UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 _________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 2019August 1, 2020
OR
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,Ohio43230
(Address of principal executive offices)(Zip Code)
(614)415-7000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
    
Non-accelerated filer
  (Do not check if a smaller reporting company)
Smaller reporting company
    
  Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes      No  
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.50 Par ValueLBThe New York Stock Exchange
As of November 29, 2019,August 28, 2020, the number of outstanding shares of the Registrant’s common stock, was 276,474,678277,889,018 shares.
 

L BRANDS, INC.
TABLE OF CONTENTS
 
 Page No.
 
  
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Item 1A. Risk Factors
  
  
  
  
  
Item 6. Exhibits
  
 
*The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “third“second quarter of 2019”2020” and “third“second quarter of 2018”2019” refer to the thirteen-week periods ended November 2,August 1, 2020 and August 3, 2019, respectively. “Year-to-date 2020” and November 3, 2018, respectively. "Year-to-date 2019" and "year-to-date 2018"“year-to-date 2019” refer to the thirty-nine-weektwenty-six-week periods ending November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, respectively.


PART I—FINANCIAL INFORMATION
 
Item 1.FINANCIAL STATEMENTS

L BRANDS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in millions except per share amounts)
(Unaudited)
 
Third Quarter Year-to-DateSecond Quarter Year-to-Date
2019 2018 2019 20182020 2019 2020 2019
Net Sales$2,677
 $2,775
 $8,207
 $8,385
$2,319
 $2,902
 $3,974
 $5,530
Costs of Goods Sold, Buying and Occupancy(1,936) (1,847) (5,550) (5,454)(1,608) (1,919) (2,974) (3,614)
Gross Profit741
 928

2,657

2,931
711
 983

1,000

1,916
General, Administrative and Store Operating Expenses(892) (874) (2,480) (2,494)(667) (808) (1,274) (1,588)
Operating Income (Loss)(151) 54

177

437
44
 175

(274)
328
Interest Expense(92) (96) (286) (292)(104) (95) (201) (194)
Other Income (Loss)(34) 1
 (66) 1
0
 (38) 3
 (31)
Income (Loss) Before Income Taxes(277) (41)
(175)
146
(60) 42

(472)
103
Provision (Benefit) for Income Taxes(25) 2
 (1) 42
(11) 4
 (126) 25
Net Income (Loss)$(252) $(43)
$(174)
$104
$(49) $38
 $(346) $78
Net Income (Loss) Per Basic Share$(0.91) $(0.16) $(0.63) $0.37
$(0.18) $0.14
 $(1.25) $0.28
Net Income (Loss) Per Diluted Share$(0.91) $(0.16) $(0.63) $0.37
Net Income (Loss) Per Dilutive Share$(0.18) $0.14
 $(1.25) $0.28
Dividends Per Share$0.30
 $0.60
 $0.90
 $1.80
$0
 $0.30
 $0.30
 $0.60


L BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
Third Quarter Year-to-DateSecond Quarter Year-to-Date
2019 2018 2019 20182020 2019 2020 2019
Net Income (Loss)$(252) $(43) $(174) $104
$(49) $38
 $(346) $78
Other Comprehensive Income (Loss), Net of Tax:              
Foreign Currency Translation6
 (2) (5) (24)2
 (7) (4) (11)
Unrealized Gain (Loss) on Cash Flow Hedges(2) 1
 2
 10
(3) 2
 2
 4
Reclassification of Cash Flow Hedges to Earnings
 
 (3) 3
(1) (1) (1) (3)
Total Other Comprehensive Income (Loss), Net of Tax4
 (1)
(6)
(11)
Total Other Comprehensive Loss, Net of Tax(2) (6)
(3)
(10)
Total Comprehensive Income (Loss)$(248) $(44) $(180) $93
$(51) $32
 $(349) $68



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

L BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
 
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(Unaudited)   (Unaudited)(Unaudited)   (Unaudited)
ASSETS          
Current Assets:          
Cash and Cash Equivalents$340
 $1,413
 $348
$2,611
 $1,499
 $853
Accounts Receivable, Net295
 367
 321
268
 306
 283
Inventories2,032
 1,248
 1,963
1,476
 1,287
 1,329
Other259
 232
 301
150
 153
 188
Total Current Assets2,926
 3,260
 2,933
4,505
 3,245
 2,653
Property and Equipment, Net2,571
 2,818
 2,934
2,292
 2,486
 2,756
Operating Lease Assets3,130
 
 
2,635
 3,053
 3,209
Goodwill1,318
 1,348
 1,348
628
 628
 1,348
Trade Names411
 411
 411
411
 411
 411
Deferred Income Taxes63
 62
 20
74
 84
 62
Other Assets211
 191
 183
335
 218
 179
Total Assets$10,630
 $8,090
 $7,829
$10,880
 $10,125
 $10,618
LIABILITIES AND EQUITY (DEFICIT)          
Current Liabilities:          
Accounts Payable$1,024
 $711
 $1,060
$957
 $647
 $763
Accrued Expenses and Other980
 1,082
 1,018
1,340
 1,052
 919
Current Debt75
 72
 56
460
 61
 75
Current Operating Lease Liabilities460
 
 
624
 478
 456
Income Taxes4
 121
 8
52
 134
 3
Total Current Liabilities2,543
 1,986
 2,142
3,433
 2,372
 2,216
Deferred Income Taxes246
 226
 234
191
 219
 241
Long-term Debt5,477
 5,739
 5,814
6,269
 5,487
 5,475
Long-term Operating Lease Liabilities3,108
 
 
2,698
 3,052
 3,165
Other Long-term Liabilities494
 1,004
 951
193
 490
 450
Shareholders’ Equity (Deficit):          
Preferred Stock - $1.00 par value; 10 shares authorized; none issued
 
 
0
 0
 0
Common Stock - $0.50 par value; 1,000 shares authorized; 284, 283 and 283 shares issued; 276, 275 and 275 shares outstanding, respectively142
 141
 142
Common Stock - $0.50 par value; 1,000 shares authorized; 286, 285 and 284 shares issued; 278, 277 and 276 shares outstanding, respectively143
 142
 142
Paid-in Capital828
 771
 747
869
 847
 806
Accumulated Other Comprehensive Income53
 59
 11
49
 52
 49
Retained Earnings (Deficit)(1,907) (1,482) (1,856)(2,611) (2,182) (1,572)
Less: Treasury Stock, at Average Cost; 8, 8 and 8 shares, respectively(358) (358) (358)(358) (358) (358)
Total L Brands, Inc. Shareholders’ Equity (Deficit)(1,242) (869) (1,314)(1,908) (1,499) (933)
Noncontrolling Interest4
 4
 2
4
 4
 4
Total Equity (Accumulated Deficit)(1,238) (865) (1,312)(1,904) (1,495) (929)
Total Liabilities and Equity (Deficit)$10,630
 $8,090
 $7,829
$10,880
 $10,125
 $10,618

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

L BRANDS, INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)
(in millions except per share amounts)
(Unaudited)

ThirdSecond Quarter 20192020
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, August 3, 2019276
 $142
 $806
 $49
 $(1,572) $(358) $4
 $(929)
Net Loss
 
 
 
 (252) 
 
 (252)
Other Comprehensive Income
 
 
 4
 
 
 
 4
Total Comprehensive Income (Loss)
 
 
 4
 (252) 
 
 (248)
Cash Dividends ($0.30 per share)
 
 
 
 (83) 
 
 (83)
Share-based Compensation and Other
 
 22
 
 
 
 
 22
Balance, November 2, 2019276
 $142
 $828
 $53
 $(1,907) $(358) $4
 $(1,238)
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, May 2, 2020278
 $143
 $865
 $51
 $(2,562) $(358) $3
 $(1,858)
Net Loss
 0
 0
 0
 (49) 0
 0
 (49)
Other Comprehensive Loss
 0
 0
 (2) 0
 0
 0
 (2)
Total Comprehensive Loss
 0
 0
 (2) (49) 0
 0
 (51)
Share-based Compensation and Other0
 0
 4
 0
 0
 0
 1
 5
Balance, August 1, 2020278
 $143
 $869
 $49
 $(2,611) $(358) $4
 $(1,904)

ThirdSecond Quarter 20182019
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, August 4, 2018275
 $142
 $718
 $12
 $(1,648) $(348) $2
 $(1,122)
Net Loss
 
 
 
 (43) 
 
 (43)
Other Comprehensive Loss
 
 
 (1) 
 
 
 (1)
Total Comprehensive Loss
 
 
 (1) (43) 
 
 (44)
Cash Dividends ($0.60 per share)
 
 
 
 (165) 
 
 (165)
Repurchase of Common Stock
 
 
 
 
 (10) 
 (10)
Share-based Compensation and Other
 
 29
 
 
 
 
 29
Balance, November 3, 2018275
 $142
 $747
 $11
 $(1,856) $(358) $2
 $(1,312)
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, May 4, 2019276
 $142
 $786
 $55
 $(1,527) $(358) $4
 $(898)
Net Income
 0
 0
 0
 38
 0
 0
 38
Other Comprehensive Loss
 0
 0
 (6) 0
 0
 0
 (6)
Total Comprehensive Income (Loss)
 0
 0
 (6) 38
 0
 0
 32
Cash Dividends ($0.30 per share)
 0
 0
 0
 (83) 0
 0
 (83)
Share-based Compensation and Other0
 0
 20
 0
 0
 0
 0
 20
Balance, August 3, 2019276
 $142
 $806
 $49
 $(1,572) $(358) $4
 $(929)

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

L BRANDS, INC.
CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)
(in millions except per share amounts)
(Unaudited)

Year-to-Date 20192020
Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Shares
Outstanding
 
Par
Value
Balance, February 2, 2019275
 $141
 $771
 $59
 $(1,482) $(358) $4
 $(865)
Cumulative Effect of Accounting Change
 
 
 
 (2) 
 
 (2)
Balance, February 3, 2019275
 141
 771
 59
 (1,484) (358) 4
 (867)
Balance, February 1, 2020277
 $142
 $847
 $52
 $(2,182) $(358) $4
 $(1,495)
Net Loss
 
 
 
 (174) 
 
 (174)
 0
 0
 0
 (346) 0
 0
 (346)
Other Comprehensive Loss
 
 
 (6) 
 
 
 (6)
 0
 0
 (3) 0
 0
 0
 (3)
Total Comprehensive Loss
 
 
 (6) (174) 
 
 (180)
 0
 0
 (3) (346) 0
 0
 (349)
Cash Dividends ($0.90 per share)
 
 
 
 (249) 
 
 (249)
Cash Dividends ($0.30 per share)
 0
 0
 0
 (83) 0
 0
 (83)
Share-based Compensation and Other1
 1
 57
 
 
 
 
 58
1
 1
 22
 0
 0
 0
 0
 23
Balance, November 2, 2019276
 $142
 $828
 $53
 $(1,907) $(358) $4
 $(1,238)
Balance, August 1, 2020278
 $143
 $869
 $49
 $(2,611) $(358) $4
 $(1,904)

Year-to-Date 20182019
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, February 3, 2018280
 $141
 $678
 $24
 $(1,434) $(162) $2
 $(751)
Cumulative Effect of Accounting Changes
 
 
 (2) (26) 
 
 (28)
Balance, February 4, 2018280
 141
 678
 22
 (1,460) (162) 2
 (779)
Net Income
 
 
 
 104
 
 
 104
Other Comprehensive Loss
 
 
 (11) 
 
 
 (11)
Total Comprehensive Income (Loss)
 
 
 (11) 104
 
 
 93
Cash Dividends ($1.80 per share)
 
 
 
 (500) 
 
 (500)
Repurchase of Common Stock(5) 
 
 
 
 (196) 
 (196)
Share-based Compensation and Other
 1
 69
 
 
 
