		—			—			—		22
Balance, November 2, 2019	276	$	142	$	828	$	53	$	(1,907	)	$	(358	)	$	4	$	(1,238	)

Third Quarter 2018



	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, August 4, 2018	275	$	142	$	718	$	12		$	(1,648	)	$	(348	)	$	2	$	(1,122	)
Net Loss	—	—		—		—			(43		)	—			—		(43		)
Other Comprehensive Loss	—	—		—		(1		)	—			—			—		(1		)
Total Comprehensive Loss	—	—		—		(1		)	(43		)	—			—		(44		)
Cash Dividends ($0.60 per share)	—	—		—		—			(165		)	—			—		(165		)
Repurchase of Common Stock	—	—		—		—			—			(10		)	—		(10		)
Share-based Compensation and Other	—	—		29		—			—			—			—		29
Balance, November 3, 2018	275	$	142	$	747	$	11		$	(1,856	)	$	(358	)	$	2	$	(1,312	)

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

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L BRANDS, INC.

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(in millions except per share amounts)

(Unaudited)

Year-to-Date 2019



	Common Stock			Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding	Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, February 2, 2019	275	$	141	$	771	$	59		$	(1,482	)	$	(358	)	$	4	$	(865	)
Cumulative Effect of Accounting Change	—	—		—		—			(2		)	—			—		(2		)
Balance, February 3, 2019	275	141		771		59			(1,484		)	(358		)	4		(867		)
Net Loss	—	—		—		—			(174		)	—			—		(174		)
Other Comprehensive Loss	—	—		—		(6		)	—			—			—		(6		)
Total Comprehensive Loss	—	—		—		(6		)	(174		)	—			—		(180		)
Cash Dividends ($0.90 per share)	—	—		—		—			(249		)	—			—		(249		)
Share-based Compensation and Other	1	1		57		—			—			—			—		58
Balance, November 2, 2019	276	$	142	$	828	$	53		$	(1,907	)	$	(358	)	$	4	$	(1,238	)

Year-to-Date 2018



	Common Stock				Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
	Shares Outstanding		Par Value		Paid-In Capital		Accumulated Other Comprehensive Income			Retained Earnings (Accumulated Deficit)			Treasury Stock, at Average Cost			Noncontrolling Interest		Total Equity (Deficit)
Balance, February 3, 2018	280		$	141	$	678	$	24		$	(1,434	)	$	(162	)	$	2	$	(751	)
Cumulative Effect of Accounting Changes	—		—		—		(2		)	(26		)	—			—		(28		)
Balance, February 4, 2018	280		141		678		22			(1,460		)	(162		)	2		(779		)
Net Income	—		—		—		—			104			—			—		104
Other Comprehensive Loss	—		—		—		(11		)	—			—			—		(11		)
Total Comprehensive Income (Loss)	—		—		—		(11		)	104			—			—		93
Cash Dividends ($1.80 per share)	—		—		—		—			(500		)	—			—		(500		)
Repurchase of Common Stock	(5	)	—		—		—			—			(196		)	—		(196		)
Share-based Compensation and Other	—		1		69		—			—			—			—		70
Balance, November 3, 2018	275		$	142	$	747	$	11		$	(1,856	)	$	(358	)	$	2	$	(1,312	)

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

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L BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Year-to-Date
	2019			2018
Operating Activities:
Net Income (Loss)	$	(174	)	$	104
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used for) Operating Activities:
Depreciation of Long-lived Assets	443			444
Amortization of Landlord Allowances	—			(32		)
Asset Impairment	248			81
Share-based Compensation Expense	67			75
Loss on Extinguishment of Debt	40			—
La Senza Charges	37			—
Deferred Income Taxes	19			(3		)
Gains on Distributions from Easton Investments	(4		)	(7		)
Unrealized Losses on Marketable Equity Securities	—			8
Changes in Assets and Liabilities:
Accounts Receivable	41			(8		)
Inventories	(785		)	(731		)
Accounts Payable, Accrued Expenses and Other	210			300
Income Taxes Payable	(198		)	(260		)
Other Assets and Liabilities	(34		)	42
Net Cash Provided by (Used for) Operating Activities	(90		)	13
Investing Activities:
Capital Expenditures	(392		)	(561		)
Other Investing Activities	(16		)	23
Net Cash Used for Investing Activities	(408		)	(538		)
Financing Activities:
Proceeds from Issuance of Long-Term Debt, Net of Issuance Costs	486			—
Payments of Long-term Debt	(799		)	(52		)
Borrowing from Secured Revolving Facility	—			85
Borrowings from Foreign Facilities	36			110
Repayments of Foreign Facilities	(21		)	(71		)
Dividends Paid	(249		)	(500		)
Repurchases of Common Stock	—			(198		)
Tax Payments related to Share-based Awards	(12		)	(13		)
Financing Costs and Other	(11		)	(4		)
Net Cash Used for Financing Activities	(570		)	(643		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	(5		)	1
Net Decrease in Cash and Cash Equivalents	(1,073		)	(1,167		)
Cash and Cash Equivalents, Beginning of Period	1,413			1,515
Cash and Cash Equivalents, End of Period	$	340		$	348

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

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L BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

L Brands, Inc. (the "Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of women’s intimate and other apparel, personal care, beauty and home fragrance products. The Company sells its merchandise through company-owned specialty retail stores in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Ireland and Greater China (China and Hong Kong), and through its websites and other channels. The Company's other international operations are primarily through franchise, license and wholesale partners. The Company currently operates the following retail brands:


•	Victoria’s Secret


•	PINK


•	Bath & Body Works

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2019” and “third quarter of 2018” refer to the thirteen-week periods ended November 2, 2019 and November 3, 2018, respectively. “Year-to-date 2019” and “year-to-date 2018” refer to the thirty-nine-week periods ending November 2, 2019 and November 3, 2018, 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 (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 (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 November 2, 2019 and November 3, 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 Annual Report on Form 10-K.

In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.

Seasonality of Business

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

Concentration of Credit Risk

The Company maintains cash and cash equivalents and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. Typically, the Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.

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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

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheets but recognize expenses on their income statements in a manner similar to legacy accounting. The standard also requires enhanced quantitative 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.

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 (Loss) or Cash Flows. See Note 9, “Leases” for additional disclosure required by the new standard.

Hedging Activities

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

Goodwill

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted this standard in the third quarter of 2019 and performed the interim goodwill impairment assessment in accordance with ASU 2017-04. For additional information, see Note 8, "Goodwill and Trade Names."

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the use of a forward-looking expected loss impairment model for accounts receivable and certain other financial instruments. This guidance will be effective beginning in fiscal 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard.

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3. Revenue Recognition

Accounts receivable, net from revenue-generating activities were $147 million as of November 2, 2019, $150 million as of February 2, 2019 and $160 million as of November 3, 2018. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days.

The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments not yet delivered, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $280 million as of November 2, 2019, $331 million as of February 2, 2019 and $271 million as of November 3, 2018. The Company recognized $190 million as revenue year-to-date in 2019 from amounts recorded as deferred revenue at the beginning of the period. As of November 2, 2019, the Company recorded deferred revenue of $267 million within Accrued Expenses and Other, and $13 million within Other Long-term Liabilities on the Consolidated Balance Sheet.

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



	Third Quarter				Year-to-Date
	2019		2018		2019		2018
	(in millions)
Victoria’s Secret Stores (a)	$	1,081	$	1,178	$	3,462	$	3,778
Victoria’s Secret Direct	331		351		1,067		1,065
Total Victoria’s Secret	1,412		1,529		4,529		4,843
Bath & Body Works Stores (a)	872		808		2,469		2,281
Bath & Body Works Direct	192		148		527		399
Total Bath & Body Works	1,064		956		2,996		2,680
Victoria's Secret and Bath & Body Works International (b)	134		134		423		415
Other (c)	67		156		259		447
Total Net Sales	$	2,677	$	2,775	$	8,207	$	8,385

_______________


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

Earnings Per Share

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

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



	Third Quarter				Year-to-Date
	2019		2018		2019		2018
	(in millions)
Weighted-average Common Shares:
Issued Shares	284		283		284		283
Treasury Shares	(8	)	(8	)	(8	)	(6	)
Basic Shares	276		275		276		277
Effect of Dilutive Options and Restricted Stock (a)	—		—		—		2
Diluted Shares	276		275		276		279
Anti-dilutive Options and Awards (a)	2		2		2		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 2019 and the third quarter 2018, the dilutive impact of outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the respective periods.

Shareholders’ Equity (Deficit)

Common Stock Share Repurchases

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

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	Amount Authorized		Shares Repurchased	Amount Repurchased		Average Stock Price of Shares Repurchased within Program
	(in millions)		(in thousands)	(in millions)
March 2018	$	250	4,852	$	171	$	35.29
September 2017	250		527	25		$	46.98
Total			5,379	$	196

In March 2018, the Company's Board of Directors approved a $250 million 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 November 2, 2019.

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Dividends

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



	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2019
Third Quarter	$	0.30	$	83
Second Quarter	0.30		83
First Quarter	0.30		83
Total	$	0.90	$	249
2018
Third Quarter	$	0.60	$	165
Second Quarter	0.60		167
First Quarter	0.60		168
Total	$	1.80	$	500

5. Restructuring Activities

La Senza

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

In conjunction with the transaction, certain of the Company's subsidiaries have remaining contingent obligations related to La Senza lease payments under the terms of existing noncancelable leases, and the Company has certain other contingent obligations related to La Senza for a period of time. In the third quarter of 2019, the Company and its subsidiaries recognized pre-tax non-cash charges of $37 million related to the increase in the reserves for these potential exposures related to the La Senza business. These charges are included in Other Income (Loss) in the 2019 Consolidated Statements of Income (Loss). For additional information, see Note 16, "Commitments and Contingencies."

