UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________



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

For the quarterly period ended ~~April 29, 2017~~May 5, 2018



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

For the transition period from to

Commission file number 1-8344

_________________________________

L BRANDS, INC.

(Exact name of registrant as specified in its charter)

_________________________________



Delaware		31-1029810
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Three Limited Parkway 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 ý No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	o

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

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, $.50 Par Value		Outstanding at ~~May 26, 2017~~June 1, 2018
		~~286,843,179~~277,204,090 Shares

L BRANDS, INC.

TABLE OF CONTENTS



	Page No.
Part I. Financial Information

Item 1. Financial Statements *

Consolidated Statements of Income for the ~~Thirteen Weeks~~Thirteen-Weeks Ended May 5, 2018 and April 29, 2017 ~~and April 30, 2016~~ (Unaudited)	3

Consolidated Statements of Comprehensive Income for the ~~Thirteen Weeks~~Thirteen-Weeks Ended May 5, 2018 and April 29, 2017 ~~and April 30, 2016~~ (Unaudited)	3

Consolidated Balance Sheets as of May 5, 2018 (Unaudited), February 3, 2018 and April 29, 2017 (Unaudited)~~, January 28, 2017 and April 30, 2016(Unaudited)~~	4

Consolidated Statements of Cash Flows for the ~~Thirteen Weeks~~Thirteen-Weeks Ended May 5, 2018 and April 29, 2017 ~~and April 30, 2016~~ (Unaudited)	5

Notes to Consolidated Financial Statements (Unaudited)	6

Report of Independent Registered Public Accounting Firm	26

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995	27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3. Quantitative and Qualitative Disclosures About Market Risk	4140

Item 4. Controls and Procedures	4341

Part II. Other Information	4442

Item 1. Legal Proceedings	4442

Item 1A. Risk Factors	4442

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4442

Item 3. Defaults Upon Senior Securities	4442

Item 4. Mine Safety Disclosures	4442

Item 5. Other Information	4442

Item 6. Exhibits	4543

Signature	4644



*	The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of ~~2017”~~2018” and “first quarter of ~~2016”~~2017” refer to the ~~thirteen week~~thirteen-week periods ~~ending~~ended May 5, 2018 and April 29, 2017, ~~and April 30, 2016,~~ respectively.

PART I—FINANCIAL INFORMATION


Item 1.	FINANCIAL STATEMENTS

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in millions except per share amounts)

(Unaudited)


	First Quarter						First Quarter
	2017			2016			2018			2017
Net Sales	$	2,437		$	2,614		$	2,626		$	2,437
Costs of Goods Sold, Buying and Occupancy	(1,534		)	(1,571		)	(1,682		)	(1,534		)
Gross Profit	903			1,043			944			903
General, Administrative and Store Operating Expenses	(694		)	(720		)	(789		)	(694		)
Operating Income	209			323			155			209
Interest Expense	(101		)	(97		)	(98		)	(101		)
Other Income	10			7			2			10
Income Before Income Taxes	118			233			59			118
Provision for Income Taxes	24			81			11			24
Net Income	$	94		$	152		$	48		$	94
Net Income Per Basic Share	$	0.33		$	0.53		$	0.17		$	0.33
Net Income Per Diluted Share	$	0.33		$	0.52		$	0.17		$	0.33
Dividends Per Share	$	0.60		$	2.60		$	0.60		$	0.60

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	First Quarter						First Quarter
	2017			2016			2018			2017
Net Income	$	94		$	152		$	48		$	94
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	3			8			(13		)	3
Unrealized Gain (Loss) on Cash Flow Hedges	9			(16		)
Unrealized Gain on Cash Flow Hedges							6			9
Reclassification of Cash Flow Hedges to Earnings	(6		)	14			2			(6		)
Unrealized Loss on Marketable Securities	—			(1		)
Reclassification of Gain on Marketable Securities to Earnings	—			(3		)
Total Other Comprehensive Income (Loss), Net of Tax	6			2			(5		)	6
Total Comprehensive Income	$	100		$	154		$	43		$	100

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

L BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

(in millions except par value amounts)


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018			February 3, 2018			April 29, 2017
	(Unaudited)						(Unaudited)			(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1,555		$	1,934		$	1,267		$	1,032		$	1,515		$	1,555
Accounts Receivable, Net	213			294			249			274			310			213
Inventories	1,147			1,096			1,266			1,350			1,240			1,147
Other	237			141			209			234			228			237
Total Current Assets	3,152			3,465			2,991			2,890			3,293			3,152
Property and Equipment, Net	2,761			2,741			2,423			2,894			2,893			2,761
Goodwill	1,348			1,348			1,348			1,348			1,348			1,348
Trade Names and Other Intangible Assets, Net	411			411			411
Trade Names										411			411			411
Deferred Income Taxes	23			19			29			22			14			23
Other Assets	187			186			224			184			190			187
Total Assets	$	7,882		$	8,170		$	7,426		$	7,749		$	8,149		$	7,882
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	664		$	683		$	720		$	717		$	717		$	664
Accrued Expenses and Other	813			997			833			848			1,029			813
Current Portion of Long-term Debt	44			36			8
Current Debt										89			87			44
Income Taxes	310			298			44			204			198			310
Total Current Liabilities	1,831			2,014			1,605			1,858			2,031			1,831
Deferred Income Taxes	360			352			269			234			238			360
Long-term Debt	5,702			5,700			5,718			5,719			5,707			5,702
Other Long-term Liabilities	824			831			920			907			924			824
Shareholders’ Equity (Deficit):
Preferred Stock - $1.00 par value; 10 shares authorized; none issued	—			—			—			—			—			—
Common Stock - $0.50 par value; 1,000 shares authorized; 317, 315 and 314 shares issued; 286, 286 and 288 shares outstanding, respectively	159			157			157
Common Stock - $0.50 par value; 1,000 shares authorized; 283, 283 and 317 shares issued; 278, 280 and 286 shares outstanding, respectively										141			141			159
Paid-in Capital	695			650			572			696			678			695
Accumulated Other Comprehensive Income	18			12			42			17			24			18
Retained Earnings (Accumulated Deficit)	128			205			(283		)
Less: Treasury Stock, at Average Cost; 31, 29 and 26 shares, respectively	(1,836		)	(1,753		)	(1,575		)
Retained Earnings (Deficit)										(1,580		)	(1,434		)	128
Less: Treasury Stock, at Average Cost; 5, 3 and 31 shares, respectively										(245		)	(162		)	(1,836		)
Total L Brands, Inc. Shareholders’ Equity (Deficit)	(836		)	(729		)	(1,087		)	(971		)	(753		)	(836		)
Noncontrolling Interest	1			2			1			2			2			1
Total Equity (Deficit)	(835		)	(727		)	(1,086		)	(969		)	(751		)	(835		)
Total Liabilities and Equity (Deficit)	$	7,882		$	8,170		$	7,426		$	7,749		$	8,149		$	7,882

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

L BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date						Year-to-Date
	2017			2016			2018			2017
Operating Activities:
Net Income	$	94		$	152		$	48		$	94
Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
Depreciation and Amortization of Long-lived Assets	142			121
Depreciation of Long-lived Assets							148			142
Amortization of Landlord Allowances	(12		)	(11		)	(11		)	(12		)
Share-based Compensation Expense	25			21			25			25
Deferred Income Taxes	5			15			(13		)	5
Gain on Distribution from Easton Investments	(9		)	—
Gain on Sale of Marketable Securities	—			(4		)
Changes in Assets and Liabilities, Net of Assets and Liabilities from Acquisition:
Gains on Distributions from Easton Investments							—			(9		)
Changes in Assets and Liabilities:
Accounts Receivable	80			3			41			80
Inventories	(52		)	(135		)	(114		)	(52		)
Accounts Payable, Accrued Expenses and Other	(200		)	(102		)	(219		)	(200		)
Income Taxes Payable	11			(148		)	7			11
Other Assets and Liabilities	(77		)	45			9			(77		)
Net Cash Provided by (Used for) Operating Activities	7			(43		)	(79		)	7
Investing Activities:
Capital Expenditures	(165		)	(187		)	(160		)	(165		)
Return of Capital from Easton Investments	10			1			1			10
Acquisition, Net of Cash Acquired of $1	—			(31		)
Proceeds from Sale of Marketable Securities	—			10
Other Investing Activities	—			2
Net Cash Used for Investing Activities	(155		)	(205		)	(159		)	(155		)
Financing Activities:
Borrowings from Foreign Facilities	9			6			21			9
Repayments on Foreign Facilities	(1		)	—
Repayments of Foreign Facilities							(8		)	(1		)
Dividends Paid	(172		)	(750		)	(168		)	(172		)
Repurchases of Common Stock	(85		)	(260		)	(81		)	(85		)
Tax Payments related to Share-based Awards	(17		)	(40		)	(8		)	(17		)
Proceeds from Exercise of Stock Options	36			10			1			36
Financing Costs and Other	—			(1		)
Net Cash Used for Financing Activities	(230		)	(1,035		)	(243		)	(230		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	(1		)	2			(2		)	(1		)
Net Decrease in Cash and Cash Equivalents	(379		)	(1,281		)	(483		)	(379		)
Cash and Cash Equivalents, Beginning of Period	1,934			2,548			1,515			1,934
Cash and Cash Equivalents, End of Period	$	1,555		$	1,267		$	1,032		$	1,555

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

L BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Basis of Presentation

Description of Business

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

Victoria’s Secret

PINK

Bath & Body Works

La Senza

Henri Bendel

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of ~~2017~~2018” and “first quarter of ~~2016~~2017” refer to the thirteen ~~week~~-week periods ~~ending~~ended ~~April 29, 2017~~May 5, 2018 and April ~~30, 2016~~29, 2017, respectively.

Basis of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in Costs of Goods Sold, Buying and Occupancy on the Consolidated Statements of Income. The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income on the Consolidated Statements of Income. The Company’s equity method investments are required to be tested for impairment when it is determined there may be an other-than-temporary loss in value.

Interim Financial Statements

The Consolidated Financial Statements as of and for the periods ended ~~April 29, 2017~~May 5, 2018 and April ~~30, 2016~~29, 2017 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s ~~2016~~2017 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 ~~and Investments~~

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

The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company records an allowance for uncollectable accounts when it becomes probable that the counterparty will be unable to pay.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.

2. New Accounting Pronouncements

~~Share-Based Compensation~~

~~In the first quarter of 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~. On a prospective basis, this standard requires recognition of the income tax effects of share-based awards in the income statement when the awards vest or are exercised. These effects were historically recorded in equity on the balance sheet. As a result, the Company recognized $11 million of excess tax benefits related to share-based awards in Provision for Income Taxes in the first quarter 2017 Consolidated Statement of Income. The standard also requires all tax-related cash flows from share-based awards to be reported as operating activities on the statements of cash flows and any cash payments made to taxing authorities on an employee's behalf from withheld shares as financing activities. For the first quarter of 2016, the retrospective application of these changes resulted in a $71 million increase in operating cash flows and a corresponding decrease to financing cash flows. Further, as allowed by the standard, the Company will continue to estimate award forfeitures at the time awards are granted and adjust, if necessary, in subsequent periods based on historical experience and expected future termination rates.

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which was further clarified and amended in 2015 and 2016. This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also ~~will result~~results in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance ~~will be~~is effective beginning in fiscal ~~2018, with early adoption as of fiscal 2017 permitted.~~2018. The standard allows for either a full retrospective or a modified retrospective transition method.

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

In the first quarter of fiscal 2018, the Company recorded a cumulative catch-up adjustment resulting in a reduction to opening retained earnings, net of tax, of $28 million. The cumulative adjustment primarily related to the deferral of revenue related to outstanding points, net of estimated forfeitures, under the Victoria's Secret customer loyalty program. In addition, Net Sales and General, Administrative and Store Operating Expenses both increased $25 million in the first quarter of 2018 due to the change in presentation for the Victoria's Secret private label credit card arrangement. Further, gross presentation of the Company's sales ~~refund liability presented separately from~~return reserve resulted in a $4 million increase in Other Current Assets and Accrued Expenses and Other on the ~~return asset.~~May 5, 2018 Consolidated Balance Sheet.

Fair Value of Financial Instruments

In January 2016, the FASB issued ASC 321, Investments - Equity Securities, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard requires the recognition of changes in the fair value of marketable equity securities in net income as compared to historical treatment in accumulated other comprehensive income on the balance sheet. The Company is continuing to evaluate the further impacts the standard will have on the Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows. The Company will adoptadopted the standard in the first quarter of fiscal 2018 and ~~is currently evaluating the transition method.~~

recorded an increase to opening retained earnings, net of tax, of $2 million.

Leases

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

The Company is currently evaluating the impacts that this standard will have on its Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash ~~Flows, including period of adoption.~~Flows. The Company currently expects that most of its operating lease commitments will be ~~subject to the new standard and~~ recognized as operating lease liabilities and right-of-use assets upon ~~adoption.~~adoption of the standard. Thus, the Company expects adoption will result in a material increase to the assets and liabilities on the Consolidated Balance Sheet. The Company will adopt the standard in the first quarter of fiscal 2019.

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. This guidance will be effective beginning in fiscal 2019, with early adoption permitted. The Company is currently evaluating the impact of this standard on its Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows.

3. Revenue Recognition

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

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

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

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

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

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

Accounts receivable, net from revenue-generating activities were $147 million as of May 5, 2018 and $144 million as of the beginning of the period upon adoption of the new standard. 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 75 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 programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. The balance of deferred revenue was $269 million as of May 5, 2018 and $320 million as of the beginning of the period upon adoption of the new standard. The Company recognized $90 million as revenue in the first quarter of 2018 from amounts recorded as deferred revenue at the beginning of the period. The Company's deferred revenue balance would have been $229 million as of May 5, 2018 under accounting standards in effect prior to the adoption of the new standard. Deferred revenues are included within Accrued Expenses and Other on the Consolidated Balance Sheets.