 
 70
Balance, November 3, 2018275
 $142
 $747
 $11
 $(1,856) $(358) $2
 $(1,312)
 Common Stock 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 Noncontrolling Interest Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, February 2, 2019275
 $141
 $771
 $59
 $(1,482) $(358) $4
 $(865)
Cumulative Effect of Accounting Change
 0
 0
 0
 (2) 0
 0
 (2)
Balance, February 3, 2019275
 141
 771
 59
 (1,484) (358) 4
 (867)
Net Income
 0
 0
 0
 78
 0
 0
 78
Other Comprehensive Loss
 0
 0
 (10) 0
 0
 0
 (10)
Total Comprehensive Income (Loss)
 0
 0
 (10) 78
 0
 0
 68
Cash Dividends ($0.60 per share)
 0
 0
 0
 (166) 0
 0
 (166)
Share-based Compensation and Other1
 1
 35
 0
 0
 0
 0
 36
Balance, August 3, 2019276
 $142
 $806
 $49
 $(1,572) $(358) $4
 $(929)

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


L BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Year-to-DateYear-to-Date
2019 20182020 2019
Operating Activities:      
Net Income (Loss)$(174) $104
$(346) $78
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used for) Operating Activities:   
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:   
Depreciation of Long-lived Assets443
 444
266
 295
Amortization of Landlord Allowances
 (32)
Asset Impairment248
 81
Long-lived Store and Lease Asset Impairment Charges214
 0
Share-based Compensation Expense67
 75
28
 44
Deferred Income Taxes(19) 15
Gain from Hong Kong Store Closure and Lease Termination(39) 0
Loss on Extinguishment of Debt40
 
0
 40
La Senza Charges37
 
Deferred Income Taxes19
 (3)
Gains on Distributions from Easton Investments(4) (7)0
 (2)
Unrealized Losses on Marketable Equity Securities
 8
Changes in Assets and Liabilities:      
Accounts Receivable41
 (8)37
 55
Inventories(785) (731)(191) (83)
Accounts Payable, Accrued Expenses and Other210
 300
304
 (107)
Income Taxes Payable(198) (260)(92) (138)
Other Assets and Liabilities(34) 42
124
 (35)
Net Cash Provided by (Used for) Operating Activities(90) 13
Net Cash Provided by Operating Activities286
 162
Investing Activities:      
Capital Expenditures(392) (561)(124) (244)
Other Investing Activities(16) 23
8
 7
Net Cash Used for Investing Activities(408) (538)(116) (237)
Financing Activities:      
Proceeds from Issuance of Long-Term Debt, Net of Issuance Costs486
 
1,231
 486
Payments of Long-term Debt(799) (52)0
 (799)
Borrowing from Secured Revolving Facility
 85
Borrowing from Credit Agreement950
 0
Repayment of Credit Agreement(950) 0
Borrowings from Foreign Facilities36
 110
33
 25
Repayments of Foreign Facilities(21) (71)(85) (14)
Dividends Paid(249) (500)(83) (166)
Repurchases of Common Stock
 (198)
Tax Payments related to Share-based Awards(12) (13)(6) (11)
Financing Costs and Other(11) (4)
Net Cash Used for Financing Activities(570) (643)
Effects of Exchange Rate Changes on Cash and Cash Equivalents(5) 1
Net Decrease in Cash and Cash Equivalents(1,073) (1,167)
Cash and Cash Equivalents, Beginning of Period1,413
 1,515
Cash and Cash Equivalents, End of Period$340
 $348
Other Financing Activities(19) (4)
Net Cash Provided by (Used for) Financing Activities1,071
 (483)
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash(1) (2)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash1,240
 (560)
Cash and Cash Equivalents and Restricted Cash, Beginning of Period1,499
 1,413
Cash and Cash Equivalents and Restricted Cash, End of Period$2,739
 $853

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

L BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Description of Business and Basis of Presentation
Description of Business
L Brands, Inc. (the "Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of home fragrance products, body care, soaps and sanitizers, women’s intimate and other apparel, and personal care,and beauty and home fragrancecare products. The Company sells its merchandise through company-owned specialty retail stores in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Ireland and Greater China, (China and Hong Kong), and through its websites and other channels. The Company's other international operations are primarily through franchise, license and wholesale partners. The Company currently operates the following retail brands:
Bath & Body Works
Victoria’s Secret
PINK
On February 20, 2020, the Company and an affiliate of Sycamore Partners Management, L.P. ("Sycamore"), entered into a Transaction Agreement (the "Transaction Agreement") pursuant to which, among other things, the Company would have sold a 55% interest in the Company's Victoria's Secret and PINK businesses (collectively, "Victoria's Secret"). On May 4, 2020, the Company and Sycamore mutually agreed to terminate the Transaction Agreement.
The Company remains committed to establishing Bath & Body Works as a pure-play public company and is taking the necessary steps to prepare Victoria's Secret to operate as a separate standalone company. Management is actively engaged in implementing a comprehensive profit improvement plan that will enable more effective and faster decision making and set each business up independently, allowing for a more efficient future separation.
During the second quarter of 2020, the Company completed its comprehensive review of the home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. For additional information, see Note 4, “Restructuring."
Impacts of COVID-19
In March 2020, the coronavirus pandemic ("COVID-19") was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures and orders to “shelter-in-place.” The situation and preventative or protective actions that governments around the world have taken to contain the spread of COVID-19 have resulted in a period of disruption, including closure of the Company's stores, limited store operating hours, reduced customer traffic and consumer spending and delays in manufacturing and shipping of products and raw materials. During this period, the Company is focused on protecting the health and safety of its customers, employees, contractors, suppliers, and other business partners. The Company is also working with its suppliers to minimize potential disruptions, while managing the Company's business in response to a changing dynamic.
The Company's business operations and financial performance for 2020 have been materially impacted by the COVID-19 pandemic. All the Company's stores in North America were closed on March 17th and almost all remained closed as of the beginning of the second quarter. Operations for Victoria’s Secret Direct were temporarily suspended for approximately one week in late March, while Bath & Body Works Direct has remained open for the duration of 2020. The Company has re-opened approximately 1,600 Bath & Body Works stores and approximately 690 Victoria’s Secret stores in North America, representing the majority of its stores, as of August 1, 2020. On average, Bath & Body Works stores were closed for about half of the second quarter and Victoria’s Secret stores were closed for about 70% of the second quarter (including the impact of the approximately 250 stores which the Company plans to close). Additionally, the Company has dedicated resources to maximize capacity in its direct fulfillment centers to meet increased customer demand, while focusing on distribution, fulfillment and call center safety.
Since the global COVID-19 crisis began, the Company has taken prudent actions to manage expenses and to maintain its solid cash position and financial flexibility through the pandemic, including:
Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;
Suspending associate merit increases;
Temporarily reducing salaries for senior vice presidents and above by 20%;

Temporarily suspending cash compensation for all members of the Board of Directors;
Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;
Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;
Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;
Suspending most store and select office rent payments during the temporary closures. The Company is in active discussions with its landlords to negotiate with respect to these rent payments and go-forward occupancy costs;
Converting the revolving credit facility to an asset-backed loan facility and issuing $1.25 billion in new notes; and
Extending payment terms to vendors.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which, among other things, provides employer payroll tax credits for wages paid to employees who are unable to work during the coronavirus outbreak and options to defer payroll tax payments. Based on the Company's evaluation of the CARES Act, it qualifies for certain employer payroll tax credits, which will offset store operating expenses. Year-to-date the Company has recognized $54 million of qualified payroll tax credits.
For most stores and select office locations, rent from April through July was not paid, or only partially paid, due to the temporary closures during the COVID-19 pandemic. The Company is in active discussions with its landlords to negotiate with respect to these rent payments and go-forward occupancy costs. The Financial Accounting Standards Board (“FASB”) issued guidance in April, which allows COVID-19-related rent concessions to be treated as variable rent. The Company has not yet finalized negotiations with respect to the majority of its leases.
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “thirdsecond quarter of 20192020” and “thirdsecond quarter of 20182019” refer to the thirteen-week periods ended November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, respectively. “Year-to-date 2019”“Year-to-Date 2020” and “year-to-date 2018”2019” refer to the thirty-nine-weektwenty-six-week periods ending November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, respectively.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company accounts for investments in unconsolidated entities where it exercises significant influence, but does not have control, using the equity method. Under the equity method of accounting, the Company recognizes its share of the investee's net income or loss. Losses are only recognized to the extent the Company has positive carrying value related to the investee. Carrying values are only reduced below zero if the Company has an obligation to provide funding to the investee. The Company’s share of net income or loss of unconsolidated entities from which the Company purchases merchandise or merchandise components is included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income (Loss) in the Consolidated Statements of Income (Loss). The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.
On January 6, 2019, the Company completed the sale of the La Senza business. For additional information, see Note 5, "Restructuring Activities."
Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended November 2,August 1, 2020 and August 3, 2019 and November 3, 2018 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 20182019 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.
SeasonalityDue to the impacts of Business
Due toCOVID-19 and seasonal variations in the retail industry, the results of operations for anythe interim period areis not necessarily indicative of the results expected for the full fiscal year.
Restricted Cash
During the second quarter, the Company placed cash on deposit with certain financial institutions as collateral for lending commitments. The amount of collateral required reduces over time as the Company makes certain paydowns. For additional information see Note 10, "Long-term Debt and Borrowing Facilities."
These deposits, totaling $128 million, are recorded in Other Assets on the August 1, 2020 Consolidated Balance Sheet. The Company's total Cash and Cash Equivalents and Restricted Cash was $2.739 billion as of August 1, 2020.

Derivative Financial Instruments
The Company uses derivative financial instruments to manage exposure to foreign currency exchange rates. The Company does not use derivative instruments for trading purposes. All derivative instruments are recorded on the Consolidated Balance Sheets at fair value.
The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all the merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. Amounts are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The fair value of designated cash flow hedges is not significant as of August 1, 2020.
Concentration of Credit Risk
The Company maintains cash and cash equivalents, restricted cash and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. Typically, the Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.

The Company also periodically reviews the relative credit standing of franchise, license and wholesale partners and other entities to which the Company grants credit terms in the normal course of business. The Company records an allowance for uncollectable accounts when it becomes probable that the counterparty will be unable to pay.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from those estimates, and the Company revises its estimates and assumptions as new information becomes available.

2. New Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheets but recognize expenses on their income statements in a manner similar to legacy accounting. The standard also requires enhanced quantitative and qualitative disclosures, including significant judgments made by management, to provide greater insight into the extent of expense recognized and expected to be recognized from existing leases. In July 2018, the FASB approved an amendment to the standard that provides companies a modified retrospective transition option that did not require earlier periods to be restated upon adoption.
The Company adopted the standard in the first quarter of 2019 under the modified retrospective approach. As allowed by the new standard, the Company elected the package of transition practical expedients but elected to not apply the hindsight practical expedient to its leases at transition.
Upon adoption at the beginning of 2019, the Company recorded operating lease liabilities of $3.7 billion and operating lease assets for its leases of $3.3 billion. The operating lease assets are net of $470 million of liabilities for deferred rent and unamortized landlord construction allowances that were previously recorded as Other Long-term Liabilities on the Consolidated Balance Sheet. The Company also recorded a decrease to opening retained earnings, net of tax, of $2 million. The adoption of the standard did not materially impact the Consolidated Statements of Income (Loss) or Cash Flows. See Note 9, “Leases” for additional disclosure required by the new standard.

Hedging Activities
In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12, Targeted Improvements to Accounting for Hedging Activities, which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted this standard in the third quarter of 2019 and performed the interim goodwill impairment assessment in accordance with ASU 2017-04. For additional information, see Note 8, "Goodwill and Trade Names."

Credit Losses
In June 2016, the FASB issued ASUAccounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses, which requires the use of a forward-looking expected loss impairment model for accounts receivable and certain other financial instruments. This guidance will be effective beginning in fiscal 2020, with early adoption permitted. The Company is currently evaluatingadopted the impactstandard in the first quarter of 2020. The adoption of this standard.standard did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.