Additionally, the Company continues to provide technology and other operational support to La Senza for a period of time expected to continue into fiscal 2020.

Henri Bendel

The Company announced the 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.

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6. Inventories

The following table provides details of inventories as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Finished Goods Merchandise	$	1,854	$	1,107	$	1,774
Raw Materials and Merchandise Components	178		141		189
Total Inventories	$	2,032	$	1,248	$	1,963

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

7. Property and Equipment, Net

The following table provides details of property and equipment, net as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019			February 2, 2019			November 3, 2018
	(in millions)
Property and Equipment, at Cost	$	6,449		$	6,733		$	6,827
Accumulated Depreciation and Amortization	(3,878		)	(3,915		)	(3,893		)
Property and Equipment, Net	$	2,571		$	2,818		$	2,934

Depreciation expense was $148 million for both the third quarter of 2019 and 2018. Depreciation expense was $443 million and $444 million for year-to-date 2019 and 2018, respectively.

Long-Lived Store Assets

Long-lived store assets, which includes leasehold improvements, store-related assets and operating leases (subsequent to the adoption of ASC 842, Leases), are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of 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 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. An individual asset within an asset group is not impaired below its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. These fair value measurements qualify as level 3 measurements in the fair value hierarchy.

In the third quarter of 2019, the Company concluded that the negative operating results for certain of its Victoria's Secret stores were an indicator of potential impairment of the related store asset groups. The Company determined that the estimated undiscounted future cash flows were less than the carrying values and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly, the Company recognized a loss equal to the difference between the carrying value of an asset group and its estimated fair value but did not impair any individual store asset below its estimated fair value. For leasehold improvements and store-related assets, the Company recognized impairment charges of $188 million. Impairment charges of $151 million related to stores in Greater China, the U.K. and Ireland, and impairment charges of $37 million related to stores in the U.S. and Canada. For operating lease assets, the Company recognized impairment charges of $30 million. Impairment charges of $26 million related to stores in the U.K., and impairment charges of $4 million related to stores in the U.S.

In total, the Company recognized impairment charges of $218 million for long-lived store assets, which are included in Costs of Goods Sold, Buying & Occupancy in the 2019 Consolidated Statements of Income (Loss). Impairment charges of $177 million, related to store assets in Greater China, the U.K. and Ireland, were recorded within the Victoria's Secret and Bath & Body Works International segment. Impairment charges of $41 million, related to store assets in the U.S. and Canada, were recorded within the Victoria's Secret segment.

In the third quarter of 2018, the Company concluded that the negative operating results for certain of its Victoria's Secret stores were an indicator of potential impairment of the related store asset groups. The Company determined that the estimated undiscounted future cash flows were less than the carrying values and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly, the Company recognized a loss equal to the

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difference between the carrying value of an asset group and its estimated fair value but did not impair any individual store asset below its estimated fair value.

The Company recognized impairment charges of $81 million, which are included in Costs of Goods Sold, Buying & Occupancy in the 2018 Consolidated Statements of Income (Loss). Impairment charges of $50 million, related to store assets in the U.S. and Canada, were recorded within the Victoria's Secret segment. Impairment charges of $31 million, related to store assets in the U.K., were recorded within the Victoria's Secret and Bath & Body Works International segment.

8. Goodwill and Trade Names

Goodwill

Goodwill is reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change. If the Company determines that the fair value of a reporting unit is less than its carrying value, an impairment charge is recognized equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. The Company's reporting units that have goodwill are Victoria's Secret, Bath & Body Works and Greater China, which is included within the Victoria's Secret and Bath & Body Works International reportable segment.

The following table provides detail regarding the composition of goodwill as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Victoria's Secret	$	690	$	690	$	690
Bath & Body Works	628		628		628
Victoria's Secret's Secret and Bath & Body Works International	—		30		30
Goodwill	$	1,318	$	1,348	$	1,348

As of November 2, 2019, the Company performed a quantitative interim impairment assessment over the Victoria's Secret and Greater China reporting units. An interim assessment was performed in consideration of the negative performance of these reporting units and their impact on the sustained decline in the Company's market capitalization. Further, for the Greater China reporting unit, the Company considered the results of the long-lived store asset impairment assessment.

The interim assessment concluded that the fair value of the Victoria's Secret reporting unit exceeded its carrying value. However, the fair value of the Greater China reporting unit did not exceed its carrying value. Accordingly, the Company recognized a goodwill impairment charge of $30 million in the third quarter of 2019 related to the Greater China reporting unit, due to its estimated future cash flows. This charge is included in General, Administrative and Store Operating Expenses in the 2019 Consolidated Statements of Income (Loss).

The estimated fair value of the Victoria's Secret reporting unit was based on a weighted average of the income and market approaches, while the estimated fair value of the Greater China reporting unit was based on the income approach. The income approach is based on estimated discounted future cash flows, while the market approach is based on earnings multiples of selected guideline public companies. The approaches, which qualify as level 3 in the fair value hierarchy, incorporated a number of significant assumptions and judgments including, but not limited to, estimated future cash flows, discount rates, income tax rates, terminal growth rates, multiples of earnings of similar public companies and an implied control premium relative to the Company's market capitalization.

Intangible Assets - Indefinite Lives

Intangible assets with indefinite lives represent the Victoria’s Secret and Bath & Body Works trade names. Intangible assets with indefinite lives are reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change. The following table provides detail regarding the composition of trade names as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Victoria's Secret	$	246	$	246	$	246
Bath & Body Works	165		165		165
Trade Names	$	411	$	411	$	411

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As of November 2, 2019, the Company performed a quantitative interim impairment assessment of the Victoria's Secret trade name. An interim assessment was performed in consideration of the negative performance of Victoria's Secret. To estimate the fair value of the Victoria's Secret trade name, the Company used the relief from royalty method under the income approach. The interim assessment concluded that the fair value of the Victoria's Secret trade name exceeded its carrying value.

9. Leases

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

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

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

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

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

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

The Company has provided residual value guarantees in connection with noncancelable operating leases of certain assets. For additional information, see Note 16, “Commitments and Contingencies.”

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



	Third Quarter		Year-to-Date
	(in millions)
Operating Lease Costs (a)	$	206	$	557
Variable Lease Costs	27		67
Short-term Lease Costs	9		19
Total Lease Cost	$	242	$	643

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(a)	As discussed in Note 7, “Property and Equipment, Net," the Company recognized operating lease asset impairment charges of $30 million during the third quarter of 2019. These charges are included as additional operating lease costs for the third quarter and year-to-date 2019.

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



Fiscal Year	(in millions)
2019	$	115
2020	720
2021	676
2022	605
2023	546
Thereafter	1,907
Total Lease Payments	$	4,569
Less: Interest	(1,001		)
Present Value of Operating Lease Liabilities	$	3,568

As of November 2, 2019, the Company has additional operating lease commitments that have not yet commenced of approximately $49 million.

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



Weighted Average Remaining Lease Term (years)	7.4
Weighted Average Discount Rate	6.2	%

Year-to-date 2019, the Company paid $528 million for operating lease liabilities recorded on the balance sheet. These payments are included within the Operating Activities section of the 2019 Consolidated Statement of Cash Flows.

Year-to-date 2019, the Company obtained $248 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 third quarter and year-to-date 2018:



	Third Quarter		Year-to-Date
	(in millions)
Store Rent:
Fixed Minimum	$	167	$	500
Contingent	15		45
Total Store Rent	182		545
Office, Equipment and Other	25		69
Total Rent Expense	$	207	$	614

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



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

_______________


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

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Finance Leases

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

The Company recorded $23 million and $28 million of finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the November 2, 2019 and November 3, 2018 Consolidated Balance Sheets, respectively. Additionally, the Company recorded finance lease liabilities of $8 million and $8 million in Accrued Expenses and Other and $15 million and $21 million in Other Long-term Liabilities, on the November 2, 2019 and November 3, 2018 Consolidated Balance Sheets, respectively.

Asset Retirement Obligations

The Company has asset retirement obligations related to certain company-owned 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 $22 million as of November 2, 2019 and $17 million as of November 3, 2018. These liabilities are included in Other Long-term Liabilities on the Consolidated Balance Sheets.

10. 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 $112 million as of November 2, 2019 and $89 million as of February 2, 2019 and November 3, 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.

The Company received cash distributions of $5 million and $15 million from certain of its Easton investments year-to-date 2019 and 2018, respectively, which are included within Investing Activities of the Consolidated Statements of Cash Flows.

11. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events.

For the third quarter of 2019, the Company’s effective tax rate was 9.1% compared to (3.9%) in the third quarter of 2018. The third quarter rates were lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate no tax benefit for certain foreign subsidiaries.

For year-to-date 2019, the Company’s effective tax rate was 0.4% compared to 29.0% year-to-date 2018. The 2019 year-to-date rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate no tax benefit for certain foreign subsidiaries. The 2018 year-to-date rate was higher than the Company's estimated federal and state statutory rate primarily due to losses related to certain foreign subsidiaries.

Income taxes paid were $27 million and $40 million for the third quarter of 2019 and 2018, respectively. Income taxes paid were $208 million and $306 million for year-to-date 2019 and 2018, respectively.