The following table provides a disaggregation of Net Sales for the first quarter of 2018 in comparison to the first quarter of 2017:



	First Quarter
	2018		2017 (a)
	(in millions)
Victoria’s Secret Stores (b)	$	1,236	$	1,247
Victoria’s Secret Direct	353		286
Victoria’s Secret North America	1,589		1,533
Bath & Body Works Stores (b)	649		588
Bath & Body Works Direct	112		90
Bath & Body Works North America	761		678
Victoria's Secret and Bath & Body Works International (c)	135		104
Other (d)	141		122
Total Net Sales	$	2,626	$	2,437

_______________


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


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


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


(d)	Includes wholesale revenues from the Company's sourcing function, and La Senza and Henri Bendel store and direct sales.

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

Earnings Per Share

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

The following table provides shares utilized for the calculation of basic and diluted earnings per share ~~for~~during the first quarter of ~~2017~~2018 and ~~2016~~2017:


	First Quarter				First Quarter
	2017		2016		2018		2017
	(in millions)				(in millions)
Weighted-average Common Shares:
Issued Shares	316		313		283		316
Treasury Shares	(30	)	(25	)	(4	)	(30	)
Basic Shares	286		288		279		286
Effect of Dilutive Options and Restricted Stock	3		5		3		3
Diluted Shares	289		293		282		289
Anti-dilutive Options and Awards (a)	5		2		5		5

_______________


(a)	These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Shareholders’ Equity (Deficit)

Common Stock Share Repurchases

Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs ~~for~~during the first quarter of ~~2017~~2018 and ~~2016~~2017:


	Amount Authorized		Shares Repurchased		Amount Repurchased				Average Stock Price of Shares Repurchased within Program				Amount Authorized		Shares Repurchased		Amount Repurchased				Average Stock Price of Shares Repurchased within Program
Repurchase Program	Amount Authorized		2017	2016	2017		2016		2017		2016		Amount Authorized		2018	2017	2018		2017		2018		2017
	(in millions)		(in thousands)		(in millions)								(in millions)		(in thousands)		(in millions)
March 2018													$	250	1,563	NA	$	58	NA		$	36.93	NA
September 2017													250		527	NA	25		NA		$	46.98	NA
February 2017	$	250	1,570	NA	$	80	NA		$	50.92	NA		250		NA	1,570	NA		$	80	NA		$	50.92
February 2016	$	500	51	3,125	3		$	260	$	58.95	$	83.26	500		NA	51	NA		3		NA		$	58.95
Total			1,621	3,125	$	83	$	260							2,090	1,621	$	83	$	83

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

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

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

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

The ~~February 2017~~March 2018 repurchase program had ~~$170~~$192 million remaining as of ~~April 29, 2017.~~May 5, 2018. Subsequent to ~~April 29, 2017,~~May 5, 2018, the Company repurchased an additional ~~0.2~~1.2 million shares of common stock for ~~$11~~$42 million under this program.

There were $1$4 million, $2 million and $3$1 million of share repurchases reflected in Accounts Payable on the May 5, 2018, February 3, 2018 and April 29, ~~2017 and January 28,~~ 2017 Consolidated Balance Sheets, respectively. ~~There were no share repurchases reflected in Accounts Payable on the April 30, 2016 Consolidated Balance Sheet.~~

Dividends

Under the authority and declaration of the Board of Directors, the Company paid the following dividends during the first quarter of ~~2017~~2018 and ~~2016~~:2017:

Ordinary Dividends Special Dividends Total Dividends Total Paid
(per share) (in millions)
2017
First Quarter $ 0.60
$ —
$ 0.60
$ 172
2016
First Quarter $ 0.60
$ 2.00
$ 2.60
$ 750

~~4. Acquisition~~

On April 18, 2016, the Company completed the acquisition of 100% of the shares of American Beauty Limited for a total purchase price of $44 million. This agreement included the reacquisition of the franchise rights from one of our partners to operate Victoria's Secret Beauty and Accessories stores in Greater China, including 26 stores already open at the time of acquisition. The purchase price included $10 million in forgiveness of liabilities owed to the Company from the pre-existing relationship. As a result of this acquisition, the Company's financial statements include the financial results of American Beauty Limited, which are reported as part of the Victoria's Secret and Bath & Body Works International segment.

The total purchase price was allocated to the net tangible and intangible assets acquired based on their estimated fair value. Such estimated fair values require management to make estimates and judgments, especially with respect to intangible assets. The allocation of the purchase price to goodwill was complete as of the second quarter of 2016. Goodwill related to the acquisition is not deductible for tax purposes.

~~The allocation of the purchase price to the fair value of assets acquired and liabilities assumed is as follows:~~

(in millions)
Cash and Cash Equivalents $ 1
Inventories 3
Property and Equipment 10
Goodwill 30
Other Assets 3
Current Liabilities (3 )
Net Assets Acquired $ 44
Forgiveness of Liabilities Owed to the Company (10 )
Consideration Paid $ 34



	Ordinary Dividends		Total Paid
	(per share)		(in millions)
2018
First Quarter	$	0.60	$	168
2017
First Quarter	$	0.60	$	172

5. ~~Restructuring Activities~~

During the first quarter of 2016, the Company made strategic changes within the Victoria’s Secret segment designed to focus the brand on its core merchandise categories, streamline operations and emphasize brand building and loyalty-enhancing marketing and advertising rather than using traditional catalogues and offers. As a result of these actions, the Company recorded charges related to cancellations of fabric commitments for non-go forward merchandise and a reserve against paper that was previously intended for future catalogues. These costs, totaling $11 million, including non-cash charges of $10 million, are included in Cost of Goods Sold, Buying and Occupancy on the 2016 Consolidated Statement of Income. These actions also resulted in the elimination of approximately 200 positions primarily in the Company's Ohio and New York home offices. Severance and related costs associated with these eliminations, totaling $24 million, are included in General, Administrative and Store Operating Expenses on the 2016 Consolidated Statement of Income. The Company recognized a total pre-tax charge of $35 million for these items in the first quarter of 2016. The remaining liability for unpaid severance and related costs was insignificant as of April 29, 2017.

6. Inventories

The following table provides details of inventories as of ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017:


	April 29, 2017		January 28, 2017		April 30, 2016		May 5, 2018		February 3, 2018		April 29, 2017
	(in millions)						(in millions)
Finished Goods Merchandise	$	1,049	$	982	$	1,157	$	1,225	$	1,121	$	1,049
Raw Materials and Merchandise Components	98		114		109		125		119		98
Total Inventories	$	1,147	$	1,096	$	1,266	$	1,350	$	1,240	$	1,147

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

7.6. Property and Equipment, Net

The following table provides details of property and equipment, net as of ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017:


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018			February 3, 2018			April 29, 2017
	(in millions)									(in millions)
Property and Equipment, at Cost	$	6,354		$	6,282		$	5,818		$	6,760		$	6,687		$	6,354
Accumulated Depreciation and Amortization	(3,593		)	(3,541		)	(3,395		)	(3,866		)	(3,794		)	(3,593		)
Property and Equipment, Net	$	2,761		$	2,741		$	2,423		$	2,894		$	2,893		$	2,761

Depreciation expense was ~~$142~~$148 million and ~~$121~~$142 million for the first quarter of ~~2017~~2018 and ~~2016,~~2017, respectively.

8.7. Equity Investments ~~and Other~~

Easton Investments

The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling ~~$79~~$82 million as of May 5, 2018, $81 million as of February 3, 2018, and $79 million as of April 29, 2017 ~~and~~ ~~January 28, 2017, and~~ ~~$82 million~~ ~~as of~~ ~~April 30, 2016~~, and are recorded in Other Assets on the Consolidated Balance Sheets.

Included in the Company’s Easton investments ~~is an~~are equity ~~interest~~interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and ~~have developed~~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.

9.8. Income Taxes

The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. The Company’s quarterly effective tax rate does not reflect a benefit associated with losses related to certain foreign subsidiaries.

For the first quarter of ~~2017,~~2018, the Company’s effective tax rate was ~~20.6%~~18.5% compared to ~~34.6%~~20.6% in the first quarter of ~~2016.~~2017. The first quarter 2018 rate was lower than the Company's combined federal and state statutory rate primarily due to the release of a valuation allowance against certain deferred tax assets that are more likely than not to be realized. The first quarter 2017 rate was lower than the Company's combined federal and state statutory rate primarily due to the recognition of excess tax benefits recorded through the income statement on stock options exercised in the quarter. In

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

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the TCJA. The ultimate impact may differ from provisional amounts, due to changes in interpretations and assumptions the Company has made regarding application of the TCJA as well as additional regulatory guidance that may be issued. Any adjustments made to the provisional amounts under SAB 118 should be recorded as discrete adjustments in the period identified (not to extend beyond the one-year measurement provided in SAB 118). During the first quarter of ~~2017,~~2018, the Company ~~adopted~~did not make any adjustments to its provisional amounts included in its consolidated financial statements for the ~~new share-based compensation standard that requires prospective recognition of excess tax benefits~~year ended February 3, 2018. The accounting is expected to be completed in the ~~income statement when awards vests or are exercised. The first~~fourth quarter ~~2016 rate was lower than the Company’s combined federal and state statutory rate primarily due to the resolution~~ of ~~certain tax matters.~~

As of April 29, 2017, any unrecognized deferred income tax liability resulting from the Company's undistributed foreign earnings from non-U.S. subsidiaries is not expected to reverse in the foreseeable future; furthermore, the undistributed foreign earnings are permanently reinvested. If the Company elects to distribute these foreign earnings in the future, they could be subject to additional income taxes. Determination of the amount of any unrecognized deferred income tax liability on these undistributed foreign earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.2018.

Income taxes paid were ~~approximately $15~~$11 million and ~~$227~~$15 million for the first quarter of ~~2017~~2018 and ~~2016,~~2017, respectively.

~~10.~~

9. Long-term Debt and Borrowing Facilities

The following table provides the Company’s debt balance, net of unamortized debt issuance costs and ~~unamortized~~ discounts, as ofMay 5, 2018, February 3, 2018 and April 29, 2017, ~~January 28, 2017~~ ~~and~~ ~~April 30, 2016~~:


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018			February 3, 2018			April 29, 2017
	(in millions)									(in millions)
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	989		$	989		$	989		$	990		$	990		$	989
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	993			992			991			994			994			993
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	993			992			991			995			994			993
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	692			692			—			693			693			692
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	497			497			496			497			497			497
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)										495			495			—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019 (“2019 Notes”)(a)	496			496			499			—			—			496
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	397			397			396			398			398			397
Foreign Facilities with Subsidiary Guarantee										12			1			—
Total Senior Unsecured Debt with Subsidiary Guarantee	$	5,057		$	5,055		$	4,362		$	5,074		$	5,062		$	5,057
Senior Unsecured Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348		$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297			297			297			297
$700 million, 6.90% Fixed Interest Rate Notes due July 2017 (“2017 Notes”)(b)	—			—			706
Foreign Facilities	44			36			13
Foreign Facilities without Subsidiary Guarantee										89			87			44
Total Senior Unsecured Debt	$	689		$	681		$	1,364		$	734		$	732		$	689
Total	$	5,746		$	5,736		$	5,726		$	5,808		$	5,794		$	5,746
Current Portion of Long-term Debt	(44		)	(36		)	(8		)
Current Debt										(89		)	(87		)	(44		)
Total Long-term Debt, Net of Current Portion	$	5,702		$	5,700		$	5,718		$	5,719		$	5,707		$	5,702

________________


(a)	The ~~balances include~~balance includes a fair value interest rate hedge adjustment which increased the debt balance by $2 million as of April 29, ~~2017, $2 million as of January 28, 2017 and $8 million as of April 30, 2016.~~


~~(b)~~	~~The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $7 million as of April 30, 2016.~~2017.

Issuance of Notes

In ~~June 2016,~~January 2018, the Company issued ~~$700~~$500 million of ~~6.75%~~5.25% notes due in ~~July 2036.~~February 2028. 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 ~~$692~~$495 million, which were net of issuance costs of $8$5 million. These issuance costs are being amortized through the maturity date of ~~July 2036~~February 2028 and are included within Long-term Debt on the ~~April 29, 2017~~May 5, 2018 and ~~January 28, 2017~~February 3, 2018 Consolidated Balance Sheets.

~~Repurchase~~Redemption of Notes

In ~~July 2016,~~January 2018, the Company used the proceeds from the ~~2036~~2028 Notes to ~~repurchase~~redeem the ~~$700~~$500 million ~~2017~~2019 Notes for ~~$742~~$540 million. In the ~~second~~fourth quarter of ~~2016,~~2017, the Company recognized a pre-tax loss on extinguishment of this debt of ~~$36~~$45 million (after-tax ~~net~~ loss of ~~$22~~$29 million), which ~~is net~~includes write-offs of ~~gains of $7 million~~unamortized issuance costs and discounts and losses related to terminated interest rate swaps associated with the ~~2017~~2019 Notes.

Exchange Offer

Subsequent to May 5, 2018, the Company announced the commencement of separate private offers to eligible holders to exchange certain of its outstanding 2020 Notes, 2021 Notes and 2022 Notes (collectively, the "offers") for a series of its newly issued debt securities due 2027 and cash. The offers will expire on June 27, 2018 with a potential early settlement date of June 18, 2018, subject to certain terms and conditions.

Revolving Facility

~~As of April 29, 2017, the~~The Company ~~maintained~~maintains a secured revolving credit facility (“Revolving Facility”) ~~with~~. The Revolving Facility has aggregate availability of $1 ~~billion.~~billion and expires May 11, 2022. The Revolving Facility allows certain of the Company's non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.

The Revolving Facility fees related to committed and unutilized amounts are ~~0.30%~~0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings ~~or British pound borrowings~~ is London Interbank Offered Rate (“LIBOR”) plus 1.50% per annum. The interest rate on outstanding ~~Canadian dollar~~foreign denominated borrowings is ~~Canadian Dollar Offered Rate (“CDOR”)~~the applicable benchmark rate plus 1.50% per annum.

The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such

investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of ~~April 29, 2017,~~May 5, 2018, the Company was in compliance with both of its financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

As of ~~April 29, 2017,~~May 5, 2018, there were no borrowings outstanding under the Revolving Facility.

The Revolving Facility supports the Company’s letter of credit program. The Company had $8$9 million of outstanding letters of credit as of ~~April 29, 2017~~May 5, 2018 that reduced its remaining availability under the Revolving Facility.