Guarantor Reporting

In March 2020, the SEC issued a final rule, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, that simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X. The rule replaces the requirement to provide condensed consolidating financial information with a requirement to present summarized financial information of the issuers and guarantors. It also requires qualitative disclosures with respect to information about guarantors, the terms and conditions of guarantees and the factors that may affect payment. These disclosures may be provided outside the footnotes to the Company’s consolidated financial statements. The Company early adopted the reporting requirements of the rule in the first quarter of 2020 and elected to provide these disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
3. Revenue Recognition
Accounts receivable, net from revenue-generating activities were $147$186 million as of November 2, 2019, $150August 1, 2020, $152 million as of February 2, 20191, 2020 and $160$174 million as of NovemberAugust 3, 2018.2019. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 90 days. As a result of the COVID-19 pandemic, the Company has extended the payment terms for certain partners.
The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments, not yet delivered, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $280$316 million as of November 2, 2019, $331August 1, 2020, $342 million as of February 2, 20191, 2020 and $271$276 million as of NovemberAugust 3, 2018.2019. The Company recognized $190$132 million as revenue year-to-date in 20192020 from amounts recorded as deferred revenue at the beginning of the period.year. As of November 2, 2019,August 1, 2020, the Company recorded deferred revenue of $267$304 million within Accrued Expenses and Other, and $13$12 million within Other Long-term Liabilities on the Consolidated Balance Sheet.

The following table provides a disaggregation of Net Sales for the thirdsecond quarter and year-to-date 20192020 and 2018:2019:
Third Quarter Year-to-DateSecond Quarter Year-to-Date
2019 2018 2019 20182020 2019 2020 2019
(in millions)(in millions)
Bath & Body Works Stores (a)$678
 $883
 $1,102
 $1,597
Bath & Body Works Direct519
 178
 807
 335
Total Bath & Body Works1,197
 1,061
 1,909
 1,932
Victoria’s Secret Stores (a)$1,081
 $1,178
 $3,462
 $3,778
364
 1,233
 877
 2,381
Victoria’s Secret Direct331
 351
 1,067
 1,065
614
 373
 922
 735
Total Victoria’s Secret1,412
 1,529
 4,529
 4,843
978
 1,606
 1,799
 3,116
Bath & Body Works Stores (a)872
 808
 2,469
 2,281
Bath & Body Works Direct192
 148
 527
 399
Total Bath & Body Works1,064
 956
 2,996
 2,680
Victoria's Secret and Bath & Body Works International (b)134
 134
 423
 415
80
 155
 146
 289
Other (c)67
 156
 259
 447
64
 80
 120
 193
Total Net Sales$2,677
 $2,775
 $8,207
 $8,385
$2,319
 $2,902
 $3,974
 $5,530
 _______________
(a)Includes company-owned stores in the U.S. and Canada.
(b)Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.
(c)Includes wholesale revenues from the Company's sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri Bendel.

4. Restructuring
The Company remains committed to establishing Bath & Body Works as a pure-play public company and is taking the necessary steps to prepare Victoria's Secret to operate as a separate standalone company. Management of the Company is actively engaged in implementing a comprehensive profit improvement plan that will better position the Company to evaluate the next steps for the separation of the Victoria's Secret business. During the second quarter of 2020, the Company completed its comprehensive review of its home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of the home office headcount by approximately 15%, or about 850 associates. Pre-tax severance and related costs associated with these reductions, totaling $81 million, are included in General, Administrative and Store Operating Expenses in the 2020 Consolidated Statements of Loss. Costs of $26 million and $5 million are recorded within the Victoria's Secret and Bath & Body Works segments, respectively, while the remaining $50 million is recorded within Other. As of August 1, 2020, a liability of $79 million related to these costs is included in Accrued Expenses and Other on the Consolidated Balance Sheet.
Victoria's Secret U.K.
The Company is actively working to reduce operating losses in the Victoria's Secret U.K. business. The Company entered into "Light Administration" in June to restructure store lease agreements and explore the sale of the business to a joint venture or franchise partner. The Company subsequently signed a non-binding term sheet with a major fashion retailer and is in an exclusive period of negotiation.
5. Earnings (Loss) Per Share and Shareholders’ Equity (Deficit)
Earnings (Loss) Per Share
Earnings (Loss) per basic share is computed based on the weighted-average number of outstanding common shares. Earnings (Loss) per diluted share include the weighted-average effect of dilutive options and restricted stock on the weighted-average shares outstanding.

The following table provides shares utilized for the calculation of basic and diluted earnings (loss) per share for the thirdsecond quarter and year-to-date 20192020 and 20182019:
Third Quarter Year-to-DateSecond Quarter Year-to-Date
2019 2018 2019 20182020 2019 2020 2019
(in millions)(in millions)
Weighted-average Common Shares:              
Issued Shares284
 283
 284
 283
286
 284
 285
 284
Treasury Shares(8) (8) (8) (6)(8) (8) (8) (8)
Basic Shares276
 275

276

277
278
 276

277

276
Effect of Dilutive Options and Restricted Stock (a)
 
 
 2
0
 2
 0
 2
Diluted Shares276
 275

276

279
278
 278

277

278
Anti-dilutive Options and Awards (a)2
 2
 2
 5
11
 6
 12
 5
 _______________
(a)These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For 2019 and the third quarter 2018,2020, the dilutive impact of outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the respective periods.

Shareholders’ Equity (Deficit)
Common Stock Share Repurchases
The Company did not repurchase any shares during year-to-date 2019.
Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs during year-to-date 2018:
 
Amount
Authorized
 
Shares
Repurchased
 
Amount
Repurchased
 Average Stock Price of Shares Repurchased within Program
Repurchase Program   
 (in millions) (in thousands) (in millions)  
March 2018$250
 4,852
 $171
 $35.29
September 2017250
 527
 25
 $46.98
Total  5,379
 $196
  

In March 2018, the Company's Board of Directors approved a $250 million repurchase program, which included the $23 million remaining under the September 2017 repurchase program.
The March 2018 repurchase program had $79 million remaining as of November 2,August 1, 2020.
The Company did not repurchase any shares during 2020 or 2019.





Dividends
Under the authority and declaration of the Board of Directors, the Company paid the following dividends during year-to-date 20192020 and 2018:2019:
 Ordinary Dividends Total Paid Ordinary Dividends Total Paid
 (per share) (in millions) (per share) (in millions)
2019    
Third Quarter $0.30
 $83
2020    
Second Quarter 0.30
 83
 $0
 $0
First Quarter 0.30
 83
 0.30
 83
Total $0.90
 $249
 $0.30
 $83
2018    
Third Quarter $0.60
 $165
2019    
Second Quarter 0.60
 167
 $0.30
 $83
First Quarter 0.60
 168
 0.30
 83
Total $1.80
 $500
 $0.60
 $166


The Board of Directors suspended the quarterly cash dividend beginning in the second quarter of 2020.
5. Restructuring Activities
La Senza
On January 6, 2019, in an effort to increase shareholder value and in order to focus on its larger core businesses, the Company divested its ownership interest in La Senza to an affiliate of Regent LP, a global private equity firm. Regent LP assumed La Senza’s operating assets and liabilities in exchange for potential future consideration upon the sale or other monetization of La Senza, as defined in the agreement.  In the fourth quarter of 2018, the Company recognized a pre-tax loss on the divestiture of $99 million, primarily related to $45 million of accumulated foreign currency translation adjustments reclassified into earnings that were previously recognized as a component of equity, as well as losses related to the transfer of the net working capital and long-lived store assets to the buyer. The after-tax loss on the divestiture was $55 million, which includes $44 million of tax benefits primarily associated with the recognition of previously unrecognized deferred tax assets. In 2019, the Company received cash proceeds of $12 million related to a net working capital settlement from the divestiture. These proceeds are included within the Investing Activities section of the 2019 Consolidated Statement of Cash Flows.
In conjunction with the transaction, certain of the Company's subsidiaries have remaining contingent obligations related to La Senza lease payments under the terms of existing noncancelable leases, and the Company has certain other contingent obligations related to La Senza for a period of time. In the third quarter of 2019, the Company and its subsidiaries recognized pre-tax non-cash charges of $37 million related to the increase in the reserves for these potential exposures related to the La Senza business. These charges are included in Other Income (Loss) in the 2019 Consolidated Statements of Income (Loss). For additional information, see Note 16, "Commitments and Contingencies."
Additionally, the Company continues to provide technology and other operational support to La Senza for a period of time expected to continue into fiscal 2020.

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


6. Inventories
The following table provides details of inventories as of November 2, 2019,August 1, 2020, February 2, 20191, 2020 and NovemberAugust 3, 20182019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Finished Goods Merchandise$1,854
 $1,107
 $1,774
$1,259
 $1,152
 $1,132
Raw Materials and Merchandise Components178
 141
 189
217
 135
 197
Total Inventories$2,032
 $1,248
 $1,963
$1,476
 $1,287
 $1,329

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


7. Property and Equipment, NetLong-Lived Assets
The following table provides details of property and equipment, net as of November 2, 2019August 1, 2020February 2, 20191, 2020 and NovemberAugust 3, 20182019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Property and Equipment, at Cost$6,449
 $6,733
 $6,827
$6,276
 $6,613
 $6,808
Accumulated Depreciation and Amortization(3,878) (3,915) (3,893)(3,984) (4,127) (4,052)
Property and Equipment, Net$2,571
 $2,818
 $2,934
$2,292
 $2,486
 $2,756


Depreciation expense was $148$127 million and $150 million for both the thirdsecond quarter of 2020 and 2019, and 2018.respectively. Depreciation expense was $443$266 million and $444$295 million for year-to-date 20192020 and 2018,2019, respectively.
Long-Lived Store Assets
Long-lived store assets, which includesinclude leasehold improvements, store-relatedstore related assets and operating leases (subsequent to the adoption of ASC 842, Leases),lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group. An individual asset within an asset group is not impaired below its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by comparing the contractual rent payments to estimated market rental rates.  TheseAn individual asset within an asset group is not impaired below its estimated fair value. The fair value measurements qualify as levelof long-lived store assets are determined using Level 3 measurements ininputs within the fair value hierarchy.
InThe Company remains committed to taking the third quarter of 2019,necessary steps to prepare the Victoria's Secret business to operate as a separate, standalone company. Management is actively working on implementing a comprehensive profit improvement plan that will better position the Company concludedto evaluate the next steps for the separation of the Victoria's Secret business. A component of the profit improvement plan includes a rationalization of the Victoria’s Secret company-owned store footprint. The Company expects that it will close approximately 250 stores in North America in 2020. Given the closures as well as the negative operating results forof certain of its Victoria's Secret stores, were an indicator of potential impairment of the related store asset groups. The Company determined that the estimated undiscounted future cash flows were less than the carrying values for certain asset groups and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly, the Company recognized a loss equal to the difference between the carrying value of an asset groupflows and its estimated fair value but did not impair any individualmarket rental rates. Long-lived store asset below its estimated fair value. For leasehold improvements and store-related assets, the Company recognized impairment charges of $188 million. Impairment charges of $151 million related to stores in Greater China, the U.K. and Ireland, and impairment charges of $37 million related to stores in the U.S. and Canada. For operating lease assets, the Company recognized impairment charges of $30 million. Impairment charges of $26 million related to stores in the U.K., and impairment charges of $4 million related to stores in the U.S.
In total, the Company recognized impairment charges of $218 million for long-lived store assets, which are included in Costs of Goods Sold, Buying &and Occupancy in the 2019 Consolidated Statements of Income (Loss).  ImpairmentLoss.
The following table provides pre-tax long-lived store asset impairment charges included in the 2020 Consolidated Statements of $177 million, related to store assetsLoss:
 Second Quarter Year-to-Date
 