Uncertain Tax Positions

The Company had unrecognized tax benefits of $114 million as of February 2, 2019, of which $104 million, if recognized, would reduce the effective income tax rate. Through November 2, 2019, the Company had a net decrease to gross unrecognized tax benefits of $24 million, primarily due to the resolution of certain tax matters. The changes to the unrecognized tax benefits resulted in an $18 million benefit to the Company’s Provision for Income Taxes year-to-date.

Of the total unrecognized tax benefits as of November 2, 2019, it is reasonably possible that $66 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.

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12. 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 November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019			February 2, 2019			November 3, 2018
	(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	991		$	990		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	487			—			—
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	275			273			273
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	—			337			337
Secured Revolving Facility	—			—			85
Secured Foreign Facilities	95			91			94
Total Senior Debt with Subsidiary Guarantee	$	4,841		$	5,106		$	5,192
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	298			297			297
Unsecured Foreign Facilities	65			60			33
Total Senior Debt	$	711		$	705		$	678
Total	$	5,552		$	5,811		$	5,870
Current Debt	(75		)	(72		)	(56		)
Total Long-term Debt, Net of Current Portion	$	5,477		$	5,739		$	5,814

Issuance of Notes

In June 2019, the Company issued $500 million of 7.50% notes due in June 2029 ("2029 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's 100% owned subsidiaries (the “Guarantors”). The proceeds from the issuance were $486 million, which were net of discounts and issuance costs of $14 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the November 2, 2019 Consolidated Balance Sheet.

Repurchases of Notes

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

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

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 ("2027 Notes") 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

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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 Facility

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

In August 2019, the Company entered into an amendment and restatement (“Amendment”) of the Secured Revolving Facility. The Amendment maintained the aggregate availability under the Secured Revolving Facility at $1 billion and extended the expiration date from May 2022 to August 2024. The Amendment also raised 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.

The Company incurred fees related to the Amendment of $5 million, which were capitalized and recorded in Other Assets on the November 2, 2019 Consolidated Balance Sheet and are being amortized over the remaining term of the Secured Revolving Facility.

As of November 2, 2019, the Secured Revolving Facility fees related to committed and unutilized amounts were 0.25% per annum, and the fees related to outstanding letters of credit were 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the London Interbank Offered Rate (“LIBOR”) plus 1.50% per annum. The interest rate on outstanding foreign-denominated borrowings was the applicable benchmark rate plus 1.50% per annum.

The Secured Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.50 to 1.00 and (b) no default or event of default exists. As of November 2, 2019, the Company was in compliance with both of its financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.50 to 1.00.

As of November 2, 2019, there were no borrowings outstanding under the Secured Revolving Facility.

The Secured Revolving Facility supports the Company’s letter of credit program. The Company had $10 million of outstanding letters of credit as of November 2, 2019 that reduced its availability under the Secured Revolving Facility.

Secured Foreign Facilities

The Company and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities ("Secured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $150 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, the Company borrowed $16 million and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between December 2019 and August 2024. As of November 2, 2019, borrowings of $10 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.

Unsecured Foreign Facilities

The Company guarantees unsecured revolving and term loan bank facilities ("Unsecured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $87 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, the Company borrowed $20 million and made payments of $13 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $73 million. Borrowings on the Unsecured Foreign Facilities mature between November 2019 and January 2020. As of November 2, 2019, borrowings of $65 million are included within Current Debt on the Consolidated Balance Sheet.

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13. 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 (Loss).

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 November 2, 2019.

The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Notional Amount	$	130	$	147	$	198

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 November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Other Current Assets	$	1	$	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 third quarter and year-to-date 2019 and 2018:



	Third Quarter					Year-to-Date
	2019			2018		2019			2018
	(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income	$	(2	)	$	1	$	2		$	11
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense	(1		)	—		(4		)	3

The Company estimates that $1 million of net gains included in accumulated other comprehensive income as of November 2, 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.

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14. Fair Value Measurements

The following table provides a summary of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of November 2, 2019, February 2, 2019 and November 3, 2018:



	Level 1		Level 2		Level 3		Total
	(in millions)
As of November 2, 2019
Assets:
Cash and Cash Equivalents	$	340	$	—	$	—	$	340
Marketable Equity Securities	1		—		—		1
Foreign Currency Cash Flow Hedges	—		1		—		1
Liabilities:
Foreign Currency Cash Flow Hedges	—		1		—		1
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 November 3, 2018
Assets:
Cash and Cash Equivalents	$	348	$	—	$	—	$	348
Marketable Equity Securities	9		—		—		9
Foreign Currency Cash Flow Hedges	—		3		—		3

The Company's Level 1 fair value measurements use unadjusted quoted prices in active markets for identical assets. The Company's marketable equity securities are classified as Level 1 fair value measurements as they are traded with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. During year-to-date 2019, the Company received cash proceeds of $9 million related to sales of its marketable equity securities, which are included within Investing Activities of the 2019 Consolidated Statement of Cash Flows.

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 November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019		February 2, 2019		November 3, 2018
	(in millions)
Principal Value	$	5,458	$	5,722	$	5,722
Fair Value, Estimated (a)	5,156		5,340		5,301

_______________


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

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15. Comprehensive Income

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



	Foreign Currency Translation			Cash Flow Hedges			Accumulated Other Comprehensive Income
	(in millions)
Balance as of February 2, 2019	$	57		$	2		$	59
Other Comprehensive Income (Loss) Before Reclassifications	(5		)	2			(3		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			(4		)	(4		)
Tax Effect	—			1			1
Current-period Other Comprehensive Income (Loss)	(5		)	(1		)	(6		)
Balance as of November 2, 2019	$	52		$	1		$	53

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



	Foreign Currency Translation			Cash Flow Hedges			Marketable Equity Securities			Accumulated Other Comprehensive Income
	(in millions)
Balance as of February 3, 2018	$	32		$	(10	)	$	2		$	24
Amount reclassified to Retained Earnings upon adoption of ASC 321, Investments - Equity Securities	—			—			(2		)	(2		)
Balance as of February 4, 2018	32			(10		)	—			22
Other Comprehensive Income (Loss) Before Reclassifications	(24		)	11			—			(13		)
Amounts Reclassified from Accumulated Other Comprehensive Income	—			3			—			3
Tax Effect	—			(1		)	—			(1		)
Current-period Other Comprehensive Income (Loss)	(24		)	13			—			(11		)
Balance as of November 3, 2018	$	8		$	3		$	—		$	11

16. 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 deadline for the lead plaintiff to file an amended complaint is December 20, 2019. The Company views this lawsuit as meritless and intends to defend against this lawsuit vigorously.

La Senza

In connection with the sale of La Senza in the fourth quarter of 2018, certain of the Company's subsidiaries have remaining contingent obligations of $44 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These 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. As part of the sale, a liability of $5 million was recorded for these obligations. During the third quarter of 2019, an additional reserve of $19 million was recorded related to these obligations. This liability is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.

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Additionally, the Company has certain other contingent obligations related to La Senza for a period of time. A reserve of $17 million was recorded during the third quarter of 2019 related to these obligations, which is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.

Other

In connection with the disposition of a certain other business, the Company has remaining guarantees of $5 million related to lease payments under the current terms of a noncancelable lease expiring in 2021, which may remain in effect if the term is extended. The Company has not recorded a liability with respect to this guarantee obligation as of November 2, 2019, February 2, 2019 or November 3, 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 to the lessor if the leased assets cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The leases expire at various dates through 2021, and the total amount of the guarantees is $94 million. The Company recorded a liability of $11 million as of November 2, 2019 and February 2, 2019, and $3 million as of November 3, 2018 related to these guarantee obligations. This liability is included in Current Operating Lease Liabilities on the November 2, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and November 3, 2018 Consolidated Balance Sheets.

17. 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 $19 million for the third quarter of 2019 and $18 million for the third quarter of 2018. Total expense recognized related to the qualified plan was $58 million for year-to-date 2019 and $56 million for year-to-date 2018.

The non-qualified plan is an unfunded plan, which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount, which the Company does not match. Associates’ accounts are credited with interest using a fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors prior to the beginning of each year. Associate contributions and the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only. The remaining vested portion of associates’ accounts in the plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years. Total expense recognized related to the non-qualified plan was $8 million for the third quarter of 2019 and $7 million for the third quarter of 2018. Total expense recognized related to the non-qualified plan was $20 million for year-to-date 2019 and $18 million for year-to-date 2018.

18. Segment Information

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

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

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

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


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


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


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

Other 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 third quarter and year-to-date 2019 and 2018:



	Victoria’s Secret			Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total
	(in millions)
2019
Third Quarter:
Net Sales	$	1,412		$	1,064	$	134		$	67		$	2,677
Operating Income (Loss) (a)	(122		)	196		(215		)	(10		)	$	(151	)
Year-to-Date:
Net Sales	$	4,529		$	2,996	$	423		$	259		$	8,207
Operating Income (Loss) (a)	(73		)	531		(220		)	(61		)	177
2018
Third Quarter:
Net Sales	$	1,529		$	956	$	134		$	156		$	2,775
Operating Income (Loss) (b)	(36		)	178		(42		)	(46		)	54
Year-to-Date:
Net Sales	$	4,843		$	2,680	$	415		$	447		$	8,385
Operating Income (Loss) (b)	162			470		(56		)	(139		)	437

_______________


(a)	Victoria's Secret and Victoria's Secret and Bath & Body Works International includes store asset impairment charges of $41 million and $177 million, respectively. Additionally, Victoria's Secret and Bath & Body Works International includes a goodwill impairment charge of $30 million. For additional information see Note 7, “Property and Equipment, Net" and Note 8, "Goodwill and Trade Names."