Subsequent to April 29, 2017, the Company entered into an amendment and restatement (“Amendment”) of the Revolving Facility. The Amendment maintains the aggregate availability under the Revolving Facility at $1 billion and extends the termination date from July 18, 2019 to May 11, 2022. The Amendment allows 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 addition, the Amendment reduced the commitment fees payable under the Revolving Facility, which are based on the Company's long-term credit rating, to 0.25% per annum. The Amendment did not modify the Company's quantitative covenant requirements, but did provide an increased limit on restricted payments in the event the Company does not meet the aforementioned criteria to make these payments without limitation and provides greater flexibility in respect of the Company’s ability to grant liens on assets.

Foreign Facilities

In addition to the Revolving Facility, the Company maintains various revolving and term loan bank facilities to support operations in Greater China ("Foreign Facilities"). These facilities allow certain of the Company's Greater China subsidiaries to borrow and obtain letters of credit in U.S. dollars and Chinese yuan.

The Company maintains various revolving and term loan bank facilities that are guaranteed by L Brands, Inc. with availability totaling $100 ~~million to support its foreign operations (“Foreign Facilities”). Current borrowings on these Foreign Facilities mature between May 8, 2017 and February 28, 2018.~~million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing.

During the first quarter of ~~2017,~~2018, the Company borrowed $9$10 million and made payments of $1$8 million under ~~the Foreign Facilities.~~these facilities. The maximum daily amount outstanding at any point in time during the first quarter of ~~2017~~2018 was ~~$44~~$90 million. Borrowings on these facilities mature between May 7, 2018 and December 18, 2018 and are included within Current Debt on the May 5, 2018 Consolidated Balance Sheet.

~~Interest Rate Swap Arrangements~~

~~For information related to~~The Company also maintains a revolving facility that is guaranteed by L Brands, Inc. and the ~~Company’s fair value~~Guarantors with availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate ~~swap arrangements, see Note~~for the currency of each borrowing. During the first quarter of 2018, the Company borrowed $11 million under this facility. These borrowings, which mature on May 11, ~~“Derivative Financial Instruments.”~~2022, are included within Long-term Debt on the May 5, 2018 Consolidated Balance Sheet.

~~11.~~10. Derivative Financial Instruments

Foreign Exchange Derivative Instruments

The earnings of the Company's ~~Canadian dollar and British pound denominated earnings~~wholly owned foreign businesses are subject to exchange rate risk as substantially all of ~~its~~their merchandise ~~sold in Canada and the U.K.~~ is sourced through U.S. dollar transactions. ~~As a result, the~~The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency ~~exposure.~~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 ~~(loss)~~ upon sale of the hedged merchandise to the customer. These gains and losses are recognized in ~~Cost~~Costs of Goods Sold, Buying and Occupancy on the Consolidated Statements of Income.

The Company ~~has~~had a cross-currency swap related to an intercompany loan of approximately CAD$170 million ~~maturing~~that matured in January 2018 which iswas designated as a cash flow hedge of foreign currency exchange risk. This cross-currency swap ~~mitigates~~mitigated the ~~exposure~~exposures to fluctuations in the U.S. dollar-Canadian dollar exchange rate related to the Company's Canadian operations. The cross-currency swap requires the periodic exchange of fixed-rate Canadian dollar interest payments for fixed-rate U.S. dollar interest payments as well as exchange of Canadian dollar and U.S. dollar principal payments upon maturity. Changes in the U.S. dollar-Canadian dollar exchange rate and the related swap settlements ~~result~~resulted in reclassification of amounts from accumulated other comprehensive income ~~(loss)~~ to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan.

The Company uses foreign currency forward contracts to ~~manage~~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 ~~April 29, 2017.~~May 5, 2018.

The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of May 5, 2018, February 3, 2018 and April 29, ~~2017, January 28, 2017 and April 30, 2016:~~2017:

April 29,
2017 January 28,
2017 April 30,
2016
(in millions)
Notional Amount $ 362
$ 360
$ 147



	May 5, 2018		February 3, 2018		April 29, 2017
	(in millions)
Notional Amount	$	208	$	217	$	362

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 May 5, 2018, February 3, 2018 and April 29, ~~2017, January 28, 2017 and April 30, 2016:~~2017:


	April 29, 2017		January 28, 2017		April 30, 2016		May 5, 2018		February 3, 2018		April 29, 2017
	(in millions)						(in millions)
Other Current Assets	$	27	$	18	$	—	$	1	$	—	$	27
Accrued Expenses and Other	1		1		—		2		8		1
Other Long-term Assets	—		—		11
Other Long-term Liabilities							—		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 first quarter ~~2017~~2018 and ~~2016:~~2017:

First Quarter
2017 2016
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) $ 10
$ (16 )
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Cost of Goods Sold, Buying and Occupancy Expense (a) (2 ) —
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Other Income (b) (5 ) 14



	First Quarter
	2018		2017
	(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income	$	6	$	10
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense (a)	2		(2		)
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Other Income (b)	—		(5		)

________________


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


(b)	Represents reclassification of amounts from accumulated other comprehensive income ~~(loss)~~ to earnings to completely offset foreign currency transaction gains and losses recognized on the intercompany loan. ~~No ineffectiveness was associated with this foreign currency cash flow hedge.~~

~~We estimate~~The Company estimates that $4$2 million of ~~gains~~net losses included in accumulated other comprehensive income ~~(loss)~~ as of ~~April 29, 2017~~May 5, 2018 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.

~~Interest Rate Derivative Instruments~~

The Company has interest rate swap arrangements related to $300 million of the outstanding 2019 Notes that are designated as interest rate fair value hedges. The interest rate swap arrangements effectively convert the fixed interest rate on the related debt to a variable interest rate based on LIBOR plus a fixed percentage. The changes in the fair value of the interest rate swaps have an equal and offsetting impact to the carrying value of the debt on the balance sheet. The differential to be paid or received on the interest rate swap arrangements is accrued and recognized as an adjustment to interest expense.

In the past, the Company had entered into interest rate swap arrangements on the 2017 Notes. In the second quarter of 2016, the Company terminated its interest rate designated fair value hedges in conjunction with the repurchase of the 2017 Notes.

The following table provides a summary of the fair value and balance sheet classification of the derivative financial instruments designated as interest rate fair value hedges as of April 29, 2017, January 28, 2017 and April 30, 2016:

April 29,
2017 January 28,
2017 April 30,
2016
(in millions)
Other Long-term Assets $ 2
$ 2
$ 10

~~12.~~11. Fair Value Measurements

The following table provides a summary of the principal value and estimated fair value of long-term debt, excluding ~~foreign facility~~Foreign Facility borrowings, as of ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017:


	April 29, 2017		January 28, 2017		April 30, 2016		May 5, 2018		February 3, 2018		April 29, 2017
	(in millions)						(in millions)
Principal Value	$	5,750	$	5,750	$	5,750	$	5,750	$	5,750	$	5,750
Fair Value (a)	5,992		6,030		6,372		5,735		5,943		5,992

_______________


(a)	The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices which are considered Level 2 inputs in accordance with ASC ~~Topic~~ 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

The authoritative guidance included in ASC ~~Topic~~ 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted market prices included in Level 1, such as quoted prices of similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following table provides a summary of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017:


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)								(in millions)
As of May 5, 2018
Assets:
Cash and Cash Equivalents									$	1,032	$	—	$	—	$	1,032
Marketable Securities									17		—		—		17
Foreign Currency Cash Flow Hedges									—		1		—		1
Liabilities:
Foreign Currency Cash Flow Hedges									—		2		—		2
As of February 3, 2018
Assets:
Cash and Cash Equivalents									$	1,515	$	—	$	—	$	1,515
Marketable Securities									17		—		—		17
Liabilities:
Foreign Currency Cash Flow Hedges									—		9		—		9
As of April 29, 2017
Assets:
Cash and Cash Equivalents	$	1,555	$	—	$	—	$	1,555	$	1,555	$	—	$	—	$	1,555
Marketable Securities	5		—		—		5		5		—		—		5
Interest Rate Fair Value Hedges	—		2		—		2		—		2		—		2
Foreign Currency Cash Flow Hedges	—		27		—		27		—		27		—		27
Liabilities:
Foreign Currency Cash Flow Hedges	—		1		—		1		—		1		—		1
As of January 28, 2017
Assets:
Cash and Cash Equivalents	$	1,934	$	—	$	—	$	1,934
Marketable Securities	5		—		—		5
Interest Rate Fair Value Hedges	—		2		—		2
Foreign Currency Cash Flow Hedges	—		18		—		18
Liabilities:
Foreign Currency Cash Flow Hedges	—		1		—		1
As of April 30, 2016
Assets:
Cash and Cash Equivalents	$	1,267	$	—	$	—	$	1,267
Marketable Securities	11		—		—		11
Interest Rate Fair Value Hedges	—		10		—		10
Foreign Currency Cash Flow Hedges	—		11		—		11

The Company's Level 1 fair value measurements use unadjusted quoted prices in active markets for identical assets. ~~In the first quarter of 2016, the Company sold a portion of its~~The Company's marketable securities, which are classified as available-for-sale, for $10 million and recognized a pre-tax gain of $4 million (after-tax gain of $3 million). The gain is included within Other Income in the 2016 Consolidated Statement of Income, and the cash proceeds are included in Proceeds from Sale of Marketable Securities within the Investing Activities section of the 2016 Consolidated Statement of Cash Flows. These securities are classified as Level 1 fair value measurements as they are traded with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

In January 2016, the FASB issued ASC 321, Investments - Equity Securities. The standard requires the recognition of changes in the fair value of the Company's marketable securities in net income as compared to historical treatment in accumulated other comprehensive income. The Company adopted the standard in the first quarter of 2018. The Company recognized an unrealized holding loss of less than $1 million related to its marketable equity securities in Other Income in the first quarter of 2018 Consolidated Statement of Income.

The Company’s Level 2 fair value measurements use market approach valuation techniques. The primary inputs to these techniques include benchmark interest rates and foreign currency exchange rates, as applicable to the underlying instruments.

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

~~13.~~12. Comprehensive Income

The following table provides the rollforward of accumulated other comprehensive income ~~(loss)~~ for the first quarter ~~2017:~~of 2018:


	Foreign Currency Translation		Cash Flow Hedges			Marketable Securities		Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation			Cash Flow Hedges			Marketable Securities			Accumulated Other Comprehensive Income
	(in millions)										(in millions)
Balance as of January 28, 2017	$	9	$	3		$	—	$	12
Balance as of February 3, 2018											$	32		$	(10	)	$	2		$	24
Amount reclassified to Retained Earnings upon adoption of ASC 321											—			—			(2		)	(2		)
Balance as of February 4, 2018											32			(10		)	—			22
Other Comprehensive Income (Loss) Before Reclassifications	3		10			—		13			(13		)	6			—			(7		)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—		(7		)	—		(7		)
Amounts Reclassified from Accumulated Other Comprehensive Income											—			2			—			2
Tax Effect	—		—			—		—			—			—			—			—
Current-period Other Comprehensive Income (Loss)	3		3			—		6			(13		)	8			—			(5		)
Balance as of April 29, 2017	$	12	$	6		$	—	$	18
Balance as of May 5, 2018											$	19		$	(2	)	$	—		$	17

The following table provides the rollforward of accumulated other comprehensive income ~~(loss)~~ for the first quarter ~~2016:~~of 2017:


	Foreign Currency Translation		Cash Flow Hedges			Marketable Securities			Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation		Cash Flow Hedges			Marketable Securities		Accumulated Other Comprehensive Income
	(in millions)											(in millions)
Balance as of January 30, 2016	$	28	$	4		$	8		$	40
Balance as of January 28, 2017												$	9	$	3		$	—	$	12
Other Comprehensive Income (Loss) Before Reclassifications	8		(16		)	(2		)	(10		)	3		10			—		13
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	—		14			(4		)	10
Amounts Reclassified from Accumulated Other Comprehensive Income												—		(7		)	—		(7		)
Tax Effect	—		—			2			2			—		—			—		—
Current-period Other Comprehensive Income (Loss)	8		(2		)	(4		)	2			3		3			—		6
Balance as of April 30, 2016	$	36	$	2		$	4		$	42
Balance as of April 29, 2017												$	12	$	6		$	—	$	18

The following table provides a summary of the reclassification adjustments out of accumulated other comprehensive income ~~(loss)~~ for the first quarter of ~~2017~~2018 and ~~2016~~:2017:

Details About Accumulated Other Comprehensive Income (Loss) Components Amount Reclassified from Accumulated Other Comprehensive Income (Loss) Location on Consolidated Statements of Income
First Quarter
2017 2016
(in millions)
(Gain) Loss on Cash Flow Hedges $ (2 ) $ —
Cost of Goods Sold, Buying and Occupancy
(5 ) 14
Other Income
1
—
Provision for Income Taxes
$ (6 ) $ 14
Net Income

Sale of Available-for-Sale Securities $ —
$ (4 ) Other Income
—
1
Provision for Income Taxes
$ —
$ (3 ) Net Income



Details About Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income					Location on Consolidated Statements of Income
	First Quarter
	2018		2017
	(in millions)
(Gain) Loss on Cash Flow Hedges	$	2	$	(2	)	Costs of Goods Sold, Buying and Occupancy
	—		(5		)	Other Income
	—		1			Provision for Income Taxes
	$	2	$	(6	)	Net Income

~~14.~~13. Commitments and Contingencies

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

Guarantees

In connection with the disposition of a certain ~~businesses,~~business, the Company has remaining guarantees of ~~approximately $13~~$9 million related to lease payments under the current terms of noncancellable leases expiring at various dates through 2021. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the ~~businesses.~~business. In certain instances, the Company’s guarantee may remain in effect if the term of a lease is extended. The Company has not recorded a liability with respect to these guarantee obligations as of May 5, 2018, February 3, 2018 or April 29, 2017 ~~January 28, 2017 or April 30, 2016~~ as it concluded that payments under these guarantees were not probable.