Store Asset
Impairment
 Operating Lease Asset Impairment 
Total
Impairment
 
Store Asset
Impairment
 Operating Lease Asset Impairment 
Total
Impairment
 (in millions)
Victoria's Secret (a)$14
 $61
 $75
 $111
 $61
 $172
Victoria's Secret and Bath & Body Works International (b)0
 42
 42
 0
 42
 42
Total$14
 $103
 $117
 $111
 $103
 $214
 ________________
(a)Includes stores in Greater China, the U.K. and Ireland, were recorded within the U.S. and Canada.
(b)Includes stores in the U.K., Ireland and Greater China.
Victoria's Secret and Bath & Body Works International segment. Impairment chargesHong Kong
During the second quarter of $41 million, related to store assets in2020, the U.S. and Canada, were recorded within theCompany closed its unprofitable Victoria's Secret segment.
In the third quarter of 2018, the Company concluded that the negative operating results for certain of its Victoria's Secret stores were an indicator of potential impairment of the relatedflagship store asset groups. The Company determined that the estimated undiscounted future cash flows were less than the carrying values and, asin Hong Kong. As a result determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly,closure, the Company recognized a loss equalnon-cash pre-tax gain of $39 million, primarily due to the

difference betweenterminating the carrying valuestore lease and the related write-off of anthe operating lease liability in excess of the operating lease asset, group and its estimated fair value but did not impair any individual store asset below its estimated fair value.
The Company recognized impairment charges of $81 million, which arewas partially impaired in fiscal 2019. This gain is included in Costs of Goods Sold, Buying &and Occupancy in the 20182020 Consolidated Statements of Income (Loss). Impairment chargesLoss. The Company also recorded $3 million of $50 million,severance and related to store assets in the U.S. and Canada, were recorded within the Victoria's Secret segment. Impairment charges of $31 million, related to store assets in the U.K., were recorded within the Victoria's Secret and Bath & Body Works International segment.

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

The following table provides detail regarding the composition of goodwill as of November 2, 2019, February 2, 2019 and November 3, 2018:
 November 2,
2019
 February 2,
2019
 November 3,
2018
 (in millions)
Victoria's Secret$690
 $690
 $690
Bath & Body Works628
 628
 628
Victoria's Secret's Secret and Bath & Body Works International
 30
 30
Goodwill$1,318
 $1,348
 $1,348

As of November 2, 2019, the Company performed a quantitative interim impairment assessment over the Victoria's Secret and Greater China reporting units. An interim assessment was performed in consideration of the negative performance of these reporting units and their impact on the sustained decline in the Company's market capitalization. Further, for the Greater China reporting unit, the Company considered the results of the long-lived store asset impairment assessment.
The interim assessment concluded that the fair value of the Victoria's Secret reporting unit exceeded its carrying value. However, the fair value of the Greater China reporting unit did not exceed its carrying value. Accordingly, the Company recognized a goodwill impairment charge of $30 million in the third quarter of 2019 related to the Greater China reporting unit, due to its estimated future cash flows. This charge iscosts, included in General, Administrative and Store Operating Expenses in the 20192020 Consolidated Statements of Income (Loss).
The estimated fair value of the Victoria's Secret reporting unit was based on a weighted average of the income and market approaches, while the estimated fair value of the Greater China reporting unit was based on the income approach. The income approach is based on estimated discounted future cash flows, while the market approach is based on earnings multiples of selected guideline public companies. The approaches, which qualify as level 3 in the fair value hierarchy, incorporated a number of significant assumptions and judgments including, but not limited to, estimated future cash flows, discount rates, income tax rates, terminal growth rates, multiples of earnings of similar public companies and an implied control premium relative to the Company's market capitalization.
Intangible Assets - Indefinite Lives
Intangible assets with indefinite lives represent the Victoria’s Secret and Bath & Body Works trade names. Intangible assets with indefinite lives are reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change. The following table provides detail regarding the composition of trade names as of November 2, 2019, February 2, 2019 and November 3, 2018:
 November 2,
2019
 February 2,
2019
 November 3,
2018
 (in millions)
Victoria's Secret$246
 $246
 $246
Bath & Body Works165
 165
 165
Trade Names$411
 $411
 $411

Loss.

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

9. Leases
In the first quarter of 2019, the Company adopted ASC 842, Leases, using the modified retrospective approach. Results for 2019 are presented under ASC 842, while prior period consolidated financial statements have not been adjusted and continue to be presented under the accounting standard in effect at that time.
The Company leases retail space, office space, warehouse facilities, storage space, equipment and certain other items under operating leases. A substantial portion of the Company’s leases are operating leases for its stores, which generally have an initial term of 10 years. Annual store rent consists of a fixed minimum amount and/or variable rent based on a percentage of sales exceeding a stipulated amount. Store lease terms generally also require additional payments covering certain operating costs such as common area maintenance, utilities, insurance and taxes. Certain leases contain predetermined fixed escalations of minimum rentals or require periodic adjustments of minimum rentals depending on an index or rate. Additionally, certain leases contain incentives, such as construction allowances from landlords and/or rent abatements subsequent to taking possession of the leased property.
At lease commencement, the Company recognizes an asset for the right to use the leased asset and a liability based on the present value of the unpaid fixed lease payments. Operating lease costs are recognized on a straight-line basis as lease expense over the lease term. Variable lease payments associated with the Company's leases are recognized upon occurrence of the event or circumstance on which the payments are assessed. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense is recognized on a straight-line basis over the lease term.
The Company uses its incremental borrowing rate, adjusted for collateral, to determine the present value of its unpaid lease payments.
The Company’s store leases often include options to extend the initial term or to terminate the lease prior to the end of the initial term. The exercise of these options is typically at the sole discretion of the Company. These options are included in determining the initial lease term at lease commencement if the Company is reasonably certain to exercise the option. Additionally, the Company may operate stores for a period of time on a month-to-month basis after the expiration of the lease term.
For leases entered into or reassessed after the adoption of the new standard, the Company has elected the practical expedient allowed by the standard to account for all fixed consideration in a lease as a single lease component. Therefore, the lease payments used to measure the lease liability for these leases include fixed minimum rentals along with fixed operating costs such as common area maintenance and utilities.
The Company has provided residual value guarantees in connection with noncancelable operating leases of certain assets. For additional information, see Note 16, “Commitments and Contingencies.”
The following table provides the components of lease cost for operating leases for the third quarter and year-to-date 2019:
 Third Quarter Year-to-Date
 (in millions)
Operating Lease Costs (a)$206
 $557
Variable Lease Costs27
 67
Short-term Lease Costs9
 19
Total Lease Cost$242
 $643

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


The following table provides future maturities of operating lease liabilities as of the third quarter of 2019:
Fiscal Year(in millions)
2019$115
2020720
2021676
2022605
2023546
Thereafter1,907
Total Lease Payments$4,569
Less: Interest(1,001)
Present Value of Operating Lease Liabilities$3,568

As of November 2, 2019, the Company has additional operating lease commitments that have not yet commenced of approximately $49 million.
The following table provides the weighted-average remaining lease term and discount rate for operating leases with lease liabilities as of the third quarter of 2019:
Weighted Average Remaining Lease Term (years)7.4
Weighted Average Discount Rate6.2%

Year-to-date 2019, the Company paid $528 million for operating lease liabilities recorded on the balance sheet. These payments are included within the Operating Activities section of the 2019 Consolidated Statement of Cash Flows.
Year-to-date 2019, the Company obtained $248 million of additional lease assets as a result of new operating lease obligations.
Disclosures for 2018
The following table provides rent expense, as presented under the prior accounting standard, for the third quarter and year-to-date 2018:
 Third Quarter Year-to-Date
 (in millions)
Store Rent:   
Fixed Minimum$167
 $500
Contingent15
 45
Total Store Rent182
 545
Office, Equipment and Other25
 69
Total Rent Expense$207
 $614
The following table provides future minimum rent commitments under noncancelable operating leases in the next five fiscal years and the remaining years thereafter, as determined under the prior accounting standard, as of February 2, 2019:
Fiscal Year (a)(in millions)
2019$698
2020676
2021630
2022562
2023504
Thereafter$1,738
 _______________
(a)Excludes additional payments covering taxes, common area costs and certain other expenses generally required by store lease terms.

Finance Leases
The Company leases certain fulfillment equipment under finance leases that expire at various dates through 2023. The Company records finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the Consolidated Balance Sheet. Additionally, the Company records finance lease liabilities in Accrued Expenses and Other and Other Long-term Liabilities on the Consolidated Balance Sheet. Finance lease costs are comprised of the straight-line amortization of the lease asset and the accretion of interest expense under the effective interest method.
The Company recorded $23 million and $28 million of finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the November 2, 2019 and November 3, 2018 Consolidated Balance Sheets, respectively. Additionally, the Company recorded finance lease liabilities of $8 million and $8 million in Accrued Expenses and Other and $15 million and $21 million in Other Long-term Liabilities, on the November 2, 2019 and November 3, 2018 Consolidated Balance Sheets, respectively.
Asset Retirement Obligations
The Company has asset retirement obligations related to certain company-owned stores that contractually obligate the Company to remove leasehold improvements at the end of a lease. The Company’s liability for asset retirement obligations totaled $22 million as of November 2, 2019 and $17 million as of November 3, 2018. These liabilities are included in Other Long-term Liabilities on the Consolidated Balance Sheets.

10.8. Equity Investments
The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $112$124 million as of November 2, 2019 and $89August 1, 2020, $118 million as of February 2,1, 2020 and $102 million as of August 3, 2019, and November 3, 2018, are recorded in Other Assets on the Consolidated Balance Sheets.
Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.
The Company received cash distributions of $5 million and $15 million from certain of its Easton investments year-to-date 2019 and 2018, respectively, which are included within Investing Activities of the Consolidated Statements of Cash Flows. 

11.9. Income Taxes
The Company has historically calculated the provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the twenty-six-weeks ended August 1, 2020 was computed on a year-to-date effective tax rate.
For the thirdsecond quarter of 2019,2020, the Company’s effective tax rate was 9.1%17.7% compared to (3.9%)10.1% in the thirdsecond quarter of 2018.2019. The thirdsecond quarter rates wereof 2020 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges,losses related to certain foreign subsidiaries, which generate no tax benefit, forpartially offset by recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit. The second quarter of 2019 rate was lower than the Company's combined federal and state statutory rate primarily due to the resolution of certain foreign subsidiaries.tax matters.
For year-to-date 2019,2020, the Company’sCompany's effective tax rate was 0.4%26.7% compared to 29.0%24.0% year-to-date 2018.2019. The year-to-date 2020 rate was generally consistent with the Company's combined estimated federal and state statutory rate due to the resolution of certain tax matters, which resulted in a $50 million tax benefit and recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit. The year-to-date 2019 year-to-date rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate noresolution of certain tax benefit for certain foreign subsidiaries. The 2018 year-to-date rate was higher than the Company's estimated federal and state statutory rate primarily due to losses related to certain foreign subsidiaries.matters.
Income taxes paid were $27$13 million and $40$169 million for the thirdsecond quarter of 20192020 and 2018,2019, respectively. Income taxes paid were $208$22 million and $306$181 million for year-to-date 20192020 and 2018,2019, respectively.
Uncertain Tax Positions
The Company had unrecognized tax benefits of $114$88 million as of February 2, 2019,1, 2020, of which $104$81 million, if recognized, would reduce the effective income tax rate. Through November 2, 2019,August 1, 2020, the Company had a net decrease to gross unrecognized tax benefits of $24$31 million, primarily due to the resolution of certain tax matters. The changes to the unrecognized tax benefits resulted in an $18a $30 million benefit to the Company’s Provision for Income Taxes year-to-date.
Of the total unrecognized tax benefits as of November 2, 2019,August 1, 2020, it is reasonably possible that $66$28 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.