(b)	Victoria's Secret and Victoria's Secret and Bath & Body Works International includes store asset impairment charges of $50 million and $31 million, respectively, and Other includes Henri Bendel closure costs of $20 million. For additional information see Note 7, “Property and Equipment, Net" and Note 5, “Restructuring Activities."

The Company's international net sales include sales from company-owned stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales across all segments totaled $318 million and $387 million for the third quarter of 2019 and 2018, respectively. The Company's international net sales across all segments totaled $1.024 billion and $1.146 billion for year-to-date 2019 and 2018, respectively.

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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 November 2, 2019, February 2, 2019 and November 3, 2018 and the Condensed Consolidating Statements of Income (Loss), Comprehensive Income (Loss) and Cash Flows for the periods ended November 2, 2019 and November 3, 2018.

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L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)



	November 2, 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	186		$	154	$	—		$	340
Accounts Receivable, Net	—			191			104		—			295
Inventories	—			1,864			168		—			2,032
Other	9			53			197		—			259
Total Current Assets	9			2,294			623		—			2,926
Property and Equipment, Net	—			1,823			748		—			2,571
Operating Lease Assets	—			2,587			543		—			3,130
Goodwill	—			1,318			—		—			1,318
Trade Names	—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,095			20,095			2,835		(27,025		)	—
Deferred Income Taxes	—			9			54		—			63
Other Assets	130			10			700		(629		)	211
Total Assets	$	4,234		$	28,547		$	5,503	$	(27,654	)	$	10,630
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	1		$	576		$	447	$	—		$	1,024
Accrued Expenses and Other	69			587			324		—			980
Current Debt	—			—			75		—			75
Current Operating Lease Liabilities	—			377			83		—			460
Income Taxes	—			—			4		—			4
Total Current Liabilities	70			1,540			933		—			2,543
Deferred Income Taxes	1			(41		)	286		—			246
Long-term Debt	5,392			615			85		(615		)	5,477
Long-term Operating Lease Liabilities	—			2,579			529		—			3,108
Other Long-term Liabilities	62			397			49		(14		)	494
Total Equity (Deficit)	(1,291		)	23,457			3,621		(27,025		)	(1,238		)
Total Liabilities and Equity (Deficit)	$	4,234		$	28,547		$	5,503	$	(27,654	)	$	10,630

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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

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L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)



	November 3, 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	167		$	181	$	—		$	348
Accounts Receivable, Net	—			212			109		—			321
Inventories	—			1,700			263		—			1,963
Other	15			165			121		—			301
Total Current Assets	15			2,244			674		—			2,933
Property and Equipment, Net	—			2,019			915		—			2,934
Goodwill	—			1,318			30		—			1,348
Trade Names	—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,396			19,442			2,386		(26,224		)	—
Deferred Income Taxes	—			9			11		—			20
Other Assets	127			14			683		(641		)	183
Total Assets	$	4,538		$	25,457		$	4,699	$	(26,865	)	$	7,829
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	—		$	585		$	475	$	—		$	1,060
Accrued Expenses and Other	62			583			373		—			1,018
Current Debt	—			—			56		—			56
Income Taxes	—			—			8		—			8
Total Current Liabilities	62			1,168			912		—			2,142
Deferred Income Taxes	(2		)	(43		)	279		—			234
Long-term Debt	5,743			627			71		(627		)	5,814
Other Long-term Liabilities	58			810			97		(14		)	951
Total Equity (Deficit)	(1,323		)	22,895			3,340		(26,224		)	(1,312		)
Total Liabilities and Equity (Deficit)	$	4,538		$	25,457		$	4,699	$	(26,865	)	$	7,829

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L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

(in millions)

(Unaudited)



	Third Quarter 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,583		$	887		$	(793	)	$	2,677
Costs of Goods Sold, Buying and Occupancy	—			(1,761		)	(887		)	712			(1,936		)
Gross Profit	—			822			—			(81		)	741
General, Administrative and Store Operating Expenses	(1		)	(831		)	(118		)	58			(892		)
Operating Income (Loss)	(1		)	(9		)	(118		)	(23		)	(151		)
Interest Expense	(90		)	(23		)	(2		)	23			(92		)
Other Income (Loss)	—			(16		)	(18		)	—			(34		)
Income (Loss) Before Income Taxes	(91		)	(48		)	(138		)	—			(277		)
Provision (Benefit) for Income Taxes	—			(4		)	(21		)	—			(25		)
Equity in Earnings (Loss), Net of Tax	(161		)	(176		)	(55		)	392			—
Net Income (Loss)	$	(252	)	$	(220	)	$	(172	)	$	392		$	(252	)

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Third Quarter 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.
Net Income (Loss)	$	(252	)	$	(220	)	$	(172	)	$	392	$	(252	)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—			—			6			—		6
Unrealized Gain (Loss) on Cash Flow Hedges	—			—			(2		)	—		(2		)
Total Other Comprehensive Income (Loss), Net of Tax	—			—			4			—		4
Total Comprehensive Income (Loss)	$	(252	)	$	(220	)	$	(168	)	$	392	$	(248	)

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L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

(in millions)

(Unaudited)



	Third Quarter 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,644		$	965		$	(834	)	$	2,775
Costs of Goods Sold, Buying and Occupancy	—			(1,786		)	(838		)	777			(1,847		)
Gross Profit	—			858			127			(57		)	928
General, Administrative and Store Operating Expenses	(2		)	(785		)	(127		)	40			(874		)
Operating Income (Loss)	(2		)	73			—			(17		)	54
Interest Expense	(94		)	(19		)	—			17			(96		)
Other Income (Loss)	—			2			(1		)	—			1
Income (Loss) Before Income Taxes	(96		)	56			(1		)	—			(41		)
Provision (Benefit) for Income Taxes	1			(1		)	2			—			2
Equity in Earnings (Loss), Net of Tax	54			(92		)	(103		)	141			—
Net Income (Loss)	$	(43	)	$	(35	)	$	(106	)	$	141		$	(43	)

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Third Quarter 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.
Net Income (Loss)	$	(43	)	$	(35	)	$	(106	)	$	141	$	(43	)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—			—			(2		)	—		(2		)
Unrealized Gain (Loss) on Cash Flow Hedges	—			—			1			—		1
Total Other Comprehensive Income (Loss), Net of Tax	—			—			(1		)	—		(1		)
Total Comprehensive Income (Loss)	$	(43	)	$	(35	)	$	(107	)	$	141	$	(44	)

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L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

(in millions)

(Unaudited)



	Year-to-Date 2019
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	7,831		$	2,407		$	(2,031	)	$	8,207
Costs of Goods Sold, Buying and Occupancy	—			(5,275		)	(2,070		)	1,795			(5,550		)
Gross Profit	—			2,556			337			(236		)	2,657
General, Administrative and Store Operating Expenses	(9		)	(2,345		)	(293		)	167			(2,480		)
Operating Income (Loss)	(9		)	211			44			(69		)	177
Interest Expense	(280		)	(70		)	(5		)	69			(286		)
Other Income (Loss)	(40		)	(5		)	(21		)	—			(66		)
Income (Loss) Before Income Taxes	(329		)	136			18			—			(175		)
Provision (Benefit) for Income Taxes	(8		)	2			5			—			(1		)
Equity in Earnings (Loss), Net of Tax	147			82			80			(309		)	—
Net Income (Loss)	$	(174	)	$	216		$	93		$	(309	)	$	(174	)

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Year-to-Date 2019
	L Brands, Inc.			Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	(174	)	$	216	$	93		$	(309	)	$	(174	)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—			—		(5		)	—			(5		)
Unrealized Gain (Loss) on Cash Flow Hedges	—			—		2			—			2
Reclassification of Cash Flow Hedges to Earnings	—			—		(3		)	—			(3		)
Total Other Comprehensive Income (Loss), Net of Tax	—			—		(6		)	—			(6		)
Total Comprehensive Income (Loss)	$	(174	)	$	216	$	87		$	(309	)	$	(180	)

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L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)

(in millions)

(Unaudited)



	Year-to-Date 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	7,907		$	2,555		$	(2,077	)	$	8,385
Costs of Goods Sold, Buying and Occupancy	—			(5,243		)	(2,157		)	1,946			(5,454		)
Gross Profit	—			2,664			398			(131		)	2,931
General, Administrative and Store Operating Expenses	(8		)	(2,228		)	(354		)	96			(2,494		)
Operating Income (Loss)	(8		)	436			44			(35		)	437
Interest Expense	(288		)	(37		)	(5		)	38			(292		)
Other Income (Loss)	—			8			(7		)	—			1
Income (Loss) Before Income Taxes	(296		)	407			32			3			146
Provision (Benefit) for Income Taxes	(1		)	32			11			—			42
Equity in Earnings (Loss), Net of Tax	399			340			294			(1,033		)	—
Net Income (Loss)	$	104		$	715		$	315		$	(1,030	)	$	104

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)



	Year-to-Date 2018
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	104	$	715	$	315		$	(1,030	)	$	104
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(24		)	—			(24		)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		10			—			10
Reclassification of Cash Flow Hedges to Earnings	—		—		3			—			3
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(11		)	—			(11		)
Total Comprehensive Income (Loss)	$	104	$	715	$	304		$	(1,030	)	$	93