In connection with ~~the sale and leaseback under~~ noncancellable operating leases of certain assets, the Company ~~provides~~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 ~~approximately $133~~$104 million. The Company recorded a liability of $3 million as of May 5, 2018 and February 3, 2018, and a liability of less than $1 million as of April 29, 2017 ~~a liability of $1 million as of January 28, 2017 and a liability of $3 million as of April 30, 2016~~ related to these guarantee obligations, which are included in Other Long-term Liabilities on the Consolidated Balance Sheets. Additionally, the Company recorded a liability of $9 million related to the early lease termination of one of these assets, which is included in Accrued Expenses and Other on the April 29, 2017 Consolidated Balance Sheet.

~~15.~~14. Retirement Benefits

The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all of its associates within the 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 $18 million for the first quarter of 2018 and $16 million for the first quarter of ~~2017 and $17 million for the first quarter of 2016.~~2017.

The non-qualified plan is an unfunded plan which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount which the Company does not match. Associates’ accounts are credited with interest using a fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors, prior to the beginning of each year. Associate contributions and the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only. The remaining vested portion of associates’ accounts in the plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years. Total expense recognized related to the non-qualified plan was $6 million for the first quarter of 2018 and $4 million for the first quarter of ~~2017 and $7 million for the first quarter of 2016.~~2017.

~~16.~~15. 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 and its website,~~ ~~www.VictoriasSecret.com~~.Canada.

The Bath & Body Works segment sells ~~personal~~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 and through its website,~~ ~~www.BathandBodyWorks.com.~~

Canada.

The Victoria's Secret and Bath & Body Works International segment includes the Victoria's Secret and Bath & Body Works company-owned and partner-operated stores located outside of the U.S. and ~~Canada. These businesses include~~Canada, as well as the online business in Greater China on the Tmall domestic platform. 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 ~~and wholesale~~ arrangements; ~~and~~

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;~~products in travel retail and other locations; and

Bath & Body Works International stores in travel retail and other locations operated by partners under franchise, license and wholesale arrangements.

Other consists of the following:

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

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

Henri Bendel, ~~operator of 29 specialty stores,~~ which ~~feature~~sells handbags, jewelry and other accessory ~~products;~~products online and through company-owned stores;and

Corporate functions including non-core real estate, equity investments and other governance functions such as treasury and tax.

The following table provides the Company’s segment information for the first quarter of ~~2017~~2018 and ~~2016~~2017:


	Victoria’s Secret		Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total		Victoria’s Secret		Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total
	(in millions)												(in millions)
2018
First Quarter:
Net Sales													$	1,589	$	761	$	135		$	141		$	2,626
Operating Income (Loss)													83		124		(5		)	(47		)	155
2017
First Quarter:
Net Sales	$	1,533	$	678	$	104		$	122		$	2,437	$	1,533	$	678	$	104		$	122		$	2,437
Operating Income (Loss)	159		102		(1		)	(51		)	209		159		102		(1		)	(51		)	209
2016
First Quarter:
Net Sales	$	1,741	$	660	$	95		$	118		$	2,614
Operating Income (Loss)	235		112		13			(37		)	323

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 ~~$299~~$359 million and ~~$295~~$299 million for the first quarter of ~~2017~~2018 and ~~2016,~~2017, respectively.

~~17.~~16. Subsequent Events

On May 31, 2018, the Company announced the commencement of separate private offers to eligible holders to exchange certain of its outstanding 2020 Notes, 2021 Notes and 2022 Notes (collectively, the "offers") for a series of its newly issued debt securities due 2027 and cash. The offers will expire on June 27, 2018 with a potential early settlement date of June 18, 2018, subject to certain terms and conditions.

Subsequent to ~~April 29, 2017,~~May 5, 2018, the Company repurchased an additional ~~0.2~~1.2 million shares of common stock for ~~$11~~$42 million under the ~~February 2017~~March 2018 repurchase program. ~~For additional information, see Note 3, “Earnings Per Share and Shareholders' Equity (Deficit).”~~

~~Subsequent to April 29, 2017, the Company entered into an amendment and restatement of the Revolving Facility. For additional information, see Note 10, “Long-term Debt.”~~

~~18.~~17. Supplemental Guarantor Financial Information

The Company’s ~~2019 Notes,~~ 2020 Notes, 2021 Notes, 2022 Notes, 2023 Notes, 2028 Notes, 2035 Notes, ~~and~~ 2036 Notes and certain of its 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 ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017 and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended ~~April 29, 2017~~May 5, 2018 and April ~~30, 2016~~29, 2017.

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)


	April 29, 2017														May 5, 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	1,207		$	348	$	—		$	1,555		$	—		$	677		$	355	$	—		$	1,032
Accounts Receivable, Net	1			130			82		—			213			—			152			122		—			274
Inventories	—			1,000			147		—			1,147			—			1,199			151		—			1,350
Other	—			130			107		—			237			1			136			97		—			234
Total Current Assets	1			2,467			684		—			3,152			1			2,164			725		—			2,890
Property and Equipment, Net	—			1,935			826		—			2,761			—			1,970			924		—			2,894
Goodwill	—			1,318			30		—			1,348			—			1,318			30		—			1,348
Trade Names and Other Intangible Assets, Net	—			411			—		—			411
Trade Names															—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,819			16,358			1,449		(22,626		)	—			4,690			18,969			2,025		(25,684		)	—
Deferred Income Taxes	—			10			13		—			23			—			9			13		—			22
Other Assets	129			34			636		(612		)	187			129			16			651		(612		)	184
Total Assets	$	4,949		$	22,533		$	3,638	$	(23,238	)	$	7,882		$	4,820		$	24,857		$	4,368	$	(26,296	)	$	7,749
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	2		$	371		$	291	$	—		$	664		$	5		$	350		$	362	$	—		$	717
Accrued Expenses and Other	109			394			310		—			813			59			461			328		—			848
Current Portion of Long-term Debt	—			—			44		—			44
Current Debt															—			—			89		—			89
Income Taxes	(11		)	226			95		—			310			6			176			22		—			204
Total Current Liabilities	100			991			740		—			1,831			70			987			801		—			1,858
Deferred Income Taxes	(3		)	(86		)	449		—			360			(2		)	(41		)	277		—			234
Long-term Debt	5,702			597			—		(597		)	5,702			5,707			597			12		(597		)	5,719
Other Long-term Liabilities	3			752			84		(15		)	824			1			823			98		(15		)	907
Total Equity (Deficit)	(853		)	20,279			2,365		(22,626		)	(835		)	(956		)	22,491			3,180		(25,684		)	(969		)
Total Liabilities and Equity (Deficit)	$	4,949		$	22,533		$	3,638	$	(23,238	)	$	7,882		$	4,820		$	24,857		$	4,368	$	(26,296	)	$	7,749

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)


	January 28, 2017														February 3, 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	1,562		$	372	$	—		$	1,934		$	—		$	1,164		$	351	$	—		$	1,515
Accounts Receivable, Net	—			228			66		—			294			—			186			124		—			310
Inventories	—			976			120		—			1,096			—			1,095			145		—			1,240
Other	—			53			88		—			141			—			132			96		—			228
Total Current Assets	—			2,819			646		—			3,465			—			2,577			716		—			3,293
Property and Equipment, Net	—			1,897			844		—			2,741			—			1,984			909		—			2,893
Goodwill	—			1,318			30		—			1,348			—			1,318			30		—			1,348
Trade Names and Other Intangible Assets, Net	—			411			—		—			411
Trade Names															—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,923			15,824			1,350		(22,097		)	—			4,912			18,359			2,106		(25,377		)	—
Deferred Income Taxes	—			10			9		—			19			—			10			4		—			14
Other Assets	130			28			639		(611		)	186			129			18			654		(611		)	190
Total Assets	$	5,053		$	22,307		$	3,518	$	(22,708	)	$	8,170		$	5,041		$	24,677		$	4,419	$	(25,988	)	$	8,149
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	3		$	326		$	354	$	—		$	683		$	2		$	349		$	366	$	—		$	717
Accrued Expenses and Other	100			526			371		—			997			101			529			399		—			1,029
Current Portion of Long-term Debt	—			—			36		—			36
Current Debt															—			—			87		—			87
Income Taxes	(11		)	221			88		—			298			6			174			18		—			198
Total Current Liabilities	92			1,073			849		—			2,014			109			1,052			870		—			2,031
Deferred Income Taxes	(3		)	(93		)	448		—			352			(2		)	(46		)	286		—			238
Long-term Debt	5,700			597			—		(597		)	5,700			5,706			597			1		(597		)	5,707
Other Long-term Liabilities	3			761			81		(14		)	831			3			835			100		(14		)	924
Total Equity (Deficit)	(739		)	19,969			2,140		(22,097		)	(727		)	(775		)	22,239			3,162		(25,377		)	(751		)
Total Liabilities and Equity (Deficit)	$	5,053		$	22,307		$	3,518	$	(22,708	)	$	8,170		$	5,041		$	24,677		$	4,419	$	(25,988	)	$	8,149

L BRANDS, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

(in millions)

(Unaudited)


	April 30, 2016														April 29, 2017
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries		Eliminations			Consolidated L Brands, Inc.
ASSETS
Current Assets:
Cash and Cash Equivalents	$	—		$	888		$	379	$	—		$	1,267		$	—		$	1,207		$	348	$	—		$	1,555
Accounts Receivable, Net	2			189			58		—			249			1			130			82		—			213
Inventories	—			1,121			145		—			1,266			—			1,000			147		—			1,147
Other	—			121			88		—			209			—			130			107		—			237
Total Current Assets	2			2,319			670		—			2,991			1			2,467			684		—			3,152
Property and Equipment, Net	—			1,627			796		—			2,423			—			1,935			826		—			2,761
Goodwill	—			1,318			30		—			1,348			—			1,318			30		—			1,348
Trade Names and Other Intangible Assets, Net	—			411			—		—			411
Trade Names															—			411			—		—			411
Net Investments in and Advances to/from Consolidated Affiliates	4,551			14,752			1,363		(20,666		)	—			4,819			16,358			1,449		(22,626		)	—
Deferred Income Taxes	—			11			18		—			29			—			10			13		—			23
Other Assets	140			37			658		(611		)	224			129			34			636		(612		)	187
Total Assets	$	4,693		$	20,475		$	3,535	$	(21,277	)	$	7,426		$	4,949		$	22,533		$	3,638	$	(23,238	)	$	7,882
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable	$	1		$	387		$	332	$	—		$	720		$	2		$	371		$	291	$	—		$	664
Accrued Expenses and Other	110			432			291		—			833			109			394			310		—			813
Current Portion of Long-term Debt	—			—			8		—			8
Current Debt															—			—			44		—			44
Income Taxes	—			13			31		—			44			(11		)	226			95		—			310
Total Current Liabilities	111			832			662		—			1,605			100			991			740		—			1,831
Deferred Income Taxes	(3		)	(76		)	348		—			269			(3		)	(86		)	449		—			360
Long-term Debt	5,713			598			5		(598		)	5,718			5,702			597			—		(597		)	5,702
Other Long-term Liabilities	—			705			229		(14		)	920			3			752			84		(15		)	824
Total Equity (Deficit)	(1,128		)	18,416			2,291		(20,665		)	(1,086		)	(853		)	20,279			2,365		(22,626		)	(835		)
Total Liabilities and Equity (Deficit)	$	4,693		$	20,475		$	3,535	$	(21,277	)	$	7,426		$	4,949		$	22,533		$	3,638	$	(23,238	)	$	7,882

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	First Quarter 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,466		$	839		$	(679	)	$	2,626
Costs of Goods Sold, Buying and Occupancy	—			(1,622		)	(669		)	609			(1,682		)
Gross Profit	—			844			170			(70		)	944
General, Administrative and Store Operating Expenses	(4		)	(726		)	(109		)	50			(789		)
Operating Income (Loss)	(4		)	118			61			(20		)	155
Interest Expense	(97		)	(20		)	(3		)	22			(98		)
Other Income (Loss)	—			4			(2		)	—			2
Income (Loss) Before Income Taxes	(101		)	102			56			2			59
Provision (Benefit) for Income Taxes	(2		)	13			—			—			11
Equity in Earnings (Loss), Net of Tax	147			215			152			(514		)	—
Net Income (Loss)	$	48		$	304		$	208		$	(512	)	$	48

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	First Quarter 2018
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	48	$	304	$	208		$	(512	)	$	48
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		(13		)	—			(13		)
Unrealized Gain on Cash Flow Hedges	—		—		6			—			6
Reclassification of Cash Flow Hedges to Earnings	—		—		2			—			2
Total Other Comprehensive Income (Loss), Net of Tax	—		—		(5		)	—			(5		)
Total Comprehensive Income (Loss)	$	48	$	304	$	203		$	(512	)	$	43

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

(in millions)

(Unaudited)



	First Quarter 2017
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,310		$	696		$	(569	)	$	2,437
Costs of Goods Sold, Buying and Occupancy	—			(1,486		)	(571		)	523			(1,534		)
Gross Profit	—			824			125			(46		)	903
General, Administrative and Store Operating Expenses	(4		)	(635		)	(90		)	35			(694		)
Operating Income (Loss)	(4		)	189			35			(11		)	209
Interest Expense	(100		)	(11		)	(3		)	13			(101		)
Other Income	—			3			7			—			10
Income (Loss) Before Income Taxes	(104		)	181			39			2			118
Provision for Income Taxes	—			20			4			—			24
Equity in Earnings (Loss), Net of Tax	198			179			150			(527		)	—
Net Income (Loss)	$	94		$	340		$	185		$	(525	)	$	94

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)



	First Quarter 2017
	L Brands, Inc.		Guarantor Subsidiaries		Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Income (Loss)	$	94	$	340	$	185		$	(525	)	$	94
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	—		—		3			—			3
Unrealized Gain on Cash Flow Hedges	—		—		9			—			9
Reclassification of Cash Flow Hedges to Earnings	—		—		(6		)	—			(6		)
Total Other Comprehensive Income (Loss), Net of Tax	—		—		6			—			6
Total Comprehensive Income (Loss)	$	94	$	340	$	191		$	(525	)	$	100