12.10. Long-term Debt and Borrowing Facilities
The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of November 2, 2019August 1, 2020February 2, 20191, 2020 and NovemberAugust 3, 20182019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Senior Secured Debt with Subsidiary Guarantee     
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")$739
 $0
 $0
Secured Foreign Facilities101
 103
 95
Total Senior Secured Debt with Subsidiary Guarantee$840
 $103
 $95
Senior Debt with Subsidiary Guarantee          
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)$991

$990

$990
$991

$991

$990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)857

952

951
858

858

857
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)693

693

693
693

693

693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)498

498

498
498

498

498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)496
 496
 495
496
 496
 496
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")492
 0
 0
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")487
 
 
488
 487
 486
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)449
 776
 776
450
 450
 449
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)275
 273
 273
277
 276
 274
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)
 337
 337
Secured Revolving Facility
 
 85
Secured Foreign Facilities95
 91
 94
Total Senior Debt with Subsidiary Guarantee$4,841

$5,106

$5,192
$5,243

$4,749

$4,743
Senior Debt          
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)$348

$348

$348
$348

$348

$348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)298

297

297
298

298

297
Unsecured Foreign Facilities65

60

33
0

50

67
Total Senior Debt$711

$705

$678
$646

$696

$712
Total$5,552

$5,811

$5,870
$6,729

$5,548

$5,550
Current Debt(75)
(72)
(56)(460)
(61)
(75)
Total Long-term Debt, Net of Current Portion$5,477

$5,739

$5,814
$6,269

$5,487

$5,475

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

In June 2020, the Company also issued $500 million of 7.50%9.375% notes due in June 2029 ("2029July 2025 (the "2025 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by the Company and certain of the Company's 100% owned subsidiaries (the “Guarantors”).subsidiaries. The proceeds from the issuance were $486$492 million, which were net of discounts and issuance costs of $14$8 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the November 2, 2019August 1, 2020 Consolidated Balance Sheet.
Repurchases of Notes
In June 2019, the Company completed the early settlement of tender offers to repurchase $212 million of outstanding 2020 Notes, $330 million of outstanding 2021 Notes and $96 million of outstanding 2022 Notes for $669 million. The Company used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, the Company redeemed the remaining $126 million of outstanding 2020 Notes for $130 million.

In the second quarter of 2019, the Company recognized a pre-tax loss on extinguishment of debt of $40 million (after-tax loss of $30 million), which includes redemption fees and the write-offs of unamortized issuance costs and redemption fees.costs. This loss is included in Other Income (Loss) in the year-to-date 2019 Consolidated StatementStatements of Income (Loss).Income.
Exchange of Notes
In June 2018, the Company completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 ("2027 Notes") and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain or loss was recognized. The exchange premium is being amortized through the maturity date of January 2027 and is included within Long-term Debt on the Consolidated Balance Sheets. The

obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors.
Secured Revolving Credit Facility
The Company and certain of the GuarantorsCompany's 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility ("Secured Revolving Facility"Credit Agreement"). The Secured Revolving Facility has aggregate availability of $1 billion. The Secured Revolving Facility allows the Company and certain of the Company's non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.
In August 2019,April 2020, the Company entered into an amendment and restatement (“Amendment”) of the Secured Revolving Facility.Credit Agreement to convert the Company’s credit facility into an asset-backed revolving credit facility. The Amendment maintainedmaintains the aggregate availability under the Secured Revolving Facilitycommitments at $1 billion, and extendedmaintains the expiration date from May 2022 toin August of 2024. The Amendment also raisedABL Facility allows borrowings and letters of credit in U.S. dollars or Canadian dollars.
Availability under the thresholdABL Facility is the lesser of consolidated debt(i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, the Company will be required to consolidated EBITDA in which investments and restricted payments may be made without limitation to 3.50 to 1.00.
The Company incurred fees relatedprepay the outstanding amounts under the ABL Facility to the Amendmentextent of $5such excess. In addition, at any time that the Company's consolidated cash balance exceeds $350 million, which were capitalized and recorded in Other Assets onit will be required to prepay outstanding amounts under the November 2, 2019 Consolidated Balance Sheet and are being amortized overABL Facility to the remaining termextent of such excess. As of August 1, 2020, the Secured Revolving Facility.Company's borrowing base was $844 million but it was unable to draw upon the ABL Facility as its consolidated cash balance exceeded $350 million.
As of November 2, 2019,August 1, 2020, the Secured RevolvingABL Facility fees related to committed and unutilized amounts were 0.25%0.30% per annum, and the fees related to outstanding letters of credit were 1.50%1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the London Interbank Offered Rate (“LIBOR”) plus 1.50%1.75% per annum. The interest rate on outstanding foreign-denominatedCanadian dollar-denominated borrowings was the applicable benchmark rateCanadian Dollar Offered Rate plus 1.50%1.75% per annum.
The Secured RevolvingABL Facility contains fixed charge coverage and debt to EBITDA financial covenants. Therequires the Company is required to maintain a fixed charge coverage ratio of not less than 1.751.00 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitationduring an event of default or any period commencing on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter periodany day when specified excess availability is less than 3.50 to 1.00 and (b) no defaultthe greater of (1) $100 million or event(2) 15% of default exists.the maximum borrowing amount. As of November 2, 2019,August 1, 2020, the Company was not required to maintain this ratio.
In March 2020, in compliance with bothan abundance of caution and as a proactive measure in response to the COVID-19 pandemic, the Company elected to borrow $950 million from its financial covenants, andrevolving facility, which was prepaid upon the ratiocompletion of consolidated debt to consolidated EBITDA was less than 3.50 to 1.00.
the Amendment. As of November 2, 2019,August 1, 2020, there were 0 borrowings outstanding under the Secured RevolvingABL Facility.
The Secured RevolvingABL Facility supports the Company’s letter of credit program. The Company had $10$61 million of outstanding letters of credit as of November 2, 2019August 1, 2020 that reduced its availability under the Secured RevolvingABL Facility.
Secured Foreign Facilities
The Company andCertain of the Guarantors guarantee and pledge collateral to secureCompany's China subsidiaries utilize revolving and term loan bank facilities ("Secured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations.operations ("Foreign Facilities"). The Secured Foreign Facilities which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $150 million. Theand interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019,Certain of these facilities are guaranteed by the Company borrowed $16 million and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between December 2019 and August 2024. As of November 2, 2019, borrowings of $10 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.
Unsecured Foreign Facilities
The Company guarantees unsecured revolving and term loan bank facilities ("Unsecured Foreign Facilities") used by certain of the Company's Greater China100% owned subsidiaries to support their operations. The ("Secured Foreign Facilities"), and certain of these facilities were guaranteed by the Company only ("Unsecured Foreign Facilities").
The Secured Foreign Facilities which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $87$128 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019,2020, the Company borrowed $20 million and made payments of $13$22 million under the UnsecuredSecured Foreign Facilities. The maximum daily amountAs of August 1, 2020, there were borrowings of $101 million outstanding at any point in time during 2019 was $73 million. Borrowings onunder the UnsecuredSecured Foreign Facilities, mature between November 2019 and January 2020. As of November 2, 2019, borrowings of $65which $10 million areis included within Current Debt on the Consolidated Balance Sheet. Borrowings on the Secured Foreign Facilities mature between September 2020 and August 2024.


13. Derivative Financial Instruments
The earnings ofDuring the Company's wholly owned foreign businesses are subject to exchange rate risksecond quarter, the Company placed cash on deposit with certain financial institutions as substantially allcollateral for their merchandise is sourced through U.S. dollar transactions.lending commitments under the Secured Foreign Facilities. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. These forward contracts currently have a maximum term of 18 months. Amounts are reclassified from accumulated other comprehensive income upon the sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss).
The Company uses foreign currency forward contracts to mitigate the impact of fluctuations in foreign currency exchange rates relative to recognized payable balances denominated in non-functional currencies. The fair value of these non-designated foreign currency forward contracts is not significant as of November 2, 2019.
The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instrumentscollateral required reduces over time as of November 2, 2019, February 2, 2019 and November 3, 2018:
 November 2,
2019
 February 2,
2019
 November 3,
2018
 (in millions)
Notional Amount$130
 $147
 $198


The following table provides a summary of the fair value and balance sheet classification of outstanding derivative financial instruments designated as foreign currency cash flow hedges as of November 2, 2019, February 2, 2019 and November 3, 2018:
 November 2,
2019
 February 2,
2019
 November 3,
2018
 (in millions)
Other Current Assets$1
 $2
 $3
Accrued Expenses and Other1
 
 


The following table provides a summary of the pre-tax financial statement effect of the gains and losses on derivative financial instruments designated as foreign currency cash flow hedges for the third quarter and year-to-date 2019 and 2018:
 Third Quarter Year-to-Date
 2019 2018 2019 2018
 (in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income$(2) $1
 $2
 $11
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense(1) 
 (4) 3

The Company estimates that $1makes certain paydowns. These deposits, totaling $128 million, of net gains includedare recorded in accumulated other comprehensive income as of November 2, 2019 related to foreign currency forward contracts designated as cash flow hedges will be reclassified into earnings within the following 12 months. Actual amounts ultimately reclassified dependOther Assets on the exchange rates in effect when derivative contracts that are currentlyAugust 1, 2020 Consolidated Balance Sheet.
During 2020, the Company borrowed $13 million and made payments of $63 million under the Unsecured Foreign Facilities. During the second quarter of 2020, with 0 borrowings outstanding, mature.the Company terminated the Unsecured Foreign Facilities.


14.11. Fair Value Measurements
The following table provides a summaryCash and Cash Equivalents and Restricted Cash include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of November 2, 2019, February 2, 2019 and November 3, 2018:
 Level 1 Level 2 Level 3 Total
 (in millions)
As of November 2, 2019       
Assets:       
Cash and Cash Equivalents$340
 $
 $
 $340
Marketable Equity Securities1
 
 
 1
Foreign Currency Cash Flow Hedges
 1
 
 1
Liabilities:       
Foreign Currency Cash Flow Hedges
 1
 
 1
As of February 2, 2019       
Assets:       
Cash and Cash Equivalents$1,413
 $
 $
 $1,413
Marketable Equity Securities11
 
 
 11
Foreign Currency Cash Flow Hedges
 2
 
 2
As of November 3, 2018       
Assets:       
Cash and Cash Equivalents$348
 $
 $
 $348
Marketable Equity Securities9
 
 
 9
Foreign Currency Cash Flow Hedges
 3
 
 3


less than 90 days. The Company's Cash and Cash Equivalents and Restricted Cash are considered Level 1 fair value measurements useas they are valued using unadjusted quoted prices in active markets for identical assets. The Company's marketable equity securities are classified as Level 1 fair value measurements as they are traded with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis. During year-to-date 2019, the Company received cash proceeds of $9 million related to sales of its marketable equity securities, which are included within Investing Activities of the 2019 Consolidated Statement of Cash Flows. 
The Company’s Level 2 fair value measurements use market approach valuation techniques. The primary inputs to these techniques include foreign currency exchange rates, as applicable to the underlying instruments.
The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt as of November 2, 2019,August 1, 2020, February 2, 20191, 2020 and NovemberAugust 3, 2018:2019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Principal Value$5,458
 $5,722
 $5,722
$6,708
 $5,458
 $5,458
Fair Value, Estimated (a)5,156
 5,340
 5,301
6,692
 5,555
 5,215

  _______________
(a)
The estimated fair value of the Company’s publicly traded debt is based on reported transaction prices, which are considered Level 2 inputs in accordance with ASC 820, Fair Value Measurement. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Management believes that the carrying values of accounts receivable, accounts payable and accrued expenses and current debt approximate fair value because of their short maturity.