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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	$	(345	)	$	(377	)	$	632		$	—		$	(90	)
Investing Activities:
Capital Expenditures	—			(245		)	(147		)	—			(392		)
Net Investments in Consolidated Affiliates	—			—			(137		)	137			—
Other Investing Activities	—			12			(28		)	—			(16		)
Net Cash Provided by (Used for) Investing Activities	—			(233		)	(312		)	137			(408		)
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	—			—			36			—			36
Repayments of Foreign Facilities	—			—			(21		)	—			(21		)
Dividends Paid	(249		)	—			—			—			(249		)
Tax Payments related to Share-based Awards	(12		)	—			—			—			(12		)
Financing Costs and Other	(6		)	(5		)	—			—			(11		)
Net Financing Activities and Advances to/from Consolidated Affiliates	925			(196		)	(592		)	(137		)	—
Net Cash Provided by (Used for) Financing Activities	345			(201		)	(577		)	(137		)	(570		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			(5		)	—			(5		)
Net Increase (Decrease) in Cash and Cash Equivalents	—			(811		)	(262		)	—			(1,073		)
Cash and Cash Equivalents, Beginning of Period	—			997			416			—			1,413
Cash and Cash Equivalents, End of Period	$	—		$	186		$	154		$	—		$	340

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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	$	(361	)	$	295		$	79		$	—		$	13
Investing Activities:
Capital Expenditures	—			(367		)	(194		)	—			(561		)
Net Investments in Consolidated Affiliates	—			—			(181		)	181			—
Other Investing Activities	—			6			17			—			23
Net Cash Provided by (Used for) Investing Activities	—			(361		)	(358		)	181			(538		)
Financing Activities:
Payments of Long-term Debt	(52		)	—			—			—			(52		)
Borrowing from Secured Revolving Facility	85			—			—			—			85
Borrowings from Foreign Facilities	—			—			110			—			110
Repayments of Foreign Facilities	—			—			(71		)	—			(71		)
Dividends Paid	(500		)	—			—			—			(500		)
Repurchases of Common Stock	(198		)	—			—			—			(198		)
Tax Payments related to Share-based Awards	(13		)	—			—			—			(13		)
Financing Costs and Other	(2		)	(2		)	—			—			(4		)
Net Financing Activities and Advances to/from Consolidated Affiliates	1,041			(929		)	69			(181		)	—
Net Cash Provided by (Used for) Financing Activities	361			(931		)	108			(181		)	(643		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			1			—			1
Net Increase (Decrease) in Cash and Cash Equivalents	—			(997		)	(170		)	—			(1,167		)
Cash and Cash Equivalents, Beginning of Period	—			1,164			351			—			1,515
Cash and Cash Equivalents, End of Period	$	—		$	167		$	181		$	—		$	348

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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 November 2, 2019 and November 3, 2018, and the related consolidated statements of income (loss), comprehensive income (loss), and total equity (deficit) for the thirteen and thirty-nine week periods ended November 2, 2019 and November 3, 2018, and the consolidated statements of cash flows for the thirty-nine week periods ended November 2, 2019 and November 3, 2018, 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, and the related consolidated statements of income, comprehensive income, total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 22, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 2, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

/s/ Ernst & Young LLP

Grandview Heights, Ohio

December 6, 2019

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SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

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

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


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


•	the seasonality of our business;


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


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


•	our ability to successfully expand internationally and related risks;


•	our independent franchise, license and wholesale partners;


•	our direct channel businesses;


•	our ability to protect our reputation and our brand images;


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


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


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


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


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


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


•	duties, taxes and other charges;


•	legal and regulatory matters;


•	volatility in currency exchange rates;


•	local business practices and political issues;


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


•	disruption due to labor disputes; and


•	changing expectations regarding product safety due to new legislation;


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


•	fluctuations in foreign currency exchange rates;


•	stock price volatility;


•	our ability to pay dividends and related effects;


•	our ability to maintain our credit rating;


•	our ability to service or refinance our debt;


•	shareholder activism matters;


•	our ability to retain key personnel;


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

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


•	fluctuations in product input costs;


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


•	fluctuations in energy costs;


•	increases in the costs of mailing, paper and printing;


•	claims arising from our self-insurance;


•	liabilities arising from divested businesses;


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


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


•	our ability to comply with regulatory requirements;


•	legal and compliance matters; and


•	tax, trade and other regulatory matters.

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


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

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

Executive Overview

In the third quarter of 2019, our operating income (loss) decreased $205 million to a loss of $151 million, and our operating income (loss) rate decreased to (5.6%) from 2.0%. Net sales decreased $98 million to $2.677 billion, comparable sales decreased 2% and comparable store sales decreased 3%. Our performance was mixed. At Victoria's Secret, net sales decreased 8%, and the operating loss, which includes store asset impairment charges of $41 million, increased $86 million. At Bath & Body Works, net sales increased 11%, and operating income increased $18 million. At Victoria's Secret and Bath & Body Works International, net sales were flat, and the operating loss, which includes store and goodwill impairment charges of $207 million, increased by $173 million. For additional information related to our third quarter 2019 financial performance, see “Results of Operations.” For additional information related to our impairment charges, see Note 7, “Property and Equipment, Net" and Note 8, "Goodwill and Trade Names" included in Item 1. Financial Statements.

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

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

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Adjusted Financial Information

In addition to our results provided in accordance with GAAP above and throughout this Form 10-Q, provided below are non-GAAP measurements, which present net income and earnings per share in 2019 and 2018 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.



	Third Quarter						Year-to-Date
(in millions, except per share amounts)	2019			2018			2019			2018
Detail of Special Items included in Operating Income (Loss)
Victoria's Secret Asset Impairment (a)	$	(248	)	$	(81	)	$	(248	)	$	(81	)
Henri Bendel Closure Costs (b)	—			(20		)	—			(20		)
Total Special Items included in Operating Income (Loss)	$	(248	)	$	(101	)	$	(248	)	$	(101	)

Detail of Special Items included in Other Income (Loss)
La Senza Charges (c)	$	(37	)	$	—		$	(37	)	$	—
Loss on Extinguishment of Debt (d)	—			—			(40		)	—
Total Special Items included in Other Income (Loss)	$	(37	)	$	—		$	(77	)	$	—

Detail of Special Items included in Provision (Benefit) for Income Taxes
Tax Effect of Special Items	$	27		$	13		$	37		$	13

Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income
Reported Operating Income (Loss)	$	(151	)	$	54		$	177		$	437
Special Items included in Operating Income (Loss)	248			101			248			101
Adjusted Operating Income	$	97		$	155		$	425		$	538

Reconciliation of Reported Net Income (Loss) to Adjusted Net Income
Reported Net Income (Loss)	$	(252	)	$	(43	)	$	(174	)	$	104
Special Items included in Net Income (Loss)	258			88			288			88
Adjusted Net Income	$	6		$	45		$	114		$	192

Reconciliation of Reported Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share
Reported Earnings (Loss) Per Diluted Share	$	(0.91	)	$	(0.16	)	$	(0.63	)	$	0.37
Special Items included in Earnings (Loss) Per Diluted Share	0.93			0.32			1.04			0.31
Adjusted Earnings Per Diluted Share	$	0.02		$	0.16		$	0.41		$	0.69

________________

(a)

We recognized a $248 million pre-tax impairment charge ($230 million after-tax) in the third quarter of 2019 and an $81 million pre-tax impairment charge ($73 million after-tax) in the third quarter of 2018 related to certain Victoria's Secret assets. For additional information see Note 7, “Property and Equipment, Net" and Note 8, "Goodwill and Trade Names" included in Item 1. Financial Statements.


(b)	In the third quarter of 2018, we recognized $20 million ($15 million after-tax) of closure costs related to the closure of the Henri Bendel business. For additional information see Note 5, “Restructuring Activities" included in Item 1. Financial Statements.

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(c)	In the third quarter of 2019, we recognized $37 million of pre-tax charges ($28 million after-tax) to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018. For additional information see Note 5, “Restructuring Activities" and Note 16, "Commitments and Contingencies" 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 12, "Long-term Debt and Borrowing Facilities" included in Item 1. Financial Statements.

Company-Owned Store Data

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



	Third Quarter						Year-to-Date
	2019		2018		% Change		2019		2018		% Change
Sales per Average Selling Square Foot
Victoria’s Secret U.S.	$	145	$	152	(5	%)	$	460	$	492	(7	%)
Bath & Body Works U.S.	190		182		4	%	546		520		5	%
Sales per Average Store (in thousands)
Victoria’s Secret U.S.	$	948	$	982	(4	%)	$	2,997	$	3,167	(5	%)
Bath & Body Works U.S.	497		466		7	%	1,421		1,328		7	%
Average Store Size (selling square feet)
Victoria’s Secret U.S.	6,542		6,454		1	%
Bath & Body Works U.S.	2,621		2,575		2	%
Total Selling Square Feet (in thousands)
Victoria’s Secret U.S.	6,973		7,216		(3	%)
Bath & Body Works U.S.	4,301		4,177		3	%

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



	Stores Operating at				Stores Operating at
	February 2, 2019	Opened	Closed		November 2, 2019
Victoria’s Secret U.S.	1,098	6	(38	)	1,066
Victoria’s Secret Canada	45	—	—		45
Total Victoria's Secret	1,143	6	(38	)	1,111
Bath & Body Works U.S.	1,619	34	(12	)	1,641
Bath & Body Works Canada	102	1	—		103
Total Bath & Body Works	1,721	35	(12	)	1,744
Victoria's Secret U.K. / Ireland	26	—	—		26
Victoria's Secret Beauty and Accessories	38	9	(5	)	42
Victoria's Secret Greater China	15	6	—		21
Total Victoria's Secret and Bath & Body Works International	79	15	(5	)	89
Total L Brands Stores	2,943	56	(55	)	2,944