~~L BRANDS, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF INCOME~~

~~(in millions)~~

~~(Unaudited)~~

First Quarter 2016
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Sales $ —
$ 2,472
$ 858
$ (716 ) $ 2,614
Costs of Goods Sold, Buying and Occupancy —
(1,539 ) (711 ) 679
(1,571 )
Gross Profit —
933
147
(37 ) 1,043
General, Administrative and Store Operating Expenses (3 ) (639 ) (113 ) 35
(720 )
Operating Income (Loss) (3 ) 294
34
(2 ) 323
Interest Expense (97 ) (9 ) (2 ) 11
(97 )
Other Income —
1
6
—
7
Income (Loss) Before Income Taxes (100 ) 286
38
9
233
Provision for Income Taxes —
62
19
—
81
Equity in Earnings (Loss), Net of Tax 252
62
68
(382 ) —
Net Income (Loss) $ 152
$ 286
$ 87
$ (373 ) $ 152

~~L BRANDS, INC.~~

~~CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME~~

~~(in millions)~~

~~(Unaudited)~~

First Quarter 2016
L Brands, Inc.
Guarantor
Subsidiaries

Non-
guarantor
Subsidiaries
Eliminations
Consolidated
L Brands, Inc.
Net Income (Loss) $ 152
$ 286
$ 87
$ (373 ) $ 152
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation —
—
8
—
8
Unrealized Loss on Cash Flow Hedges —
—
(16 ) —
(16 )
Reclassification of Cash Flow Hedges to Earnings —
—
14
—
14
Unrealized Loss on Marketable Securities —
—
(1 ) —
(1 )
Reclassification of Gain on Marketable Securities to Earnings —
—
(3 ) —
(3 )
Total Other Comprehensive Income (Loss), Net of Tax —
—
2
—
2
Total Comprehensive Income (Loss) $ 152
$ 286
$ 89
$ (373 ) $ 154

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date 2017														Year-to-Date 2018
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(96	)	$	181		$	(78	)	$	—	$	7		$	(141	)	$	65		$	(3	)	$	—		$	(79	)
Investing Activities:
Capital Expenditures	—			(135		)	(30		)	—		(165		)	—			(91		)	(69		)	—			(160		)
Return of Capital from Easton Investments	—			—			10			—		10			—			—			1			—			1
Net Cash Used for Investing Activities	—			(135		)	(20		)	—		(155		)
Net Investments in Consolidated Affiliates															—			—			(11		)	11			—
Net Cash Provided by (Used for) Investing Activities															—			(91		)	(79		)	11			(159		)
Financing Activities:
Borrowings from Foreign Facilities	—			—			9			—		9			—			—			21			—			21
Repayments on Foreign Facilities	—			—			(1		)	—		(1		)
Repayments of Foreign Facilities															—			—			(8		)	—			(8		)
Dividends Paid	(172		)	—			—			—		(172		)	(168		)	—			—			—			(168		)
Repurchases of Common Stock	(85		)	—			—			—		(85		)	(81		)	—			—			—			(81		)
Tax Payments related to Share-based Awards	(17		)	—			—			—		(17		)	(8		)	—			—			—			(8		)
Proceeds from Exercise of Stock Options															1			—			—			—			1
Net Financing Activities and Advances to/from Consolidated Affiliates	334			(401		)	67			—		—			397			(461		)	75			(11		)	—
Proceeds from Exercise of Stock Options	36			—			—			—		36
Net Cash Provided by (Used for) Financing Activities	96			(401		)	75			—		(230		)	141			(461		)	88			(11		)	(243		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			(1		)	—		(1		)	—			—			(2		)	—			(2		)
Net Decrease in Cash and Cash Equivalents	—			(355		)	(24		)	—		(379		)
Net Increase (Decrease) in Cash and Cash Equivalents															—			(487		)	4			—			(483		)
Cash and Cash Equivalents, Beginning of Period	—			1,562			372			—		1,934			—			1,164			351			—			1,515
Cash and Cash Equivalents, End of Period	$	—		$	1,207		$	348		$	—	$	1,555		$	—		$	677		$	355		$	—		$	1,032

L BRANDS, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date 2016														Year-to-Date 2017
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.			L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations		Consolidated L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities	$	(47	)	$	(25	)	$	29		$	—	$	(43	)	$	(96	)	$	181		$	(78	)	$	—	$	7
Investing Activities:
Capital Expenditures	—			(140		)	(47		)	—		(187		)	—			(135		)	(30		)	—		(165		)
Return of Capital from Easton Investments	—			—			1			—		1			—			—			10			—		10
Acquisition, Net of Cash Acquired of $1	—			—			(31		)	—		(31		)
Proceeds from Sale of Marketable Securities	—			—			10			—		10
Other Investing Activities	—			2			—			—		2
Net Cash Used for Investing Activities	—			(138		)	(67		)	—		(205		)	—			(135		)	(20		)	—		(155		)
Financing Activities:
Borrowings from Foreign Facilities	—			—			6			—		6			—			—			9			—		9
Repayments of Foreign Facilities															—			—			(1		)	—		(1		)
Dividends Paid	(750		)	—			—			—		(750		)	(172		)	—			—			—		(172		)
Repurchases of Common Stock	(260		)	—			—			—		(260		)	(85		)	—			—			—		(85		)
Tax Payments related to Share-based Awards	(40		)	—			—			—		(40		)	(17		)	—			—			—		(17		)
Proceeds from Exercise of Stock Options															36			—			—			—		36
Net Financing Activities and Advances to/from Consolidated Affiliates	1,087			(1,138		)	51			—		—			334			(401		)	67			—		—
Proceeds from Exercise of Stock Options	10			—			—			—		10
Financing Costs and Other	—			(1		)	—			—		(1		)
Net Cash Provided by (Used for) Financing Activities	47			(1,139		)	57			—		(1,035		)	96			(401		)	75			—		(230		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	—			—			2			—		2			—			—			(1		)	—		(1		)
Net Increase (Decrease) in Cash and Cash Equivalents	—			(1,302		)	21			—		(1,281		)
Net Decrease in Cash and Cash Equivalents															—			(355		)	(24		)	—		(379		)
Cash and Cash Equivalents, Beginning of Period	—			2,190			358			—		2,548			—			1,562			372			—		1,934
Cash and Cash Equivalents, End of Period	$	—		$	888		$	379		$	—	$	1,267		$	—		$	1,207		$	348		$	—	$	1,555

~~Review~~ Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors ~~and Shareholders~~

of L Brands, Inc.:

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance ~~sheet~~sheets of L Brands, Inc. ~~and subsidiaries~~(the Company) as of May 5, 2018 and April 29, 2017, ~~and April 30, 2016,~~ and the related consolidated statements of income, comprehensive income, and cash flows for the ~~thirteen week~~thirteen-week periods ended May 5, 2018 and April 29, 2017, and ~~April 30, 2016. These~~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 ~~are the responsibility of the Company’s management.~~for them to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our review~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of February 3, 2018, and the related consolidated statements of income, comprehensive income, total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 23, 2018, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 3, 2018, 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 ~~information~~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 ~~Public Company Accounting Oversight Board (United States),~~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.

Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above 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), the consolidated balance sheet of L Brands, Inc. and subsidiaries as of January 28, 2017, and the related consolidated statements of income, comprehensive income, total equity (deficit), and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 17, 2017. In our opinion, the accompanying consolidated balance sheet of L Brands, Inc. and subsidiaries as of January 28, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

Grandview Heights, Ohio

June ~~2, 2017~~7, 2018

SAFE HARBOR STATEMENT UNDER THE PRIVATE

SECURITIES LITIGATION ACT OF 1995

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

~~L Brands, Inc.~~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 ~~supplier~~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;

our ability to retain key personnel;

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

the ability of our ~~manufacturers~~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;

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

our ability to maintain the security of customer, associate, ~~supplier~~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 ~~2016~~2017 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 first quarter of ~~2017,~~2018, our operating income decreased ~~$114~~$54 million, or ~~35%~~26%, to ~~$209~~$155 million, and our operating income rate decreased to ~~8.6%~~5.9% from ~~12.4%~~8.6%. Net sales ~~decreased $177~~increased $189 million to ~~$2.437~~$2.626 billion, comparable sales increased 3% and comparable store sales ~~both~~ decreased 9%2%. At Victoria's Secret, net sales ~~decreased 12%~~increased 4%, and operating income decreased ~~32%~~48%. At Bath & Body Works, net sales increased 3%12%, and operating income ~~decreased 9%~~increased 21%. At Victoria's Secret and Bath & Body Works International, net sales increased 9%31%, and operating income decreased ~~104%.~~by $4 million. For additional information related to our first quarter ~~2017~~2018 financial performance, see “Results of Operations.”

The global retail sector and our business continue to face an uncertain environment and, as a result, we ~~continue to take a conservative stance with respect to the financial management of our business. We~~ will continue to manage our business ~~carefully,~~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 and marketing, store and online experiences to our customers. We will look for, and seek to capitalize on, those opportunities available to us. We believe that our brands, which lead their categories and offer high emotional content to customers at accessible prices, are ~~well-positioned.~~well positioned.

~~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 2016 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.

Year-to-Date
(in millions, except per share amounts) 2017 2016
Detail of Special Items included in Operating Income - Income (Expense)
Victoria's Secret Restructuring (a) $ —
$ (35 )
Total Special Items included in Operating Income $ —
$ (35 )

Detail of Special Items included in Provision for Income Taxes - Benefit (Provision)
Tax effect of Special Items $ —
$ 13
Total Special Items included in Provision for Income Taxes $ —
$ 13

Reconciliation of Reported Operating Income to Adjusted Operating Income
Reported Operating Income $ 209
$ 323
Special Items included in Operating Income —
35
Adjusted Operating Income $ 209
$ 358

Reconciliation of Reported Net Income to Adjusted Net Income
Reported Net Income $ 94
$ 152
Special Items included in Net Income —
22
Adjusted Net Income $ 94
$ 174

Reconciliation of Reported Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share
Reported Earnings Per Diluted Share $ 0.33
$ 0.52
Special Items included in Earnings Per Diluted Share —
0.07
Adjusted Earnings Per Diluted Share $ 0.33
$ 0.59

~~_______________~~

~~(a)~~

In the first quarter of 2016, we made strategic changes within the Victoria’s Secret segment designed to focus the brand on its core merchandise categories and streamline operations. As a result of these changes, we recorded charges related to severance and related costs, fabric cancellations and catalogue paper write-offs. For additional information see Note 5, “Restructuring Activities” included in Item 1. Financial Statements.

Company-Owned Store Data

The following table compares the first quarter of ~~2017~~2018 company-owned store data to the first quarter of ~~2016:~~2017:


	First Quarter						First Quarter
	2017		2016		% Change		2018		2017		% Change
Sales per Average Selling Square Foot
Victoria’s Secret U.S.	$	167	$	192	(13	)%	$	166	$	167	(1	)%
Bath & Body Works U.S.	140		147		(5	)%	150		140		7	%
Sales per Average Store (in thousands)
Victoria’s Secret U.S.	$	1,061	$	1,187	(11	)%	$	1,063	$	1,061	—	%
Bath & Body Works U.S.	346		350		(1	)%	381		346		10	%
Average Store Size (selling square feet)
Victoria’s Secret U.S.	6,352		6,188		3	%	6,419		6,352		1	%
Bath & Body Works U.S.	2,467		2,386		3	%	2,542		2,467		3	%
Total Selling Square Feet (in thousands)
Victoria’s Secret U.S.	7,191		6,937		4	%	7,189		7,191		—	%
Bath & Body Works U.S.	3,935		3,760		5	%	4,052		3,935		3	%

The following table represents company-owned store data for the first quarter of ~~2017:~~2018:


	Stores Operating at				Stores Operating at	Stores Operating at				Stores Operating at
	January 28, 2017	Opened	Closed		April 29, 2017	February 3, 2018	Opened	Closed		May 5, 2018
Victoria’s Secret U.S.	1,131	2	(1	)	1,132	1,124	1	(5	)	1,120
Victoria’s Secret Canada	46	1	(1	)	46	46	—	(1	)	45
Total Victoria's Secret	1,177	3	(2	)	1,178	1,170	1	(6	)	1,165
Bath & Body Works U.S.	1,591	7	(3	)	1,595	1,592	13	(11	)	1,594
Bath & Body Works Canada	102	—	—		102	102	—	—		102
Total Bath & Body Works	1,693	7	(3	)	1,697	1,694	13	(11	)	1,696
Victoria's Secret U.K.	18	—	—		18
Victoria's Secret Beauty and Accessories	31	—	—		31
Victoria's Secret U.K. / Ireland						24	—	—		24
Victoria's Secret Beauty and Accessories China						29	—	—		29
Victoria's Secret China	—	2	—		2	7	—	—		7
Total Victoria's Secret and Bath & Body Works International	49	2	—		51	60	—	—		60
Henri Bendel	29	—	—		29	27	—	(3	)	24
La Senza Canada						119	—	—		119
La Senza U.S.	4	—	—		4	5	—	—		5
La Senza Canada	122	1	(2	)	121
Total L Brands Stores	3,074	13	(7	)	3,080	3,075	14	(20	)	3,069

The following table represents company-owned store data for the first quarter of ~~2016:~~2017:


	Stores Operating at					Stores Operating at	Stores Operating at				Stores Operating at
	January 30, 2016	Opened	Acquired (a)	Closed		April 30, 2016	January 28, 2017	Opened	Closed		April 29, 2017
Victoria’s Secret U.S.	1,118	5	—	(2	)	1,121	1,131	2	(1	)	1,132
Victoria’s Secret Canada	46	—	—	—		46	46	1	(1	)	46
Total Victoria's Secret	1,164	5	—	(2	)	1,167	1,177	3	(2	)	1,178
Bath & Body Works U.S.	1,574	3	—	(1	)	1,576	1,591	7	(3	)	1,595
Bath & Body Works Canada	98	1	—	—		99	102	—	—		102
Total Bath & Body Works	1,672	4	—	(1	)	1,675	1,693	7	(3	)	1,697
Victoria's Secret U.K.	14	1	—	—		15	18	—	—		18
Victoria's Secret Beauty and Accessories	—	1	26	—		27
Victoria's Secret Beauty and Accessories China							31	—	—		31
Victoria's Secret China							—	2	—		2
Total Victoria's Secret and Bath & Body Works International	14	2	26	—		42	49	2	—		51
Henri Bendel	29	—	—	—		29	29	—	—		29
La Senza Canada	126	—	—	(1	)	125	122	1	(2	)	121
La Senza U.S.							4	—	—		4
Total L Brands Stores	3,005	11	26	(4	)	3,038	3,074	13	(7	)	3,080