15.12. Comprehensive Income
The following table provides the rollforward of accumulated other comprehensive income for year-to-date 2019:2020:
Foreign Currency Translation Cash Flow Hedges Accumulated Other Comprehensive IncomeForeign Currency Translation Cash Flow Hedges Accumulated Other Comprehensive Income
(in millions)(in millions)
Balance as of February 2, 2019$57
 $2
 $59
Balance as of February 1, 2020$52
 $0
 $52
Other Comprehensive Income (Loss) Before Reclassifications(5) 2
 (3)(4) 2
 (2)
Amounts Reclassified from Accumulated Other Comprehensive Income
 (4) (4)0
 (1) (1)
Tax Effect
 1
 1
0
 0
 0
Current-period Other Comprehensive Income (Loss)(5) (1) (6)(4) 1
 (3)
Balance as of November 2, 2019$52
 $1
 $53
Balance as of August 1, 2020$48
 $1
 $49

The following table provides the rollforward of accumulated other comprehensive income for year-to-date 2018:2019:
Foreign Currency Translation Cash Flow Hedges Marketable Equity Securities Accumulated Other Comprehensive IncomeForeign Currency Translation Cash Flow Hedges Accumulated Other Comprehensive Income
(in millions)(in millions)
Balance as of February 3, 2018$32
 $(10) $2
 $24
Amount reclassified to Retained Earnings upon adoption of ASC 321, Investments - Equity Securities

 
 (2) (2)
Balance as of February 4, 201832
 (10) 
 22
Balance as of February 2, 2019$57
 $2
 $59
Other Comprehensive Income (Loss) Before Reclassifications(24) 11
 
 (13)(11) 4
 (7)
Amounts Reclassified from Accumulated Other Comprehensive Income
 3
 
 3
0
 (3) (3)
Tax Effect
 (1) 
 (1)0
 0
 0
Current-period Other Comprehensive Income (Loss)(24) 13
 
 (11)(11) 1
 (10)
Balance as of November 3, 2018$8
 $3
 $
 $11
Balance as of August 3, 2019$46
 $3
 $49


16.13. Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
In July 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that the Company made false and/or misleading statements relating to the November 2018 announcement that the Company was reducing its quarterly dividend. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief.  In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel.  The deadline forlead plaintiff filed a consolidated

amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint.  The Company filed a motion to dismiss the consolidated amended complaint on February 18, 2020, the lead plaintiff filed an opposition to file anthe Company's motion to dismiss on May 4, 2020, and the Company filed a reply brief in further support of its motion to dismiss on June 3, 2020.  The Company's motion to dismiss the consolidated amended complaint is December 20, 2019.now fully briefed and pending before the court.  The court will hear oral argument on the motion to dismiss on September 23, 2020. The Company views this lawsuit as meritless and intends to defend against this lawsuit vigorously. 
On February 19, 2020, a plaintiff shareholder filed a complaint in the U.S. District Court for the Southern District of Ohio alleging derivative claims on behalf of the Company against certain of its current and former directors and officers.  The Company was named as nominal defendant.  The lawsuit asserts claims for breach of fiduciary duty, corporate waste and unjust enrichment in connection with alleged misstatements about the Company's quarterly dividend prior to the announced reduction of the dividend in November 2018. On July 21, 2020, the court so-ordered a stipulation staying all proceedings in this lawsuit, pending resolution of the motion to dismiss that the Company filed on February 18, 2020 in the putative class action lawsuit described above.  The Company intends to seek dismissal of the lawsuit at the appropriate time.
On May 19, 2020, a purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Court of Common Pleas for Franklin County, Ohio.  The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, that these defendants breached their fiduciary duties by violating law and/or company policies relating to workplace conduct.  The Company was named as nominal defendant only, and there are no claims asserted against it.  On June 16, 2020, the lawsuit was removed to the United States District Court for the Southern District of Ohio.  On July 6, 2020, the court so-ordered a stipulation staying the lawsuit until December 29, 2020.  The Company is currently evaluating potential options for responding to the lawsuit.
La Senza
In connection with the sale of La Senza in the fourth quarter of 2018, certain of the Company's subsidiaries have remaining contingent obligations of $44$36 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business. As part of August 1, 2020, the sale, a liabilityCompany has recorded reserves of $5$37 millionwas recorded for these obligations. During the third quarter of 2019, an additional reserve of $19 million was recorded related to these obligations. This liability is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.

Additionally, the Company haslease-related obligations and certain other contingent obligations related to the La Senza for a periodbusiness. As of time. A reserveAugust 1, 2020, reserves of $17$6 million was recorded duringare included within Accrued Expenses and Other on the third quarter of 2019 related to these obligations, which isConsolidated Balance Sheet and the remaining reserves are included inwithin Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.Liabilities.
Other
In connection with the dispositionnoncancelable operating lease of a certain other business,an operating asset, the Company has remaining guarantees of $5 million related to lease payments under the current terms ofprovides a noncancelable lease expiring in 2021, which may remain in effect if the term is extended. The Company has not recorded a liability with respect to this guarantee obligation as of November 2, 2019, February 2, 2019 or November 3, 2018 as it concluded that payments under this guarantee were not probable.
In connection with noncancelable operating leases of certain assets, the Company provided residual value guaranteesguarantee to the lessor if the leased assetsasset 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 throughlease expires in 2021, and the total amount of the guaranteesguarantee is $94$28 million. The Company recordeddid not record a liability of $11 million as of November 2, 2019 and February 2, 2019, and $3 million as of November 3, 2018 related to these guarantee obligations. This liability is included in Current Operating Lease Liabilities on the November 2, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and November 3, 2018 Consolidated Balance Sheets.

August 1, 2020.
17.14. Retirement Benefits
The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all its associates within the U.S. Participation in the tax-qualified plan is available to associates who meet certain age and service requirements. Participation in the non-qualified plan is available to associates who meet certain age, service, job level and compensation requirements.
The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $19 million for the third quarter of 2019 and $18 million for the thirdsecond quarter of 2018.2020 and $20 million for the second quarter of 2019. Total expense recognized related to the qualified plan was $58$39 million for both year-to-date 20192020 and $56 million for year-to-date 2018.2019.
The Company sponsors a non-qualified supplemental retirement plan. The non-qualified plan is an unfunded plan, which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formulaOn June 27, 2020 (the “Termination Date”), the Human Capital and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount, which the Company does not match. Associates’ accounts are credited with interest using a fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors priorauthorized the termination of the non-qualified plan. Subsequent to the beginning of each year. AssociateTermination Date, no additional employee contributions andmay be made to the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only.non-qualified plan. The remaining vested portionbenefits and obligations are expected to be paid out in full approximately one year following the Termination Date. Accordingly, the liability of associates’ accounts in$258 million related to the non-qualified plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years.is included within Accrued Expenses and Other on the August 1, 2020 Consolidated Balance Sheet. Total expense recognized related to the non-qualified plan was $8$3 million for the thirdsecond quarter of 20192020 and $7$6 million for the thirdsecond quarter of 2018.2019. Total expense recognized related to the non-qualified plan was $20$9 million for year-to-date 20192020 and $18$12 million for year-to-date 2018.2019.


18.15. Segment Information
The Company has 3 reportable segments: Victoria’s Secret, Bath & Body Works, Victoria's Secret and Victoria's Secret and Bath & Body Works International.
The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and PINK brand names. Victoria’s Secret merchandise is sold online and through retail stores located in the U.S. and Canada.
The Bath & Body Works segment sells body care, home fragrance products, soaps and sanitizers under the Bath & Body Works, White Barn, C.O. Bigelow and other brand names. Bath & Body Works merchandise is sold online and at retail stores located in the U.S. and Canada.

The Victoria’s Secret segment sells women’s intimate and other apparel, personal care and beauty products under the Victoria’s Secret and PINK brand names. Victoria’s Secret merchandise is sold online and through retail stores located in the U.S. and Canada.
The Victoria's Secret and Bath & Body Works International segment includes the Victoria's Secret and Bath & Body Works company-owned and partner-operated stores located outside of the U.S. and Canada, as well as the online business in Greater China. This segment includes the following:
Victoria's Secret International, comprised of company-owned stores in the U.K., Ireland and Greater China, as well as stores operated by partners under franchise and license arrangements;
Victoria's Secret Beauty and Accessories, comprised of company-owned stores in Greater China, as well as stores operated by partners under franchise, license and wholesale arrangements, which feature Victoria's Secret branded beauty and accessories products in travel retail and other locations; and
Bath & Body Works International, comprised of stores operated by partners under franchise, license and wholesale arrangements.
Other includes Mast Global, a merchandise sourcing and production function serving the Company and its international partners, and Corporate functions, including non-core real estate, equity investments and other governance functions such as treasury and tax. Results for 2018 also include La Senza and Henri Bendel.
The following table provides the Company’s segment information for the thirdsecond quarter and year-to-date 20192020 and 2018:2019:
Victoria’s
Secret
 
Bath &
Body Works
 
Victoria’s Secret
and
Bath & Body Works International
 Other Total
Bath & Body
Works
 
Victoria’s
Secret
 
Victoria’s Secret
and
Bath &
Body Works
International
 Other Total
(in millions)(in millions)
2019         
Third Quarter:         
2020         
Second Quarter:         
Net Sales$1,412
 $1,064
 $134
 $67
 $2,677
$1,197
 $978
 $80
 $64
 $2,319
Operating Income (Loss) (a)(122) 196
 (215) (10) $(151)326
 (140) (19) (123) 44
Year-to-Date:                  
Net Sales$4,529
 $2,996
 $423
 $259
 $8,207
$1,909
 $1,799
 $146
 $120
 $3,974
Operating Income (Loss) (a)(73) 531
 (220) (61) 177
395
 (440) (54) (175) (274)
2018         
Third Quarter:         
2019         
Second Quarter:         
Net Sales$1,529
 $956
 $134
 $156
 $2,775
$1,061
 $1,606
 $155
 $80
 $2,902
Operating Income (Loss) (b)(36) 178
 (42) (46) 54
180
 17
 (1) (21) 175
Year-to-Date:        

        

Net Sales$4,843
 $2,680
 $415
 $447
 $8,385
$1,932
 $3,116
 $289
 $193
 $5,530
Operating Income (Loss) (b)162
 470
 (56) (139) 437
335
 49
 (5) (51) 328

 _______________
(a)
Victoria's Secret includes store and lease asset impairment charges of $75 million and $172 million for the second quarter and year-to-date 2020, respectively. Victoria's Secret and Bath & Body Works International includes storelease asset impairment charges of $41 million and $177 million, respectively.$42 million. Additionally, Victoria's Secret and Bath & Body Works International includes a goodwill impairment charge$36 million net gain related to the closure and lease termination of $30 million.the Hong Kong flagship store. For additional information, see Note 7, “Property and Equipment, Net" and Note 8, "Goodwill and Trade Names.“Long-Lived Assets."
(b)Victoria's Secret and Victoria's Secret and Bath & Body Works, International includes store asset impairment charges of $50 million and $31 million, respectively,Victoria's Secret and Other includes Henri Bendel closure costsseverance and related charges of $20 million.$5 million, $26 million and $50 million, respectively. For additional information, see Note 7, “Property and Equipment, Net" and Note 5, “Restructuring Activities.4, “Restructuring."

The Company'sCompany’s international net sales include sales from company-owned stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales across all segments totaled $318$238 million and $387$357 million for the thirdsecond quarter of 20192020 and 2018,2019, respectively. The Company's international net sales across all segments totaled $1.024 billion$418 million and $1.146 billion$706 million for year-to-date 2020 and 2019, and 2018, respectively.