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



	Stores Operating at				Stores Operating at
	February 3, 2018	Opened	Closed		November 3, 2018
Victoria’s Secret U.S.	1,124	1	(7	)	1,118
Victoria’s Secret Canada	46	—	(1	)	45
Total Victoria's Secret	1,170	1	(8	)	1,163
Bath & Body Works U.S.	1,592	47	(17	)	1,622
Bath & Body Works Canada	102	1	—		103
Total Bath & Body Works	1,694	48	(17	)	1,725
Victoria's Secret U.K. / Ireland	24	1	—		25
Victoria's Secret Beauty and Accessories	29	4	(3	)	30
Victoria's Secret Greater China	7	7	—		14
Total Victoria's Secret and Bath & Body Works International	60	12	(3	)	69
Henri Bendel	27	—	(4	)	23
La Senza Canada	119	—	(1	)	118
La Senza U.S.	5	6	—		11
Total L Brands Stores	3,075	67	(33	)	3,109

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		November 2, 2019
Victoria’s Secret Beauty & Accessories	383	20	(29	)	374
Victoria's Secret	56	15	—		71
Bath & Body Works	235	24	(4	)	255
Total	674	59	(33	)	700

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



	Stores Operating at				Stores Operating at
	February 3, 2018	Opened	Closed		November 3, 2018
Victoria’s Secret Beauty & Accessories	397	25	(25	)	397
Victoria's Secret	37	13	—		50
Bath & Body Works	185	35	(4	)	216
La Senza	194	2	(10	)	186
Total	813	75	(39	)	849

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Results of Operations

Third Quarter of 2019 Compared to Third Quarter of 2018

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 third quarter of 2019 in comparison to the third quarter of 2018:



							Operating Income (Loss) Rate
	2019			2018			2019		2018
Third Quarter	(in millions)
Victoria’s Secret	$	(122	)	$	(36	)	(8.7	%)	(2.3	%)
Bath & Body Works	196			178			18.4	%	18.6	%
Victoria’s Secret and Bath & Body Works International	(215		)	(42		)	(161.3	%)	(31.2	%)
Other (a)	(10		)	(46		)	(14.2	%)	(29.4	%)
Total Operating Income (Loss)	$	(151	)	$	54		(5.6	%)	2.0	%

_______________


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

For the third quarter of 2019, operating income (loss) decreased $205 million, to a loss of $151 million, and the operating income (loss) rate decreased to (5.6%) from 2.0%. The drivers of the operating income (loss) results are discussed in the following sections.

Net Sales

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



	2019		2018		% Change
Third Quarter	(in millions)
Victoria’s Secret Stores (a)	$	1,081	$	1,178	(8	%)
Victoria’s Secret Direct	331		351		(6	%)
Total Victoria’s Secret	1,412		1,529		(8	%)
Bath & Body Works Stores (a)	872		808		8	%
Bath & Body Works Direct	192		148		30	%
Total Bath & Body Works	1,064		956		11	%
Victoria’s Secret and Bath & Body Works International (b)	134		134		—	%
Other (c)	67		156		(57	%)
Total Net Sales	$	2,677	$	2,775	(4	%)

_______________


(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.

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



	Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total
Third Quarter	(in millions)
2018 Net Sales	$	1,529		$	956		$	134		$	156		$	2,775
Comparable Store Sales	(87		)	36			(13		)	—			(64		)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	(6		)	29			9			—			32
Divested/Closed Businesses	—			—			—			(77		)	(77		)
Foreign Currency Translation	(1		)	(1		)	(2		)	—			(4		)
Direct Channels	(19		)	44			(1		)	—			24
Private Label Credit Card	(4		)	—			—			—			(4		)
International Wholesale, Royalty and Other	—			—			7			(12		)	(5		)
2019 Net Sales	$	1,412		$	1,064		$	134		$	67		$	2,677

The following table compares the third quarter of 2019 comparable sales to the third quarter of 2018:



Third Quarter	2019		2018
Comparable Sales (Stores and Direct) (a)
Victoria's Secret (b)	(7	%)	(2	%)
Bath & Body Works (b)	9	%	13	%
Total Comparable Sales	(2	%)	4	%

Comparable Store Sales (a)
Victoria’s Secret (b)	(8	%)	(6	%)
Bath & Body Works (b)	5	%	10	%
Total Comparable Store Sales	(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. 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 third quarter of 2019, net sales decreased $117 million to $1.412 billion, comparable sales decreased 7%, and comparable store sales decreased 8%. Victoria's Secret Lingerie comparable sales decreased low-double digits, principally driven by a decline in bras, and partially as a result of a decrease in promotional activity. PINK comparable sales decreased in the mid-single digit range as a decline in apparel, principally driven by a decline in tops, was only partially offset by increases in intimate apparel, driven by growth in sport bras, bralettes and panties. Victoria's Secret Beauty comparable sales increased in the low-single digit range due to growth in prestige fragrance, driven by a strong launch of Bombshell Intense, the mist collection and PINK beauty.

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

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Bath & Body Works

For the third quarter of 2019, net sales increased $108 million to $1.064 billion, comparable sales increased 9%, and comparable store sales increased 5%. Net sales increased in all major categories including home fragrance, body care and soaps and sanitizers, which incorporated newness, innovation and fashion.

The increase in comparable sales was driven by increases in both traffic and conversion.

Victoria's Secret and Bath & Body Works International

For the third quarter of 2019, net sales remained flat at $134 million as the increases from new stores opened by our partners were offset by declines in the Victoria's Secret U.K. and Greater China businesses.

Other

For the third quarter of 2019, net sales decreased $89 million to $67 million due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, and a decrease in wholesale sales to our international partners.

Gross Profit

For the third quarter of 2019, our gross profit decreased $187 million to $741 million, and our gross profit rate (expressed as a percentage of net sales) decreased to 27.7% from 33.5%, primarily driven by the following:

Victoria's Secret

For the third quarter of 2019, the gross profit decrease was due to lower merchandise margin dollars related to the decrease in net sales, partially offset by a reduction in store asset impairment charges, from $50 million in the third quarter of 2018 to $41 million in the third quarter of 2019.

The gross profit rate decrease was driven by buying and occupancy deleverage on lower net sales and a decline in the merchandise margin rate due to sourcing cost concessions received from vendors in 2018.

Bath & Body Works

For the third quarter of 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.

The gross profit rate decrease was driven by a decline in the merchandise margin rate due to increases in supply chain and sourcing costs and the sales mix shift into the direct business, which has a lower merchandise margin rate than the stores channel.

Victoria's Secret and Bath & Body Works International

For the third quarter of 2019, the gross profit decrease was due to the increase in store asset impairment charges from $31 million in the third quarter of 2018 to $177 million in the third quarter of 2019, which were related to stores in Greater China, the U.K. and Ireland.

The gross profit (loss) rate decrease was driven by the increase in store asset impairment charges.

General, Administrative and Store Operating Expenses

For the third quarter of 2019, our general, administrative and store operating expenses increased $18 million to $892 million due to a $30 million goodwill impairment charge related to Greater China and higher selling expenses related to higher sales volume at Bath & Body Works, partially offset by declines due to the elimination of the La Senza and Henri Bendel businesses.

The general, administrative and store operating expense rate increased to 33.3% from 31.5% due to the goodwill impairment charge and deleverage on lower net sales.

Other Income and Expense

Interest Expense

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



Third Quarter	2019			2018
Average daily borrowings (in millions)	$	5,614		$	5,844
Average borrowing rate (in percentages)	6.6		%	6.6		%

For the third quarter of 2019, our interest expense decreased $4 million to $92 million due to lower average daily borrowings.

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Other Income (Loss)

For the third quarter of 2019, our other income (loss) decreased $35 million to a $34 million loss due to $37 million of charges to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018.

Provision for Income Taxes

For the third quarter of 2019, our effective tax rate was 9.1% compared to (3.9%) in the third quarter of 2018. The third quarter rates were lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate no tax benefit for certain foreign subsidiaries.

Results of Operations

Year-to-Date 2019 Compared to Year-to-Date 2018

Operating Income

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



							Operating Income (Loss) Rate
	2019			2018			2019		2018
Year-to-Date	(in millions)
Victoria’s Secret	$	(73	)	$	162		(1.6	%)	3.3	%
Bath & Body Works	531			470			17.7	%	17.5	%
Victoria’s Secret and Bath & Body Works International	(220		)	(56		)	(52.1	%)	(13.5	%)
Other (a)	(61		)	(139		)	(23.4	%)	(31.0	%)
Total Operating Income	$	177		$	437		2.2	%	5.2	%

_______________


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

For year-to-date 2019, operating income decreased $260 million, or 59%, to $177 million, and the operating income rate decreased to 2.2% from 5.2%. 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 in comparison to year-to-date 2018:



	2019		2018		% Change
Year-to-Date	(in millions)
Victoria’s Secret Stores (a)	$	3,462	$	3,778	(8	%)
Victoria’s Secret Direct	1,067		1,065		—	%
Total Victoria’s Secret	4,529		4,843		(6	%)
Bath & Body Works Stores (a)	2,469		2,281		8	%
Bath & Body Works Direct	527		399		32	%
Total Bath & Body Works	2,996		2,680		12	%
Victoria’s Secret and Bath & Body Works International (b)	423		415		2	%
Other (c)	259		447		(42	%)
Total Net Sales	$	8,207	$	8,385	(2	%)

_______________


(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.