~~_______________~~

~~(a) Relates to the acquisition of Victoria's Secret Beauty and Accessories franchise stores in Greater China. For additional~~

~~information see Note 4, “Acquisition” included in Item 1. Financial Statements.~~

Noncompany-Owned Store Data

The following table represents noncompany-owned store data for the first quarter of ~~2017~~:2018:


	Stores Operating at				Stores Operating at	Stores Operating at				Stores Operating at
	January 28, 2017	Opened	Closed		April 29, 2017	February 3, 2018	Opened	Closed		May 5, 2018
Victoria’s Secret Beauty & Accessories	391	11	(6	)	396	397	13	(10	)	400
Victoria's Secret	28	2	—		30	37	6	—		43
Bath & Body Works	159	7	(1	)	165	185	13	(3	)	195
La Senza	203	2	(6	)	199	194	—	(2	)	192
Total	781	22	(13	)	790	813	32	(15	)	830

The following table represents noncompany-owned store data for the first quarter of ~~2016:~~2017:

Stores Operating at Stores Operating at
January 30, 2016 Opened Closed Transferred (a) April 30, 2016
Victoria’s Secret Beauty & Accessories 373
14
(5 ) (26 ) 356
Victoria's Secret 19
1
—
—
20
Bath & Body Works 125
7
(1 ) —
131
La Senza 221
—
(4 ) —
217
Total 738
22
(10 ) (26 ) 724

~~_______________~~

~~(a) Relates to the acquisition of Victoria's Secret Beauty and Accessories franchise stores in Greater China. For additional~~

~~information see Note 4, “Acquisition” included in Item 1. Financial Statements.~~



	Stores Operating at				Stores Operating at
	January 28, 2017	Opened	Closed		April 29, 2017
Victoria’s Secret Beauty & Accessories	391	11	(6	)	396
Victoria's Secret	28	2	—		30
Bath & Body Works	159	7	(1	)	165
La Senza	203	2	(6	)	199
Total	781	22	(13	)	790

Results of Operations

First Quarter of ~~2017~~2018 Compared to First Quarter of ~~2016~~2017

Operating Income

The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for the first quarter of ~~2017~~2018 in comparison to the first quarter of ~~2016~~2017:


							Operating Income Rate										Operating Income Rate
	2017			2016			2017		2016		2018			2017			2018		2017
First Quarter	(in millions)										(in millions)
Victoria’s Secret	$	159		$	235		10.4	%	13.5	%	$	83		$	159		5.2	%	10.4	%
Bath & Body Works	102			112			15.0	%	16.9	%	124			102			16.3	%	15.0	%
Victoria’s Secret and Bath & Body Works International	(1		)	13			(0.5	)%	13.7	%	(5		)	(1		)	(3.6	)%	(0.5	)%
Other (a)	(51		)	(37		)	(41.6	)%	(30.6	)%	(47		)	(51		)	(33.5	)%	(41.6	)%
Total Operating Income	$	209		$	323		8.6	%	12.4	%	$	155		$	209		5.9	%	8.6	%

_______________


(a)	Includes Mast Global, La Senza, Henri Bendel and Corporate.

For the first quarter of ~~2017~~2018, operating income decreased ~~$114~~$54 million, or ~~35%~~26%, to ~~$209~~$155 million, and the operating income rate decreased to ~~8.6%~~5.9% from ~~12.4%~~8.6%. The drivers of the operating income results are discussed in the following sections.

Net Sales

The following table provides net sales for the first quarter of ~~2017~~2018 in comparison to the first quarter of ~~2016~~2017:


	2017		2016		% Change		2018		2017		% Change
First Quarter	(in millions)						(in millions)
Victoria’s Secret Stores (a)	$	1,247	$	1,381	(10	)%	$	1,236	$	1,247	(1	)%
Victoria’s Secret Direct	286		360		(20	)%	353		286		23	%
Total Victoria’s Secret	1,533		1,741		(12	)%	1,589		1,533		4	%
Bath & Body Works Stores (a)	588		587		—	%	649		588		10	%
Bath & Body Works Direct	90		73		22	%	112		90		25	%
Total Bath & Body Works	678		660		3	%	761		678		12	%
Victoria’s Secret and Bath & Body Works International	104		95		9	%	135		104		31	%
Other (b)	122		118		3	%	141		122		15	%
Total Net Sales	$	2,437	$	2,614	(7	)%	$	2,626	$	2,437	8	%

_______________


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


(b)	Includes Mast Global, La Senza and Henri ~~Bendel and Corporate.~~Bendel.

The following table provides a reconciliation of net sales for the first quarter of ~~2017~~2018 to the first quarter of ~~2016~~2017:


	Victoria’s Secret			Bath & Body Works			Victoria’s Secret and Bath & Body Works International			Other			Total			Victoria’s Secret			Bath & Body Works		Victoria’s Secret and Bath & Body Works International			Other			Total
First Quarter	(in millions)															(in millions)
2016 Net Sales	$	1,741		$	660		$	95		$	118		$	2,614
2017 Net Sales																$	1,533		$	678	$	104		$	122		$	2,437
Comparable Store Sales	(155		)	(6		)	(3		)	(2		)	(166		)	(55		)	29		(12		)	—			(38		)
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net	20			8			22			1			51			25			30		20			(1		)	74
Foreign Currency Translation	—			—			(5		)	—			(5		)	2			2		5			1			10
Direct Channels	(73		)	16			2			2			(53		)	59			22		8			2			91
Private Label Credit Card																25			—		—			—			25
International Wholesale, Royalty and Other	—			—			(7		)	3			(4		)	—			—		10			17			27
2017 Net Sales	$	1,533		$	678		$	104		$	122		$	2,437
2018 Net Sales																$	1,589		$	761	$	135		$	141		$	2,626

The following table compares the first quarter of ~~2017~~2018 comparable sales to the first quarter of ~~2016~~2017:


First Quarter	2017		2016		2018		2017
Comparable Sales (Stores and Direct) (a)
Victoria's Secret (b)	(14	)%	2	%	1	%	(14	)%
Bath & Body Works (b)	2	%	6	%	8	%	2	%
Total Comparable Sales	(9	)%	3	%	3	%	(9	)%

Comparable Store Sales (a)
Victoria’s Secret (b)	(12	)%	1	%	(5	)%	(12	)%
Bath & Body Works (b)	(1	)%	4	%	5	%	(1	)%
Total Comparable Store Sales	(9	)%	2	%	(2	)%	(9	)%

________

(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 are 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 first quarter of ~~2017,~~2018, net sales ~~decreased $208~~increased $56 million to ~~$1.533~~$1.589 billion, comparable sales ~~decreased 14%~~increased 1%, and comparable store sales decreased ~~12%~~5%. Net sales ~~decreased~~increased primarily due to ~~strategic decisions~~increases in constructed bras as we continue to ~~exit the swim and apparel categories and decrease direct mail and certain other promotional activities, a decline in~~focus on that core ~~bra sales due to lower average unit retail prices~~business and beauty ~~as we reposition the category. These results were partially offset by increases in PINK~~ and ~~sport~~sleep driven by a ~~compelling~~ merchandise assortment that incorporated newness, innovation and fashion. Additionally, net sales increased $25 million as a result of the change in presentation for income received from our Victoria's Secret private label credit card arrangement. These results were partially offset by declines in unconstructed and sport bras due to merchandise performance and category resets, and PINK driven by a decline in swim as we exit the category.

The decrease in comparable store sales was driven ~~primarily~~ by ~~a decrease in total transactions~~lower average unit retail and ~~traffic, impacted significantly by the exit of certain categories and the promotional changes discussed above.~~reduced traffic.

Bath & Body Works

For the first quarter of ~~2017,~~2018, net sales increased ~~$18~~$83 million to ~~$678~~$761 million, comparable sales increased 2%8%, and comparable store sales ~~decreased 1%~~increased 5%. Net sales increased in ~~our~~most categories including home fragrance, ~~category~~body care and soaps and sanitizers, which incorporated newness, innovation and fashion.

The ~~decrease~~increase in comparable store sales was driven primarily by ~~a decrease in total transactions.~~higher conversion.

Victoria's Secret and Bath & Body Works International

For the first quarter of ~~2017,~~2018, net sales increased $9$31 million to ~~$104~~$135 million primarily related to new company-owned Victoria's Secret stores, additional stores opened by our partners and direct channel growth in Greater China. These ~~results~~increases were partially offset by ~~declines~~a decline in ~~the~~ Victoria's Secret ~~International business and the negative impacts of foreign currency at Victoria's Secret~~ U.K. sales.

Other

For the first quarter of ~~2017,~~2018, net sales increased $4$19 million to ~~$122~~$141 million primarily due to an increase ~~at La Senza driven by new stores and direct channel growth.~~

in wholesale sales to our international partners.

Gross Profit

For the first quarter of ~~2017,~~2018, our gross profit ~~decreased $140~~increased $41 million to ~~$903~~$944 million, and our gross profit rate (expressed as a percentage of net sales) decreased to ~~37.1%~~35.9% from ~~39.9%~~37.1%, primarily driven by the following:

Victoria's Secret

For the first quarter of ~~2017,~~2018, the gross profit decrease was primarily driven by lower merchandise margin dollars ~~related to the decrease in net sales. Buying and occupancy expenses decreased primarily~~ due to ~~a decrease in catalogue costs~~increased promotional activity to drive traffic and ~~other cost reductions from strategic actions taken in the first quarter of 2016, but were partially offset by an increase in occupancy expenses due to investments in store real estate.~~attract new customers.

The gross profit rate decrease was driven by ~~deleverage of buying and occupancy expenses on lower sales and lower~~a decline in the merchandise margin rate due to ~~lower average unit retail prices in core bras, partially offset by lower overall buying and occupancy expenses due~~additional promotional activity to ~~decreased catalogue costs and other cost reductions.~~drive traffic.

Bath & Body Works

For the first quarter of ~~2017,~~2018, the gross profit ~~decrease~~increase was primarily driven ~~by an increase in occupancy expenses due to investments in store real estate, partially offset~~ by higher merchandise margin dollars related to the increase in net ~~sales.~~

~~The gross profit rate decrease was primarily driven~~sales, partially offset by ~~an increase in~~higher occupancy expenses due to investments in store real ~~estate.~~estate and distribution and fulfillment expenses related to higher direct channel sales.

The gross profit rate increase was primarily driven by buying and occupancy leverage on higher net sales.

Victoria's Secret and Bath & Body Works International

For the first quarter of ~~2017,~~2018, the gross profit ~~decrease~~increase was primarily driven by increased merchandise margin dollars related to higher net sales in Greater China and additional stores opened by our partners, partially offset by higher occupancy expenses due to investments in store real estate in Greater China and lower merchandise margin dollars related to a decrease in net sales in our Victoria's Secret International business. These decreases were partially offset by increased merchandise margin dollars generated from higher net sales from company-owned stores in Greater China.the U.K.

The gross profit rate decrease was driven by an increase in occupancy expenses due to the investments in store real ~~estate in Greater China and buying and occupancy deleverage on lower sales in our Victoria's Secret International business.~~estate.

General, Administrative and Store Operating Expenses

For the first quarter of ~~2017,~~2018, our general, administrative and store operating expenses ~~decreased $26~~increased $95 million to ~~$694~~$789 million ~~primarily~~ driven by ~~severance charges recorded~~the change in ~~the first quarter of 2016 related to the~~presentation for income received from our Victoria's Secret ~~restructuring~~private label credit card arrangement, incremental wage investments and ~~lower~~higher selling expenses related to ~~lower sales volumes at Victoria's Secret, partially offset by increased corporate expenses~~new company-owned stores in Greater China.

The general, administrative and store operating expense rate increased to ~~28.5%~~30.0% from ~~27.5%~~28.5% due to ~~deleverage~~the presentation change for income received from ~~lower sales, partially offset by~~our Victoria's Secret ~~restructuring charges recorded in the first quarter of 2016.~~private label credit card and increased wage investments.

Other Income and Expense

Interest Expense

The following table provides the average daily borrowings and average borrowing rates for the first quarter of ~~2017~~2018 and ~~2016~~2017:


First Quarter	2017			2016			2018			2017
Average daily borrowings (in millions)	$	5,790		$	5,759		$	5,845		$	5,790
Average borrowing rate (in percentages)	6.97		%	6.72		%	6.5		%	7.0		%

For the first quarter of ~~2017,~~2018, our interest expense ~~increased $4~~decreased $3 million to ~~$101~~$98 million primarily due to a lower average borrowing rate partially offset by higher average ~~borrowing rate.~~daily borrowings.

Other Income

For the first quarter of ~~2017,~~2018, our other income ~~increased $3~~decreased $8 million to ~~$10~~$2 million primarily ~~driven by~~due to a ~~gain on~~ distribution received from our Easton investments ~~partially offset by a gain on sale of marketable securities~~ in the first quarter of ~~2016.~~2017.

Provision for Income Taxes

For the first quarter of ~~2017,~~2018, our effective tax rate was ~~20.6%~~18.5% compared to ~~34.6%~~20.6% in the first quarter of ~~2016.~~2017. The first quarter 2018 rate was lower than the Company's combined federal and state statutory rate primarily due to the release of a valuation allowance against certain deferred tax assets that are more likely than not to be realized. The first quarter 2017 rate was lower than ~~our~~the Company's combined federal and state statutory rate primarily due to the recognition of excess tax benefits ~~resulting from~~recorded through the income statement on stock options exercised in the first quarter of 2017. In the first quarter of 2017, the Company adopted the new share-based compensation standard that requires the recognition of the income tax effects of share-based compensation awards in the income statement when the awards vest or are settled. The first quarter of 2016 rate was lower than the Company’s combined federal and state statutory rate primarily due to the favorable resolution of certain tax matters.quarter.

FINANCIAL CONDITION

Liquidity and Capital Resources

Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income and working capital changes. Our net income is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. The majority of our cash and cash equivalents are held by domestic subsidiaries. Our cash and cash equivalents held by foreign subsidiaries were $354 million as of May 5, 2018.