19. Supplemental Guarantor Financial Information
The Company’s 2021 Notes, 2022 Notes, 2023 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2035 Notes, 2036 Notes, Secured Revolving Facility and Secured Foreign Facilities are jointly and severally guaranteed on a full and unconditional basis by the Guarantors. The Company is a holding company, and its most significant assets are the stock of its subsidiaries. The Guarantors represent: (a) substantially all of the sales of the Company’s domestic subsidiaries, (b) more than 90% of the assets owned by the Company’s domestic subsidiaries, other than real property, certain other assets and intercompany investments and balances and (c) more than 95% of the accounts receivable and inventory directly owned by the Company’s domestic subsidiaries.
The following supplemental financial information sets forth for the Company and its guarantor and non-guarantor subsidiaries: the Condensed Consolidating Balance Sheets as of November 2, 2019, February 2, 2019 and November 3, 2018 and the Condensed Consolidating Statements of Income (Loss), Comprehensive Income (Loss) and Cash Flows for the periods ended November 2, 2019 and November 3, 2018.

L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
(Unaudited)
 November 2, 2019
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
ASSETS         
Current Assets:         
Cash and Cash Equivalents$
 $186
 $154
 $
 $340
Accounts Receivable, Net
 191
 104
 
 295
Inventories
 1,864
 168
 
 2,032
Other9
 53
 197
 
 259
Total Current Assets9
 2,294
 623
 
 2,926
Property and Equipment, Net
 1,823
 748
 
 2,571
Operating Lease Assets
 2,587
 543
 
 3,130
Goodwill
 1,318
 
 
 1,318
Trade Names
 411
 
 
 411
Net Investments in and Advances to/from Consolidated Affiliates4,095
 20,095
 2,835
 (27,025) 
Deferred Income Taxes
 9
 54
 
 63
Other Assets130
 10
 700
 (629) 211
Total Assets$4,234
 $28,547
 $5,503
 $(27,654) $10,630
LIABILITIES AND EQUITY (DEFICIT)         
Current Liabilities:         
Accounts Payable$1
 $576
 $447
 $
 $1,024
Accrued Expenses and Other69
 587
 324
 
 980
Current Debt
 
 75
 
 75
Current Operating Lease Liabilities
 377
 83
 
 460
Income Taxes
 
 4
 
 4
Total Current Liabilities70
 1,540
 933
 
 2,543
Deferred Income Taxes1
 (41) 286
 
 246
Long-term Debt5,392
 615
 85
 (615) 5,477
Long-term Operating Lease Liabilities
 2,579
 529
 
 3,108
Other Long-term Liabilities62
 397
 49
 (14) 494
Total Equity (Deficit)(1,291) 23,457
 3,621
 (27,025) (1,238)
Total Liabilities and Equity (Deficit)$4,234
 $28,547
 $5,503
 $(27,654) $10,630














L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)

 February 2, 2019
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
ASSETS         
Current Assets:         
Cash and Cash Equivalents$
 $997
 $416
 $
 $1,413
Accounts Receivable, Net
 241
 126
 
 367
Inventories
 1,093
 155
 
 1,248
Other
 139
 93
 
 232
Total Current Assets
 2,470
 790
 
 3,260
Property and Equipment, Net
 1,922
 896
 
 2,818
Goodwill
 1,318
 30
 
 1,348
Trade Names
 411
 
 
 411
Net Investments in and Advances to/from Consolidated Affiliates4,755
 19,737
 2,047
 (26,539) 
Deferred Income Taxes
 9
 53
 
 62
Other Assets127
 15
 670
 (621) 191
Total Assets$4,882
 $25,882
 $4,486
 $(27,160) $8,090
LIABILITIES AND EQUITY (DEFICIT)         
Current Liabilities:         
Accounts Payable$
 $363
 $348
 $
 $711
Accrued Expenses and Other92
 597
 393
 
 1,082
Current Debt
 
 72
 
 72
Income Taxes(7) 100
 28
 
 121
Total Current Liabilities85
 1,060
 841
 
 1,986
Deferred Income Taxes1
 (44) 269
 
 226
Long-term Debt5,661
 606
 79
 (607) 5,739
Other Long-term Liabilities59
 852
 107
 (14) 1,004
Total Equity (Deficit)(924) 23,408
 3,190
 (26,539) (865)
Total Liabilities and Equity (Deficit)$4,882
 $25,882
 $4,486
 $(27,160) $8,090



L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
(Unaudited)
 November 3, 2018
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
ASSETS         
Current Assets:         
Cash and Cash Equivalents$
 $167
 $181
 $
 $348
Accounts Receivable, Net
 212
 109
 
 321
Inventories
 1,700
 263
 
 1,963
Other15
 165
 121
 
 301
Total Current Assets15
 2,244
 674
 
 2,933
Property and Equipment, Net
 2,019
 915
 
 2,934
Goodwill
 1,318
 30
 
 1,348
Trade Names
 411
 
 
 411
Net Investments in and Advances to/from Consolidated Affiliates4,396
 19,442
 2,386
 (26,224) 
Deferred Income Taxes
 9
 11
 
 20
Other Assets127
 14
 683
 (641) 183
Total Assets$4,538
 $25,457
 $4,699
 $(26,865) $7,829
LIABILITIES AND EQUITY (DEFICIT)         
Current Liabilities:         
Accounts Payable$
 $585
 $475
 $
 $1,060
Accrued Expenses and Other62
 583
 373
 
 1,018
Current Debt
 
 56
 
 56
Income Taxes
 
 8
 
 8
Total Current Liabilities62
 1,168
 912
 
 2,142
Deferred Income Taxes(2) (43) 279
 
 234
Long-term Debt5,743
 627
 71
 (627) 5,814
Other Long-term Liabilities58
 810
 97
 (14) 951
Total Equity (Deficit)(1,323) 22,895
 3,340
 (26,224) (1,312)
Total Liabilities and Equity (Deficit)$4,538
 $25,457
 $4,699
 $(26,865) $7,829



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




L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
 Third Quarter 2019
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Income (Loss)$(252) $(220) $(172) $392
 $(252)
Other Comprehensive Income (Loss), Net of Tax:         
Foreign Currency Translation
 
 6
 
 6
Unrealized Gain (Loss) on Cash Flow Hedges
 
 (2) 
 (2)
Total Other Comprehensive Income (Loss), Net of Tax
 
 4
 
 4
Total Comprehensive Income (Loss)$(252) $(220) $(168) $392
 $(248)












L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
(in millions)
(Unaudited)
 Third Quarter 2018
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Sales$
 $2,644
 $965
 $(834) $2,775
Costs of Goods Sold, Buying and Occupancy
 (1,786) (838) 777
 (1,847)
Gross Profit
 858
 127
 (57) 928
General, Administrative and Store Operating Expenses(2) (785) (127) 40
 (874)
Operating Income (Loss)(2) 73
 
 (17) 54
Interest Expense(94) (19) 
 17
 (96)
Other Income (Loss)
 2
 (1) 
 1
Income (Loss) Before Income Taxes(96) 56
 (1) 
 (41)
Provision (Benefit) for Income Taxes1
 (1) 2
 
 2
Equity in Earnings (Loss), Net of Tax54
 (92) (103) 141
 
Net Income (Loss)$(43) $(35) $(106) $141
 $(43)




L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
 Third Quarter 2018
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Income (Loss)$(43) $(35) $(106) $141
 $(43)
Other Comprehensive Income (Loss), Net of Tax:         
Foreign Currency Translation
 
 (2) 
 (2)
Unrealized Gain (Loss) on Cash Flow Hedges
 
 1
 
 1
Total Other Comprehensive Income (Loss), Net of Tax
 
 (1) 
 (1)
Total Comprehensive Income (Loss)$(43) $(35) $(107) $141
 $(44)













L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
(in millions)
(Unaudited)

 Year-to-Date 2019
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Sales$
 $7,831
 $2,407
 $(2,031) $8,207
Costs of Goods Sold, Buying and Occupancy
 (5,275) (2,070) 1,795
 (5,550)
Gross Profit
 2,556
 337
 (236) 2,657
General, Administrative and Store Operating Expenses(9) (2,345) (293) 167
 (2,480)
Operating Income (Loss)(9) 211
 44
 (69) 177
Interest Expense(280) (70) (5) 69
 (286)
Other Income (Loss)(40) (5) (21) 
 (66)
Income (Loss) Before Income Taxes(329) 136
 18
 
 (175)
Provision (Benefit) for Income Taxes(8) 2
 5
 
 (1)
Equity in Earnings (Loss), Net of Tax147
 82
 80
 (309) 
Net Income (Loss)$(174) $216
 $93
 $(309) $(174)




L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

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











L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
(in millions)
(Unaudited)

 Year-to-Date 2018
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Sales$
 $7,907
 $2,555
 $(2,077) $8,385
Costs of Goods Sold, Buying and Occupancy
 (5,243) (2,157) 1,946
 (5,454)
Gross Profit
 2,664
 398
 (131) 2,931
General, Administrative and Store Operating Expenses(8) (2,228) (354) 96
 (2,494)
Operating Income (Loss)(8) 436
 44
 (35) 437
Interest Expense(288) (37) (5) 38
 (292)
Other Income (Loss)
 8
 (7) 
 1
Income (Loss) Before Income Taxes(296) 407
 32
 3
 146
Provision (Benefit) for Income Taxes(1) 32
 11
 
 42
Equity in Earnings (Loss), Net of Tax399
 340
 294
 (1,033) 
Net Income (Loss)$104
 $715
 $315
 $(1,030) $104




L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

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



L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
 Year-to-Date 2019
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities$(345) $(377) $632
 $
 $(90)
Investing Activities:         
Capital Expenditures
 (245) (147) 
 (392)
Net Investments in Consolidated Affiliates
 
 (137) 137
 
Other Investing Activities
 12
 (28) 
 (16)
Net Cash Provided by (Used for) Investing Activities
 (233) (312) 137
 (408)
Financing Activities:         
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs486
 
 
 
 486
Payments of Long-term Debt(799) 
 
 
 (799)
Borrowings from Foreign Facilities
 
 36
 
 36
Repayments of Foreign Facilities
 
 (21) 
 (21)
Dividends Paid(249) 
 
 
 (249)
Tax Payments related to Share-based Awards(12) 
 
 
 (12)
Financing Costs and Other(6) (5) 
 
 (11)
Net Financing Activities and Advances to/from Consolidated Affiliates925
 (196) (592) (137) 
Net Cash Provided by (Used for) Financing Activities345

(201)
(577)
(137)
(570)
Effects of Exchange Rate Changes on Cash and Cash Equivalents
 
 (5) 
 (5)
Net Increase (Decrease) in Cash and Cash Equivalents
 (811) (262) 
 (1,073)
Cash and Cash Equivalents, Beginning of Period
 997
 416
 
 1,413
Cash and Cash Equivalents, End of Period$
 $186
 $154
 $
 $340


L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
(Unaudited)
 Year-to-Date 2018
 L Brands, Inc. 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 Eliminations 
Consolidated
L Brands, Inc.
Net Cash Provided by (Used for) Operating Activities$(361) $295
 $79
 $
 $13
Investing Activities:         
Capital Expenditures
 (367) (194) 
 (561)
Net Investments in Consolidated Affiliates
 
 (181) 181
 
Other Investing Activities
 6
 17
 
 23
Net Cash Provided by (Used for) Investing Activities
 (361) (358) 181
 (538)
Financing Activities:         
Payments of Long-term Debt(52) 
 
 
 (52)
Borrowing from Secured Revolving Facility85
 
 
 
 85
Borrowings from Foreign Facilities
 
 110
 
 110
Repayments of Foreign Facilities
 
 (71) 
 (71)
Dividends Paid(500) 
 
 
 (500)
Repurchases of Common Stock(198) 
 
 
 (198)
Tax Payments related to Share-based Awards(13) 
 
 
 (13)
Financing Costs and Other(2) (2) 
 
 (4)
Net Financing Activities and Advances to/from Consolidated Affiliates1,041
 (929) 69
 (181) 
Net Cash Provided by (Used for) Financing Activities361
 (931) 108
 (181) (643)
Effects of Exchange Rate Changes on Cash and Cash Equivalents
 