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



	Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total
Year-to-Date	(in millions)
2018 Net Sales	$	4,843		$	2,680		$	415		$	447		$	8,385
Comparable Store Sales	(281		)	111			(28		)	—			(198		)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	(39		)	80			45			—			86
Divested/Closed Businesses	—			—			—			(222		)	(222		)
Foreign Currency Translation	(3		)	(3		)	(12		)	—			(18		)
Direct Channels	(2		)	128			4			—			130
Private Label Credit Card	11			—			—			—			11
International Wholesale, Royalty and Other	—			—			(1		)	34			33
2019 Net Sales	$	4,529		$	2,996		$	423		$	259		$	8,207

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



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

Comparable Store Sales (a)
Victoria’s Secret (b)	(8	%)	(5	%)
Bath & Body Works (b)	5	%	8	%
Total Comparable Store Sales	(3	%)	(1	%)

________

(a)


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

The results by segment are as follows:

Victoria's Secret

For year-to-date 2019, net sales decreased $314 million to $4.529 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 in the high-single digit range, due to declines in bras and apparel, driven by merchandise performance. Victoria's Secret Beauty comparable sales increased in the low-single digit range, as growth in accessories was partially offset by a decline in the lip business.

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

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Bath & Body Works

For year-to-date 2019, net sales increased $316 million to $2.996 billion, comparable sales increased 10%, and comparable store sales increased 5%. Net sales increased in all major categories including home fragrance, body care and soaps and sanitizers, which incorporated newness, innovation and fashion.

The increase in comparable sales was driven by increases in store conversion and digital traffic.

Victoria's Secret and Bath & Body Works International

For year-to-date 2019, net sales increased $8 million to $423 million due to the increase from new company-owned Victoria's Secret stores in Greater China, partially offset by declines in the Victoria's Secret International business.

Other

For year-to-date 2019, net sales decreased $188 million to $259 million due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increase in wholesale sales to our international partners.

Gross Profit

For year-to-date 2019, our gross profit decreased $274 million to $2.657 billion, and our gross profit rate (expressed as a percentage of net sales) decreased to 32.4% from 35.0%, primarily driven by the following:

Victoria's Secret

For year-to-date 2019, the gross profit decrease was primarily due to lower merchandise margin dollars related to the decrease in net sales and increased promotional activity to drive traffic and clear inventory, partially offset by a reduction in store asset impairment charges from $50 million year-to-date 2018 to $41 million year-to-date 2019.

The gross profit rate decrease was driven by a decline in the merchandise margin rate due to increased promotional activity and sourcing cost concessions received from vendors in 2018, 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.

Victoria's Secret and Bath & Body Works International

For year-to-date 2019, the gross profit decrease was due to the increase in store asset impairment charges from $31 million year-to-date 2018 to $177 million year-to-date 2019 related to stores in Greater China, the U.K., and Ireland partially offset by higher merchandise margin dollars related to the increase in net sales in Greater China.

The gross profit (loss) rate decrease was driven by the increase in store asset impairment charges.

General, Administrative and Store Operating Expenses

For year-to-date 2019, our general, administrative and store operating expenses decreased $14 million to $2.480 billion due to the elimination of the La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret, partially offset by higher selling expenses related to higher sales volume at Bath & Body Works and a $30 million goodwill impairment charge related to Greater China.

The general, administrative and store operating expense rate increased to 30.2% from 29.7% due to deleverage on lower net sales and the goodwill impairment charge.

Other Income and Expense

Interest Expense

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



Year-to-Date	2019			2018
Average daily borrowings (in millions)	$	5,761		$	5,843
Average borrowing rate (in percentages)	6.6		%	6.6		%

For year-to-date 2019, our interest expense decreased $6 million to $286 million due to lower average daily borrowings.

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Other Income (Loss)

For year-to-date 2019, our other income (loss) decreased $67 million to a $66 million loss due to a $40 million pre-tax loss associated with the early extinguishment of $764 million in outstanding notes maturing between 2020 and 2022 and $37 million of charges to increase reserves related to ongoing contingent obligations for the La Senza business, which was sold in the fourth quarter of 2018.

Provision for Income Taxes

For year-to-date 2019, our effective tax rate was 0.4% compared to 29.0% year-to-date 2018. The 2019 year-to-date rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate no tax benefit for certain foreign subsidiaries. The 2018 year-to-date rate was higher than the Company's estimated federal and state statutory rate primarily due to losses related to certain foreign subsidiaries.

FINANCIAL CONDITION

Liquidity and Capital Resources

Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $149 million as of November 2, 2019.

Working Capital and Capitalization

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

The following table provides a summary of our working capital position and capitalization as of November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019			February 2, 2019			November 3, 2018
	(in millions)
Net Cash Provided by (Used for) Operating Activities (a)	$	(90	)	$	1,377		$	13
Capital Expenditures (a)	392			629			561
Working Capital (b)	383			1,274			791
Capitalization:
Long-term Debt	5,477			5,739			5,814
Shareholders’ Equity (Deficit)	(1,242		)	(869		)	(1,314		)
Total Capitalization	$	4,235		$	4,870		$	4,500
Amounts Available Under Credit Agreements (c)	$	990		$	991		$	991

_______________


(a)	The February 2, 2019 amounts represent a fifty-two-week period, and the November 2, 2019 and November 3, 2018 amounts represent thirty-nine-week periods.


(b)	The November 2, 2019 amount includes Current Operating Lease Liabilities as a result of our adoption of ASC 842, Leases, in the first quarter of 2019.


(c)	Letters of credit issued reduce our availability under the Secured Revolving Facility. We had outstanding letters of credit that reduced our availability under the Secured Revolving Facility of $10 million as of November 2, 2019, and $9 million as of February 2, 2019 and November 3, 2018.

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Cash Flow

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



	Year-to-Date
	2019			2018
	(in millions)
Cash and Cash Equivalents, Beginning of Period	$	1,413		$	1,515
Net Cash Flows Provided by (Used for) Operating Activities	(90		)	13
Net Cash Flows Used for Investing Activities	(408		)	(538		)
Net Cash Flows Used for Financing Activities	(570		)	(643		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	(5		)	1
Net Decrease in Cash and Cash Equivalents	(1,073		)	(1,167		)
Cash and Cash Equivalents, End of Period	$	340		$	348

Operating Activities

Net cash used for operating activities in 2019 was $90 million, including a net loss of $174 million. Net loss included depreciation of $443 million, asset impairment charges of $248 million, share-based compensation expense of $67 million, loss on extinguishment of debt of $40 million and La Senza charges of $37 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 Inventories (and related increases in Accounts Payable), as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year. In addition, our Income Taxes Payable decrease was due to seasonal tax payments.

Net cash provided by operating activities in 2018 was $13 million, including net income of $104 million. Net income included depreciation of $444 million, asset impairment charges of $81 million and share-based compensation expense of $75 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 Inventories (and related increases in Accounts Payable). In addition, our Income Taxes Payable decrease was due to seasonal tax payments.

Investing Activities

Net cash used for investing activities in 2019 was $408 million consisting primarily of capital expenditures of $392 million. The capital expenditures included $222 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and logistics to support our digital businesses and other retail capabilities.

Net cash used for investing activities in 2018 was $538 million consisting primarily of capital expenditures of $561 million partially offset by a $15 million return of capital from certain of our Easton investments. The capital expenditures included $452 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 $500 million for capital expenditures in 2019 relating to remodeling and improving existing stores and opening new stores, as well as investments in technology and logistics for initiatives supporting our direct businesses and other retail capabilities.

Financing Activities

Net cash used for financing activities in 2019 was $570 million consisting primarily of $799 million in payments for the early extinguishment of outstanding notes maturing between 2020 and 2022, quarterly dividend payments of $0.90 per share, or $249 million, and tax payments related to share-based awards of $12 million, partially offset by the net proceeds of $486 million from the issuance of the 2029 Notes and $15 million of net new borrowings under our Foreign Facilities.

Net cash used for financing activities in 2018 was $643 million consisting primarily of quarterly dividend payments of $1.80 per share, or $500 million, payments for repurchases of common stock of $198 million, payment of long-term debt related to our exchange of notes of $52 million and tax payments related to share-based awards of $13 million, partially offset by an $85 million borrowing from our Secured Revolving Facility and $39 million of net new borrowings under our Foreign Facilities.

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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.

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

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:



	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		4,852	$	171	$	35.29
September 2017	250			527	25		$	46.98
Total				5,379	$	196

In March 2018, our Board of Directors approved a $250 million 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 November 2, 2019.

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 and share repurchase programs.

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



	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2019
Third Quarter	$	0.30	$	83
Second Quarter	0.30		83
First Quarter	0.30		83
Total	$	0.90	$	249
2018
Third Quarter	$	0.60	$	165
Second Quarter	0.60		167
First Quarter	0.60		168
Total	$	1.80	$	500

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Long-term Debt and Borrowing Facilities

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



	November 2, 2019			February 2, 2019			November 3, 2018
	(in millions)
Senior Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	991		$	990		$	990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	857			952			951
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	693			693			693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	498			498			498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)	496			496			495
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")	487			—			—
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	449			776			776
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)	275			273			273
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	—			337			337
Secured Revolving Facility	—			—			85
Secured Foreign Facilities	95			91			94
Total Senior Debt with Subsidiary Guarantee	$	4,841		$	5,106		$	5,192
Senior Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	298			297			297
Unsecured Foreign Facilities	65			60			33
Total Senior Debt	$	711		$	705		$	678
Total	$	5,552		$	5,811		$	5,870
Current Debt	(75		)	(72		)	(56		)
Total Long-term Debt, Net of Current Portion	$	5,477		$	5,739		$	5,814

Issuance of Notes

In June 2019, we issued $500 million of 7.50% notes due in June 2029. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by certain of our 100% owned subsidiaries (the “Guarantors”). The proceeds from the issuance were $486 million, which were net of discounts and issuance costs of $14 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the November 2, 2019 Consolidated Balance Sheet.