We believe in returning value to our shareholders through a combination of dividends and share repurchase programs. During ~~2017,~~the first quarter of 2018, we ~~have~~ paid ~~$172~~$168 million in regular dividends and repurchased $83 million of our common stock. We use cash flow generated from operating ~~activities~~ and financing activities to fund our dividends and share repurchase programs.

Our total cash and cash equivalents held by foreign subsidiaries were $346 million as of April 29, 2017. Under current tax laws and regulations, if cash and cash equivalents held outside the U.S. are repatriated to the U.S., in certain circumstances we may be subject to additional income taxes.

The following table provides our debt balance, net of unamortized debt issuance costs and ~~unamortized~~ discounts, as of May 5, 2018, February 3, 2018 and April 29, ~~2017, January 28, 2017 and April 30, 2016:~~2017:


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018			February 3, 2018			April 29, 2017
	(in millions)									(in millions)
Senior Unsecured Debt with Subsidiary Guarantee
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)	$	989		$	989		$	989		$	990		$	990		$	989
$1 billion, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)	993			992			991			994			994			993
$1 billion, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)	993			992			991			995			994			993
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)	692			692			—			693			693			692
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)	497			497			496			497			497			497
$500 million, 8.50% Fixed Interest Rate Notes due June 2019 (“2019 Notes”) (a)	496			496			499
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)										495			495			—
$500 million, 8.50% Fixed Interest Rate Notes due June 2019 (“2019 Notes”)(a)										—			—			496
$400 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)	397			397			396			398			398			397
Foreign Facilities with Subsidiary Guarantee										12			1			—
Total Senior Unsecured Debt with Subsidiary Guarantee	$	5,057		$	5,055		$	4,362		$	5,074		$	5,062		$	5,057
Senior Unsecured Debt
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)	$	348		$	348		$	348		$	348		$	348		$	348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)	297			297			297			297			297			297
$700 million, 6.90% Fixed Interest Rate Notes due July 2017 (“2017 Notes”) (b)	—			—			706
Foreign Facilities	44			36			13
Foreign Facilities without Subsidiary Guarantee										89			87			44
Total Senior Unsecured Debt	$	689		$	681		$	1,364		$	734		$	732		$	689
Total	$	5,746		$	5,736		$	5,726		$	5,808		$	5,794		$	5,746
Current Portion of Long-term Debt	(44		)	(36		)	(8		)
Current Debt										(89		)	(87		)	(44		)
Total Long-term Debt, Net of Current Portion	$	5,702		$	5,700		$	5,718		$	5,719		$	5,707		$	5,702

_______________


(a)	The ~~balances include~~balance includes a fair value interest rate hedge adjustment which increased the debt balance by $2 million as of April 29, ~~2017, $2 million as of January 28, 2017 and $8 million as of April 30, 2016.~~2017.


~~(b)~~	~~The balance includes a fair value interest rate hedge adjustment which increased the debt balance by $7 million as of April 30, 2016.~~

Issuance of Notes

In ~~June 2016,~~January 2018, we issued ~~$700~~$500 million of ~~6.75%~~5.25% notes due in ~~July 2036.~~February 2028. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by ~~our~~the Guarantors. The proceeds from the issuance were ~~$692~~$495 million, which were net of issuance costs of $8$5 million. These issuance costs are being amortized through the maturity date of ~~July 2036~~February 2028 and are included within Long-term Debt on the ~~April 29, 2017~~May 5, 2018 and ~~January 28, 2017~~February 3, 2018 Consolidated Balance Sheets.

~~Repurchase~~Redemption of Notes

In ~~July 2016,~~January 2018, we used the proceeds from the ~~2036~~2028 Notes to ~~repurchase~~redeem the ~~$700~~$500 million ~~2017~~2019 Notes for ~~$742~~$540 million. In the ~~second~~fourth quarter of ~~2016,~~2017, we recognized a pre-tax loss on extinguishment of this debt of ~~$36~~$45 million (after-tax ~~net~~ loss of ~~$22~~$29 million), which ~~is net~~includes write-offs of ~~gains of $7 million~~unamortized issuance costs and discounts and losses related to terminated interest rate swaps associated with the ~~2017~~2019 Notes.

Exchange Offer

Subsequent to May 5, 2018, we announced the commencement of separate private offers to eligible holders to exchange certain of our outstanding 2020 Notes, 2021 Notes and 2022 Notes (collectively, the "offers") for a series of our newly issued debt securities due 2027 and cash. The offers will expire on June 27, 2018 with a potential early settlement date of June 18, 2018, subject to certain terms and conditions.

Revolving Facility

~~As of April 29, 2017, we maintained~~We maintain a secured revolving credit facility ~~with~~that has aggregate availability of $1 ~~billion.~~billion and expires May 11, 2022. The Revolving Facility allows certain of our non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.

The Revolving Facility fees related to committed and unutilized amounts are ~~0.30%~~0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings ~~or British pound borrowings is~~ LIBOR plus 1.50% per annum. The interest rate on outstanding ~~Canadian dollar~~foreign denominated borrowings is ~~CDOR~~the applicable benchmark rate plus 1.50% per annum.

The Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of ~~April 29, 2017,~~May 5, 2018, we were in compliance with both of our financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.

As of ~~April 29, 2017,~~May 5, 2018, there were no borrowings outstanding under the Revolving Facility.

The Revolving Facility supports our letter of credit program. We had $8$9 million of outstanding letters of credit as of ~~April 29, 2017~~May 5, 2018 that reduced our remaining availability under ~~our Revolving Facility.~~

~~Subsequent to April 29, 2017, we entered into an amendment and restatement of~~ the Revolving Facility. The Amendment maintains the aggregate availability under the Revolving Facility at $1 billion and extends the termination date from July 18, 2019 to May 11, 2022. The Amendment allows 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 addition, the Amendment reduced the commitment fees payable under the Revolving Facility, which are based on our long-term credit rating, to 0.25% per annum. The Amendment did not modify our quantitative covenant requirements, but did provide an increased limit on restricted payments in the event we do not meet the aforementioned criteria to make these payments without limitation and provides greater flexibility in respect of our ability to grant liens on assets.

Foreign Facilities

In addition to the Revolving Facility, we maintain various revolving and term loan bank facilities to support our operations in Greater China. These facilities allow certain of our Greater China subsidiaries to borrow and obtain letters of credit in U.S. dollars and Chinese yuan.

We maintain various revolving and term loan bank facilities that are guaranteed by L Brands, Inc. with availability totaling $100 ~~million to support our foreign operations. Current borrowings on these Foreign Facilities mature between May 8, 2017 and February 28, 2018.~~million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing.

During the first quarter of ~~2017,~~2018, we borrowed $9$10 million and made payments of $1$8 million under ~~the Foreign Facilities.~~these facilities. The maximum daily amount outstanding at any point in time during the first quarter of ~~2017~~2018 was ~~$44~~$90 million.

~~Interest Rate Swap Arrangements~~ Borrowings on these facilities mature between May 7, 2018 and December 18, 2018 and are included within Current Debt on the May 5, 2018 Consolidated Balance Sheet.

We ~~have interest rate swap arrangements related to $300 million of~~also maintain a revolving facility that is guaranteed by L Brands, Inc. and the ~~outstanding 2019 Notes that are designated as interest rate fair value hedges as of April 29, 2017.~~Guarantors with availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate ~~swap arrangements effectively convert~~for the ~~fixed interest rate~~currency of each borrowing. During the first quarter of 2018, we borrowed $11 million under this facility. These borrowings, which mature on May 11, 2022, are included within Long-term Debt on the related debt to a variable interest rate based on LIBOR plus a fixed percentage. The changes in the fair value of the interest rate swaps have an equal and offsetting impact to the carrying value of the debt on the balance sheet. The differential to be paid or received on the interest rate swap arrangements is accrued and recognized as an adjustment to interest expense.May 5, 2018 Consolidated Balance Sheet.

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 May 5, 2018, February 3, 2018 and April 29, ~~2017, January 28, 2017 and April 30, 2016:~~2017:


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018			February 3, 2018			April 29, 2017
	(in millions)									(in millions)
Net Cash Provided by (Used for) Operating Activities (a) (b)	$	7		$	1,990		$	(43	)
Net Cash Provided by (Used for) Operating Activities (a)										$	(79	)	$	1,406		$	7
Capital Expenditures (a)	165			990			187			160			707			165
Working Capital	1,321			1,451			1,386			1,032			1,262			1,321
Capitalization:
Long-term Debt	5,702			5,700			5,718			5,719			5,707			5,702
Shareholders’ Equity (Deficit)	(836		)	(729		)	(1,087		)	(971		)	(753		)	(836		)
Total Capitalization	$	4,866		$	4,971		$	4,631		$	4,748		$	4,954		$	4,866
Remaining Amounts Available Under Credit Agreements ~~(c)~~(b)	$	992		$	992		$	992		$	991		$	991		$	992

_______________


(a)	The ~~January 28,~~February 3, 2018 amounts represent a fifty-three week period, and the May 5, 2018 and April 29, 2017 amounts represent ~~a twelve-month period, and the April 29, 2017 and April 30, 2016 amounts represent three-month~~thirteen-week periods.


(b)	~~As further discussed in Note 2 included in Item 1. Financial Statements, prior year amounts have been recast to reflect the retrospective application of ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~


~~(c)~~	Letters of credit issued reduce our remaining availability under the Revolving Facility. We ~~have~~had outstanding letters of credit that reduce our remaining availability under the Revolving Facility of $9 million as of May 5, 2018 and February 3, 2018, and $8 million as of April 29, ~~2017, January 28, 2017 and April 30, 2016.~~2017.

Credit Ratings

The following table provides our credit ratings as of ~~April 29, 2017:~~May 5, 2018:



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

On May 30, 2018, Fitch revised our outlook from stable to negative, while reaffirming our ratings. This outlook revision has no impact to our borrowing costs under our Revolving Facility.

Our borrowing costs under our Revolving Facility are linked to our credit ratings at Moody’s, S&P and Fitch. If we receive an upgrade or downgrade to our corporate credit ratings by Moody’s, S&P or Fitch, the borrowing costs could decrease or increase, respectively. The guarantees of our obligations under the Revolving Facility by the Guarantors and the security interests granted in our and the Guarantors’, collateral securing such obligations are released if our credit ratings are higher than a certain level. Additionally, the restrictions imposed under the Revolving Facility 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.

Common Stock Share Repurchases

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

Under the authority of our Board of Directors, we repurchased shares of our common stock under the following repurchase programs ~~for~~during the first quarter of ~~2017~~2018 and ~~2016:~~2017:


	Amount Authorized		Shares Repurchased		Amount Repurchased				Average Stock Price of Shares Repurchased within Program				Amount Authorized		Shares Repurchased		Amount Repurchased				Average Stock Price of Shares Repurchased within Program
Repurchase Program	Amount Authorized		2017	2016	2017		2016		2017		2016		Amount Authorized		2018	2017	2018		2017		2018		2017
	(in millions)		(in thousands)		(in millions)								(in millions)		(in thousands)		(in millions)
March 2018													$	250	1,563	NA	$	58	NA		$	36.93	NA
September 2017													250		527	NA	25		NA		$	46.98	NA
February 2017	$	250	1,570	NA	$	80	NA		$	50.92	NA		250		NA	1,570	NA		$	80	NA		$	50.92
February 2016	$	500	51	3,125	3		$	260	$	58.95	$	83.26	500		NA	51	NA		3		NA		$	58.95
Total			1,621	3,125	$	83	$	260							2,090	1,621	$	83	$	83

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

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

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

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

The ~~February 2017~~March 2018 repurchase program had ~~$170~~$192 million remaining as of ~~April 29, 2017.~~May 5, 2018. Subsequent to ~~April 29, 2017,~~May 5, 2018, we repurchased an additional ~~0.2~~1.2 million shares of common stock for ~~$11~~$42 million under this program.

Dividend Policy and Procedures

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

Under the authority and declaration of our Board of Directors, we paid the following dividends during the first quarter of ~~2017~~2018 and ~~2016:~~2017:


	Ordinary Dividends		Special Dividends		Total Dividends		Total Paid		Ordinary Dividends		Total Paid
	(per share)						(in millions)		(per share)		(in millions)
2018
First Quarter									$	0.60	$	168
2017
First Quarter	$	0.60	$	—	$	0.60	$	172	$	0.60	$	172
2016
First Quarter	$	0.60	$	2.00	$	2.60	$	750

Cash Flow

The following table provides a summary of our cash flow activity for ~~year-to-date 2017~~the first quarter of 2018 and ~~2016:~~2017:


	Year-to-Date						Year-to-Date
	2017			2016			2018			2017
	(in millions)						(in millions)
Cash and Cash Equivalents, Beginning of Period	$	1,934		$	2,548		$	1,515		$	1,934
Net Cash Flows Provided by (Used for) Operating Activities	7			(43		)	(79		)	7
Net Cash Flows Used for Investing Activities	(155		)	(205		)	(159		)	(155		)
Net Cash Flows Used for Financing Activities	(230		)	(1,035		)	(243		)	(230		)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	(1		)	2			(2		)	(1		)
Net Decrease in Cash and Cash Equivalents	(379		)	(1,281		)	(483		)	(379		)
Cash and Cash Equivalents, End of Period	$	1,555		$	1,267		$	1,032		$	1,555

Operating Activities

Net cash used for operating activities in 2018 was $79 million, including net income of $48 million. Net income included depreciation and amortization of $148 million and share-based compensation expense of $25 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 Accounts Payable, Accrued Expenses and Other and Inventories, and the change in Accounts Receivable.

Net cash provided by operating activities in 2017 was $7 million, including net income of $94 million. Net income included depreciation and amortization of $142 million and share-based compensation expense of $25 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 Accounts Payable, Accrued Expenses and Other and Inventories, and the change in Accounts Receivable.

Investing Activities

Net cash used for ~~operating~~investing activities in ~~2016~~2018 was ~~$43~~$159 million ~~including net income~~consisting primarily of ~~$152~~capital expenditures of $160 million. ~~Net income~~The capital expenditures included ~~depreciation~~$122 million for opening new stores and ~~amortization of $121 million~~remodeling and ~~share-based compensation expense of $21 million. Other changes in assets~~improving existing stores. Remaining capital expenditures were primarily related to spending on technology 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 Accounts Payable, Accrued Expenses and Other and Inventories, and the change in Income Taxes Payable.

~~Investing Activities~~infrastructure to support growth.

Net cash used for investing activities in 2017 was $155 million consisting primarily of capital expenditures of $165 million partially offset by a $10 million return of capital from our Easton Investments. The capital expenditures included $150 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.

Financing Activities

Net cash used for ~~investing~~financing activities in ~~2016~~2018 was ~~$205~~$243 million consisting primarily of ~~capital expenditures~~quarterly dividend payments of ~~$187~~$0.60 per share, or $168 million, ~~and$31~~payments for repurchases of common stock of $81 million and tax payments related to ~~the acquisition~~share-based awards of ~~our Victoria's Secret Beauty and Accessories franchise partner's operations and stores in Greater China,~~$8 million, partially offset by ~~proceeds from the sale~~$13 million of ~~marketable securities of $10 million. The capital expenditures included $146 million for opening~~net new ~~stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.~~

~~Financing Activities~~borrowings under our Foreign Facilities.

Net cash used for financing activities in 2017 was $230 million consisting primarily of quarterly dividend payments of $0.60 per share, or $172 million, payments for repurchases of common stock of $85 million, and tax payments related to share-based awards of $17 million, partially offset by proceeds from the exercise of stock options of $36 million.

Net cash used for financing activities in 2016 was $1.035 billion consisting primarily of quarterly and special dividend payments aggregating to $2.60 per share, or $750 million, payments for repurchases of common stock of $260 million, and tax payments related to share-based awards of $40 million, partially offset by proceeds from the exercise of stock options of $10 million.

Contingent Liabilities and Contractual Obligations

In connection with the disposition of a certain ~~businesses,~~business, we have remaining guarantees of ~~approximately $13~~$9 million related to lease payments under the current terms of noncancellable leases expiring at various dates through 2021. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the ~~businesses.~~business. In certain instances, our guarantee may remain in effect if the term of a lease is extended. We have not recorded a liability with respect to these guarantee obligations as of May 5, 2018, February 3, 2018 or April 29, 2017 ~~January 28, 2017 or April 30, 2016~~ as we concluded that payments under these guarantees were not probable.

In connection with ~~the sale and leaseback under~~ noncancellable 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 ~~approximately $133~~$104 million. We recorded a liability of $3 million as of May 5, 2018 and February 3, 2018, and a liability of less than $1 million as of April 29, 2017 ~~a liability of $1 million as of January 28, 2017, and a liability of $3 million as of April 30, 2016~~ related to these guarantee obligations, which are included in Other Long-term Liabilities on the Consolidated Balance Sheets. Additionally, we recorded a liability of $9 million related to the early lease termination of one of these assets, which is included in Accrued Expenses and Other on the April 29, 2017 Consolidated Balance Sheet.

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 ~~January 28, 2017,~~February 3, 2018, as discussed in “Contingent Liabilities and Contractual Obligations” in our ~~2016~~2017 Annual Report on Form 10-K. 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

~~Share-Based Compensation~~

~~In the first quarter of 2017, we adopted ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~. On a prospective basis, this standard requires recognition of the income tax effects of share-based awards in the income statement when the awards vest or are exercised. These effects were historically recorded in equity on the balance sheet. As a result, we recognized $11 million of excess tax benefits related to share-based awards in Provision for Income Taxes in the first quarter 2017 Consolidated Statement of Income. The standard also requires all tax-related cash flows from share-based awards to be reported as operating activities on the statements of cash flows and any cash payments made to taxing authorities on an employee's behalf from withheld shares as financing activities. For the first quarter of 2016, the retrospective application of these changes resulted in a $71 million increase in operating cash flows and a corresponding decrease to financing cash flows. Further, as allowed by the standard, we will continue to estimate award forfeitures at the time awards are granted and adjust, if necessary, in subsequent periods based on historical experience and expected future termination rates.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASC 606, Revenue from Contracts with Customers, which was further clarified and amended in 2015 and 2016. This guidance requires companies to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in amounts that reflect the consideration to which a company expects to be entitled in exchange for those goods or services. The new standard also ~~will result~~results in enhanced disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This guidance ~~will be~~is effective beginning in fiscal ~~2018, with early adoption as of fiscal 2017 permitted.~~2018. The standard allows for either a full retrospective or a modified retrospective transition method.

We ~~continue~~adopted the standard in the first quarter of fiscal 2018 under the modified retrospective approach. Under the standard, income from the Victoria's Secret private label credit card arrangement, which has historically been presented as a reduction to ~~evaluate the impacts of this standard. Our most significant changes~~General, Administrative and Store Operating Expenses, is presented as revenue. Further, historical accounting related to ~~current accounting relate to the~~loyalty points earned under the Victoria's Secret customer loyalty program ~~and our accounting for sales returns. The new standard will require a deferral of~~changed as we now defer revenue associated with customer loyalty points until the points are redeemed using a relative stand-alone selling price ~~method and will~~method. The standard also ~~require~~changed accounting for sales returns ~~to be presented~~which requires balance sheet presentation on a gross ~~basis with~~basis.

In the first quarter of fiscal 2018, we recorded a cumulative catch-up adjustment resulting in a reduction to opening retained earnings, net of tax, of $28 million. The cumulative adjustment primarily related to the deferral of revenue related to outstanding points, net of estimated forfeitures, under our Victoria's Secret customer loyalty program. In addition, Net Sales and General, Administrative and Store Operating Expenses both increased $25 million in the first quarter of 2018 due to the change in presentation for the Victoria's Secret private label credit card arrangement. Further, gross presentation of our sales ~~refund liability presented separately from~~return reserve resulted in a $4 million increase in Other Current Assets and Accrued Expenses and Other on the ~~return asset.~~May 5, 2018 Consolidated Balance Sheet.

Fair Value of Financial Instruments

In January 2016, the FASB issued ASC 321, Investments - Equity Securities, which addresses certain aspects of the recognition, measurement, presentation and disclosure of financial instruments. The standard requires the recognition of changes in the fair value of marketable equity securities in net income as compared to historical treatment in accumulated other comprehensive income on the balance sheet. We ~~are continuing to evaluate the further impacts the standard will have on our Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows. We will adopt~~adopted the standard in the first quarter of fiscal 2018 and ~~are currently evaluating the transition method.~~

recorded an increase to opening retained earnings, net of tax, of $2 million.

Leases

We are currently evaluating the impacts that this standard will have on our Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash ~~Flows, including period of adoption.~~Flows. We currently expect that most of our operating lease commitments will be ~~subject to the new standard and~~ recognized as operating lease liabilities and right-of-use assets upon ~~adoption.~~adoption of the standard. Thus, we expect adoption will result in a material increase to the assets and liabilities on our Consolidated Balance Sheet. We will adopt the standard in the first quarter of fiscal 2019.

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. This guidance will be effective beginning in fiscal 2019, with early adoption permitted. We are currently evaluating the impact of this standard on our Consolidated Statements of Income and Comprehensive Income, Balance Sheets and Statements of Cash Flows.

IMPACT OF INFLATION

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

There have been no material changes to the critical accounting policies and estimates disclosed in our ~~2016~~2017 Annual Report on Form 10-K, other than the adoption of ~~ASU No. 2016-09,~~ASC 606, ~~Improvements to Employee Share-Based Payment Accounting~~.Revenue from Contracts with Customers.


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. To mitigate the translation risk to our earnings and the fair value of our Canadian operations associated with fluctuations in the U.S. dollar-Canadian dollar exchange rate, we entered into a cross-currency swap related to a Canadian dollar denominated intercompany loan. This cross-currency swap requires the periodic exchange of fixed rate Canadian dollar interest payments for fixed rate U.S. dollar interest payments as well as exchange of Canadian dollar and U.S. dollar principal payments upon maturity. The swap arrangement matures in January 2018 at the same time as the related loan. As a result of the Canadian dollar denominated intercompany loan and the related cross-currency swap, we do not believe there is any material translation risk to our Canadian net earnings associated with fluctuations in the U.S. dollar-Canadian dollar exchange rate.

~~In addition, our~~Our Canadian dollar, British pound, Chinese yuan, ~~and~~ Hong Kong dollar and Euro denominated earnings are subject to exchange rate risk as substantially all of our merchandise sold in Canada, the U.K., Ireland and Greater China is sourced through U.S. dollar transactions. Although we utilize foreign currency forward contracts to partially offset risks associated with Canadian dollar and British pound denominated earnings, these measures may not succeed in offsetting all of 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 are the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Typically, our investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates.

~~The majority~~

Excluding our Foreign Facilities, all of our long-term debt as of ~~April 29, 2017,~~May 5, 2018, has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. ~~As of April 29, 2017, we have interest rate swap arrangements with notional amounts of $300 million related to a portion of our 2019 Notes.~~

The effect of the interest rate swap arrangements is to convert the respective amount of debt from a fixed interest rate to a variable interest rate. The variable interest rate associated with these swap arrangements fluctuates based on changes in three-month LIBOR.

~~For the balance of our long-term debt that is not subject to interest rate swap arrangements, our~~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 ~~April 29, 2017,~~May 5, 2018, we believe that the carrying values of accounts receivable, accounts payable, accrued expenses and current debt approximate fair value because of their short maturity.

The following table provides a summary of the principal value and fair value of long-term debt, excluding ~~foreign facility~~Foreign Facility borrowings and swap arrangements, as of ~~April 29, 2017~~May 5, 2018, ~~January 28, 2017~~February 3, 2018 and April ~~30, 2016~~29, 2017:


	April 29, 2017			January 28, 2017			April 30, 2016			May 5, 2018		February 3, 2018		April 29, 2017
	(in millions)									(in millions)
Long-term Debt:
Principal Value	$	5,750		$	5,750		$	5,750		$	5,750	$	5,750	$	5,750
Fair Value, Estimated (a)	5,992			6,030			6,372			5,735		5,943		5,992
Foreign Currency Cash Flow Hedges (b)	(26		)	(17		)	(11		)	1		9		(26		)
Interest Rate Fair Value Hedges (b)	(2		)	(2		)	(10		)	—		—		(2		)

_______________


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


(b)	Hedge arrangements are in a net ~~asset~~liability (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. The adoption of ASC 606, Revenue from Contracts with Customers, required the implementation of new controls and the modification of certain accounting processes related to revenue recognition. There were no other changes in our internal control over financial reporting that occurred in the first quarter ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


Item 1.	LEGAL PROCEEDINGS

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


Item 1A.	RISK FACTORS

The risk factors that affect our business and financial results are discussed in “Item 1A: Risk Factors” in the ~~2016~~2017 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors” in our ~~2016~~2017 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 first quarter of ~~2017:~~2018:

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)
February 2017 518
$ 55.23
508
$ 224,958
March 2017 848
49.94
797
185,084
April 2017 610
47.67
316
170,013
Total 1,976
1,621



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)
February 2018	425	$	47.58	417	$	28,019
March 2018	863	39.39		650	228,695
April 2018	1,027	35.63		1,023	192,232
Total	2,315			2,090

_______________


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


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


(c)	For additional share repurchase program information, see Note 3,4, “Earnings Per Share and Shareholders' Equity (Deficit)” included in Item 1. Financial Statements.


Item 3.	DEFAULTS UPON SENIOR SECURITIES

Not applicable.


Item 4.	MINE SAFETY DISCLOSURES

Not applicable.


Item 5.	OTHER INFORMATION

None.


~~Item 6.~~	~~EXHIBITS~~

Item 6. EXHIBITS



Exhibits

~~4.1~~15		Amendment and Restatement Agreement dated May 11, 2017 among L Brands, Inc., a Delaware corporation, the Borrowing Subsidiaries party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (the “Administrative Agent”), in respect of the Amended and Restated Five-Year Revolving Credit Agreement dated as of July 18, 2014 among the Company, the lenders from time to time party thereto and the Administrative Agent, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K dated May 17, 2017.

~~10.1~~		~~Employment Agreement dated as of June 2, 2017 among L Brands, Inc., L Brands Service Company, LLC and Martin Waters.~~

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

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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: June ~~2, 2017~~7, 2018


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

4644



	First Quarter 2016
	L Brands, Inc.			Guarantor Subsidiaries			Non- guarantor Subsidiaries			Eliminations			Consolidated L Brands, Inc.
Net Sales	$	—		$	2,472		$	858		$	(716	)	$	2,614
Costs of Goods Sold, Buying and Occupancy	—			(1,539		)	(711		)	679			(1,571		)
Gross Profit	—			933			147			(37		)	1,043
General, Administrative and Store Operating Expenses	(3		)	(639		)	(113		)	35			(720		)
Operating Income (Loss)	(3		)	294			34			(2		)	323
Interest Expense	(97		)	(9		)	(2		)	11			(97		)
Other Income	—			1			6			—			7
Income (Loss) Before Income Taxes	(100		)	286			38			9			233
Provision for Income Taxes	—			62			19			—			81
Equity in Earnings (Loss), Net of Tax	252			62			68			(382		)	—
Net Income (Loss)	$	152		$	286		$	87		$	(373	)	$	152



	Year-to-Date
(in millions, except per share amounts)	2017		2016
Detail of Special Items included in Operating Income - Income (Expense)
Victoria's Secret Restructuring (a)	$	—	$	(35	)
Total Special Items included in Operating Income	$	—	$	(35	)

Detail of Special Items included in Provision for Income Taxes - Benefit (Provision)
Tax effect of Special Items	$	—	$	13
Total Special Items included in Provision for Income Taxes	$	—	$	13

Reconciliation of Reported Operating Income to Adjusted Operating Income
Reported Operating Income	$	209	$	323
Special Items included in Operating Income	—		35
Adjusted Operating Income	$	209	$	358

Reconciliation of Reported Net Income to Adjusted Net Income
Reported Net Income	$	94	$	152
Special Items included in Net Income	—		22
Adjusted Net Income	$	94	$	174

Reconciliation of Reported Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share
Reported Earnings Per Diluted Share	$	0.33	$	0.52
Special Items included in Earnings Per Diluted Share	—		0.07
Adjusted Earnings Per Diluted Share	$	0.33	$	0.59