Repurchases of Notes

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

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

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.

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Secured Revolving Facility

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

In August 2019, we entered into an amendment and restatement of the Secured Revolving Facility. The Amendment maintained the aggregate availability under the Secured Revolving Facility at $1 billion and extended the expiration date from May 2022 to August 2024. The Amendment also raised 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.

We incurred fees related to the Amendment of $5 million, which were capitalized and recorded in Other Assets on the November 2, 2019 Consolidated Balance Sheet and are being amortized over the remaining term of the Secured Revolving Facility.

As of November 2, 2019, the Secured Revolving Facility fees related to committed and unutilized amounts were 0.25% per annum, and the fees related to outstanding letters of credit were 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the LIBOR plus 1.50% per annum. The interest rate on outstanding foreign-denominated borrowings was the applicable benchmark rate plus 1.50% per annum.

The Secured Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.50 to 1.00 and (b) no default or event of default exists. As of November 2, 2019, we were in compliance with both of our financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.50 to 1.00.

As of November 2, 2019, there were no borrowings outstanding under the Secured Revolving Facility.

The Secured Revolving Facility supports our letter of credit program. We had $10 million of outstanding letters of credit as of November 2, 2019 that reduced our availability under the Secured Revolving Facility.

Secured Foreign Facilities

We and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $150 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, we borrowed $16 million and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between December 2019 and August 2024. As of November 2, 2019, borrowings of $10 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.

Unsecured Foreign Facilities

We guarantee unsecured revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $87 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019, we borrowed $20 million and made payments of $13 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $73 million. Borrowings on the Unsecured Foreign Facilities mature between November 2019 and January 2020. As of November 2, 2019, borrowings of $65 million are included within Current Debt on the Consolidated Balance Sheet.

Credit Ratings

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

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The following table provides our credit ratings as of November 2, 2019:



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

Subsequent to November 2, 2019, S&P downgraded our Corporate and Senior Unsecured Debt with Subsidiary Guarantee ratings to BB-, our Senior Unsecured Debt rating to B and updated our outlook to Stable.

Contingent Liabilities and Contractual Obligations

La Senza

In connection with the sale of La Senza in the fourth quarter of 2018, certain of our subsidiaries have remaining contingent obligations of $44 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These 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. As part of the sale, a liability of $5 million was recorded for these obligations. During the third quarter of 2019, an additional reserve of $19 million was recorded related to these obligations. This liability is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.

Additionally, we have certain other contingent obligations related to La Senza for a period of time. A reserve of $17 million was recorded during the third quarter of 2019 related to these obligations, which is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.

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 November 2, 2019, February 2, 2019 or November 3, 2018 as we concluded that payments under this guarantee were not probable.

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

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

In February 2016, the FASB issued ASC 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheets but recognize expenses on their income statements in a manner similar to legacy accounting. The standard also requires enhanced quantitative 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.

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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 (Loss) or Cash Flows.

Hedging Activities

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

Goodwill

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We adopted this standard in the third quarter of 2019 and performed our interim goodwill impairment assessment in accordance with ASU 2017-04.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the use of a forward-looking expected loss impairment model for accounts receivable and certain other financial instruments. This guidance will be effective beginning in fiscal 2020, with early adoption permitted. We are currently evaluating the impact of this standard.

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 Annual Report on Form 10-K, other than the adoption of ASC 842, Leases, and ASU 2017-04, Simplifying the Test for Goodwill Impairment.

Valuation of Long-Lived Assets

Long-Lived Store Assets

Long-lived store assets, which includes leasehold improvements, store-related assets and operating leases (subsequent to the adoption of ASC 842, Leases), are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of 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, we recognize 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. An individual asset within an asset group is not impaired below its estimated fair value. For operating lease assets, we determine the fair value of the assets by comparing the

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contractual rent payments to estimated market rental rates. These fair value measurements qualify as level 3 measurements in the fair value hierarchy.

In the third quarter of 2019, we concluded that the negative operating results for certain of our Victoria's Secret stores were an indicator of potential impairment of the related store asset groups. We determined that the estimated undiscounted future cash flows were less than the carrying values and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly, we recognized a loss equal to the difference between the carrying value of an asset group and its estimated fair value but did not impair any individual store asset below its estimated fair value. For leasehold improvements and store-related assets, we recognized impairment charges of $188 million. Impairment charges of $151 million related to stores in Greater China, the U.K. and Ireland, and impairment charges of $37 million related to stores in the U.S. and Canada. For operating lease assets, we recognized impairment charges of $30 million. Impairment charges of $26 million related to stores in the U.K., and impairment charges of $4 million related to stores in the U.S.

In total, we recognized impairment charges of $218 million for long-lived store assets, which are included in Costs of Goods Sold, Buying & Occupancy in the 2019 Consolidated Statements of Income (Loss). Impairment charges of $177 million, related to store assets in Greater China, the U.K. and Ireland, were recorded within the Victoria's Secret and Bath & Body Works International segment. Impairment charges of $41 million, related to store assets in the U.S. and Canada, were recorded within the Victoria's Secret segment.

Our fair value estimates incorporated significant assumptions and judgments including, but not limited to, estimated future cash flows, discount rates and market rental rates. The use of different assumptions or judgments in our assessment could materially increase or decrease the fair value of our store assets and, accordingly, could materially increase or decrease any related impairment charge. Further sustained declines in our business performance could result in a material impairment charge in a future period.

Goodwill

Goodwill is reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change. We have the option to either first perform a qualitative assessment to determine whether it is more likely than not that each reporting unit's fair value is less than its carrying value (including goodwill), or to proceed directly to the quantitative assessment which requires a comparison of the reporting unit's fair value to its carrying value (including goodwill). If we determine that the fair value of a reporting unit is less than its carrying value, we recognize an impairment charge equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. Our reporting units are determined in accordance with the provisions of ASC 350, Intangibles - Goodwill and Other. Our reporting units that have goodwill are Victoria's Secret, Bath & Body Works and Greater China, which is included within the Victoria's Secret and Bath & Body Works International reportable segment.

As of November 2, 2019, we performed a quantitative interim impairment assessment over the Victoria's Secret and Greater China reporting units. An interim assessment was performed in consideration of the negative performance of these reporting units and their impact on the sustained decline in our market capitalization. Further, for the Greater China reporting unit, we considered the results of the long-lived store asset impairment assessment.

The interim assessment concluded that the fair value of the Victoria's Secret reporting unit exceeded its carrying value by approximately 24%, and that the fair value of the Greater China reporting unit did not exceed its carrying value. Accordingly, we recognized a goodwill impairment charge of $30 million in the third quarter of 2019 related to the Greater China reporting unit. This charge is included in General, Administrative and Store Operating Expenses in the 2019 Consolidated Statements of Income (Loss).

The use of different assumptions or judgments in our goodwill impairment assessment, including with respect to the estimated future cash flows of our reporting units, the discount rate used to discount such estimated future cash flows to their net present value, and the reasonableness of the implied control premium relative to our market capitalization, could materially increase or decrease the fair value of our reporting units and, accordingly, could materially increase or decrease any related impairment charge. Further sustained declines in our market capitalization or in our business performance could result in a material impairment charge in a future period.

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Intangible Assets - Indefinite Lives

As of November 2, 2019, we performed a quantitative interim impairment assessment of the Victoria's Secret trade name. An interim assessment was performed in consideration of the negative performance of Victoria's Secret. To estimate the fair value of the Victoria's Secret trade name, we used the relief from royalty method under the income approach. The interim assessment concluded that the fair value of the Victoria's Secret trade name exceeded its carrying value.


Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

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

Foreign Exchange Rate Risk

We have operations in foreign countries which expose us to market risk associated with foreign currency exchange rate fluctuations. Our Canadian dollar, British pound, Chinese Yuan, 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 November 2, 2019 has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.

Fair Value of Financial Instruments

As of November 2, 2019, we believe that the carrying values of accounts receivable, accounts payable, accrued expenses and current debt approximate fair value because of their short maturity.

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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 November 2, 2019, February 2, 2019 and November 3, 2018:



	November 2, 2019			February 2, 2019			November 3, 2018
	(in millions)
Long-term Debt:
Principal Value	$	5,458		$	5,722		$	5,722
Fair Value, Estimated (a)	5,156			5,340			5,301
Foreign Currency Cash Flow Hedges (b)	—			(2		)	(3		)
Marketable Equity Securities (b)	(1		)	(11		)	(9		)

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(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 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 third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

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

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 deadline for the lead plaintiff to file an amended complaint is December 20, 2019. We view this lawsuit as meritless and intend to defend against this lawsuit vigorously.


Item 1A.	RISK FACTORS

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


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

The following table provides our repurchases of our common stock during the third quarter of 2019:



Period	Total Number of Shares Purchased (a)	Average Price Paid per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Programs (c)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
	(in thousands)			(in thousands)
August 2019	21	$	21.62	—	$	78,677
September 2019	7	17.97		—	78,677
October 2019	18	16.87		—	78,677
Total	46			—

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(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, “Earnings Per Share and Shareholders' Equity (Deficit)” included in Item 1. Financial Statements.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.


Item 5.	OTHER INFORMATION

None.

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Item 6. EXHIBITS



Exhibits

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

31.1		Section 302 Certification of CEO.

31.2		Section 302 Certification of CFO.

32		Section 906 Certification (by CEO and CFO).

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

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SIGNATURE

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



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

Date: December 6, 2019


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