 1
 
 1
Net Increase (Decrease) in Cash and Cash Equivalents
 (997) (170) 
 (1,167)
Cash and Cash Equivalents, Beginning of Period
 1,164
 351
 
 1,515
Cash and Cash Equivalents, End of Period$
 $167
 $181
 $
 $348



Report of Independent Registered Public Accounting Firm

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

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheets of L Brands, Inc. (the Company) as of November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, and the related consolidated statements of income (loss), comprehensive income (loss), and total equity (deficit) for the thirteen and thirty-ninetwenty-six week periods ended November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, and the consolidated statements of cash flows for the thirty-ninetwenty-six week periods ended November 2,August 1, 2020 and August 3, 2019, and November 3, 2018, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of February 2, 2019,1, 2020, and the related consolidated statements of income (loss), comprehensive income (loss), total equity (deficit), and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated March 22, 2019,27, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 2, 2019,1, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

/s/ Ernst & Young LLP
Grandview Heights, Ohio
December 6, 2019September 3, 2020


SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION ACT OF 1995
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
We caution that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this report or made by our company or our management involve risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “planned,” “potential” and any similar expressions may identify forward-looking statements. Risks associated with the following factors, among others, in some cases have affected and in the future could affect our financial performance and actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements included in this report or otherwise made by our company or our management:
general economic conditions, consumer confidence, consumer spending patterns and market disruptions including pandemics or significant health hazards, severe weather conditions, natural disasters, health hazards, terrorist activities, financial crises, political crises or other major events, or the prospect of these events;
divestitures or other dispositions, including any divestiture of Victoria’s Secret and related operations, could negatively impact our business, and contingent liabilities from businesses that we have sold could adversely affect our financial statements;
the seasonality of our business;
difficulties arising from turnover in company leadership or other key positions;
our ability to attract, develop and retain qualified associates and manage labor-related costs;
liabilities arising from divested businesses;
the dependence on mall traffic and the availability of suitable store locations on appropriate terms;
our ability to grow through new store openings and existing store remodels and expansions;
our ability to successfully expand internationally and related risks;
our independent franchise, license and wholesale partners;
our direct channel businesses;
our ability to protect our reputation and our brand images;
our ability to attract customers with marketing, advertising and promotional programs;
our ability to protect our trade names, trademarks and patents;
the highly competitive nature of the retail industry and the segments in which we operate;
consumer acceptance of our products and our ability to manage the life cycle of our brands, keep up with fashion trends, develop new merchandise and launch new product lines successfully;
our ability to source, distribute and sell goods and materials on a global basis, including risks related to:
political instability, significant health hazards, environmental hazards or natural disasters;
significant health hazards or pandemics, which could result in closed factories, closed stores, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas;
duties, taxes and other charges;
legal and regulatory matters;
volatility in currency exchange rates;
local business practices and political issues;
potential delays or disruptions in shipping and transportation and related pricing impacts;
disruption due to labor disputes; and
changing expectations regarding product safety due to new legislation;
our geographic concentration of vendor and distribution facilities in central Ohio;
fluctuations in foreign currency exchange rates;
stock price volatility;
our ability to pay dividends and related effects;
our ability to maintain our credit rating;
our ability to service or refinance our debt;

shareholder activism matters;
our ability to retain key personnel;
our ability to attract, develop and retain qualified associates and manage labor-related costs;

the ability of our vendors to deliver products in a timely manner, meet quality standards and comply with applicable laws and regulations;
fluctuations in product input costs;
our ability to adequately protect our assets from loss and theft;
fluctuations in energy costs;
increases in the costs of mailing, paper and printing;
claims arising from our self-insurance;
liabilities arising from divested businesses;
our ability to implement and maintain information technology systems and to protect associated data;
our ability to maintain the security of customer, associate, third-party or company information;
our ability to comply with laws and regulations or other obligations related to data privacy and security;
our ability to comply with regulatory requirements;
legal and compliance matters; and
tax, trade and other regulatory matters.
We are not under any obligation and do not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this report to reflect circumstances existing after the date of this report or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. Additional information regarding these and other factors can be found in “Item 1A. Risk Factors” in this Form 10-Q and in our 20182019 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 thirdsecond quarter of 2019,2020, our operating income (loss) decreased $205$131 million to a loss of $151$44 million, and our operating income (loss) rate decreased to (5.6%)1.9% from 2.0%6.0%. Net sales decreased $98$583 million to $2.677 billion, comparable sales decreased 2% and comparable store sales decreased 3%. Our performance was mixed. At Victoria's Secret, net sales decreased 8%, and the operating loss, which includes store asset impairment charges of $41 million, increased $86 million.$2.319 billion. At Bath & Body Works, net sales increased 11%$136 million, or 13%, and operating income increased $18$146 million, or 81%, to $326 million. At Victoria's Secret, net sales decreased $628 million, or 39%, and operating income decreased to a loss of $140 million, including store and lease asset impairment charges of $75 million. At Victoria's Secret and Bath & Body Works International, net sales were flat,decreased $75 million, or 48%, and the operating loss which includes store and goodwillincreased by $18 million, including lease asset impairment charges of $207$42 million increasedpartially offset by $173 million. a $36 million net gain related to the closure and lease termination of the Hong Kong flagship store.
For additional information related to our thirdsecond quarter 20192020 financial performance, see “Results of Operations.” For additional information related
Go-forward Plan for Victoria's Secret
During the second quarter, we took a number of important steps to prepare Victoria’s Secret and Bath & Body Works to operate as standalone separate companies, including:
Completed our comprehensive review of our home office organizations in order to achieve meaningful reductions in overhead expenses and decentralize significant shared functions and services to support the creation of standalone companies. This resulted in a reduction of our home office headcount by approximately 15%, or about 850 associates;
Managed inventories with discipline, including working with suppliers to identify opportunities to reduce merchandise costs in order to increase merchandise margin rates at Victoria’s Secret. As a result of this effort already underway, Spring inventory receipts for Victoria’s Secret were down approximately 45% compared to last year, and Fall receipts are expected to be down approximately 50% compared to last year;
Began taking action to reduce Victoria’s Secret store selling costs through changes in the management structure and labor model;
Continued to execute our previously announced plan to close approximately 250 Victoria’s Secret stores in 2020 while also negotiating with landlords for ongoing rent relief;
Worked to reduce operating losses in the Victoria's Secret U.K. business. We entered into "Light Administration" in June to restructure store lease agreements and explore the sale of the business to a joint venture or franchise partner.

We subsequently signed a non-binding term sheet with a major fashion retailer and are in an exclusive period of negotiation;
We closed our unprofitable Victoria's Secret flagship store in Hong Kong and in China are restructuring lease terms on other unprofitable stores and have implemented a significant overhead expense reduction plan; and,
Subsequent to the end of the quarter, we retained financial advisors on the separation of Bath & Body Works and Victoria’s Secret.
We expect these actions will result in approximately $400 million of annualized cost reductions, about $175 million of which we expect to achieve in the remainder of 2020. Importantly, these actions will enable more efficient and faster decision making and set each business up independently, allowing for an easier future separation.
Impacts of COVID-19
In March 2020, COVID-19 was declared a global pandemic by the World Health Organization. This pandemic has negatively affected the U.S. and global economies, disrupted global supply chains and financial markets, and led to significant travel and transportation restrictions, including mandatory closures and orders to “shelter-in-place.” The situation and preventative or protective actions that governments around the world have taken to contain the spread of COVID-19 have resulted in a period of disruption, including closure of our stores, limited store operating hours, reduced customer traffic and consumer spending and delays in manufacturing and shipping of products and raw materials. During this period, we are focused on protecting the health and safety of our customers, employees, contractors, suppliers, and other business partners. We are also working with our suppliers to minimize potential disruptions, while managing our business in response to a changing dynamic.
Our business operations and financial performance for 2020 have been materially impacted by the COVID-19 pandemic. All of our stores in North America were closed on March 17th, and almost all remained closed as of the beginning of the second quarter. We have re-opened approximately 1,600 Bath & Body Works stores and approximately 690 Victoria’s Secret stores in North America, representing the majority of our stores, as of August 1, 2020. On average, Bath & Body Works stores were closed for about half of the second quarter and Victoria’s Secret stores were closed for about 70% of the second quarter (including the impact of the approximately 250 stores which we plan to close).
We adopted new operating models in our stores that focused on providing a safe shopping experience. At Bath & Body Works, we launched Buy Online Pick Up In Store ("BOPIS") capabilities in some locations and are able to operate stores as BOPIS only in jurisdictions that do not permit open shopping. Additionally, we have dedicated resources to maximize capacity in our direct fulfillment centers to meet increased customer demand, while focusing on distribution, fulfillment and call center safety. We will continue to follow local laws, to ensure a safe environment.
Since the global COVID-19 crisis began, we have taken prudent actions to manage expenses and to maintain our solid cash position and financial flexibility through the pandemic, including:
Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;
Suspending associate merit increases;
Temporarily reducing salaries for senior vice presidents and above by 20%;
Temporarily suspending cash compensation for all members of the Board of Directors;
Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;
Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;
Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;
Suspending most store and select office rent payments during the temporary closures. We are in active discussions with our landlords to negotiate with respect to these rent payments and go-forward occupancy costs;
Converting the revolving credit facility to an asset-backed loan facility and issuing $1.25 billion in new notes; and
Extending payment terms to vendors.
Looking toward the second half of the year, we will remain disciplined in expense and inventory management, and focused on staying close to our impairment charges, see Note 7, “Propertycustomer while delivering compelling products. In accordance with continuously changing local regulatory requirements and Equipment, Net" and Note 8, "Goodwill and Trade Names" included in Item 1. Financial Statements.
The global retail sector and our business continue to face an uncertain environment and, as a result,guidelines, we will continue to operate both of our channels in a safe manner for our customers and associates.
Given the traffic constraints imposed by social distancing protocols in stores and capacity restraints in our direct channel distribution centers, we have a very cautious outlook about our ability to manage our business thoughtfully,typical Holiday volumes, which

historically are about three times larger per week than the average week in the second quarter. We are evaluating and we will focus on the executiontesting ideas to spread our Holiday volume out over a broader time period.
We are forecasting meaningful expense pressure driven by increased store costs, including payroll and supplies, as a result of the retail fundamentals.
Atnew labor model imposed by social distancing protocols, wage rate inflation in the same time, we are aggressively focusing on bringing compelling merchandise assortments, marketingdomestic supply chain and storeincreased direct channel fulfillment and online experiences to our customers. We will look for, and seek to capitalize on, those opportunities available to us.

shipping costs.
Adjusted Financial Information
In addition to our results provided in accordance with GAAP above and throughout this Form 10-Q, provided below are non-GAAP measurements which present net income (loss) and earnings (loss) per share in 20192020 and 20182019 on an adjusted basis, which remove certain special items. We believe that these special items are not indicative of our ongoing operations due to their size and nature. We use adjusted financial information as key performance measures of results of operations for the purpose of evaluating performance internally. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Instead, we believe that the presentation of adjusted financial information provides additional information to investors to facilitate the comparison of past and present operations. Further, our definition of adjusted financial information may differ from similarly titled measures used by other companies. The table below reconciles the GAAP financial measures to the non-GAAP financial measures.
 Third Quarter Year-to-Date
(in millions, except per share amounts)2019 2018 2019 2018
Detail of Special Items included in Operating Income (Loss)       
Victoria's Secret Asset Impairment (a)$(248) $(81) $(248) $(81)
Henri Bendel Closure Costs (b)
 (20) 
 (20)
Total Special Items included in Operating Income (Loss)$(248) $(101) $(248) $(101)
        
Detail of Special Items included in Other Income (Loss)       
La Senza Charges (c)$(37) $
 $(37) $
Loss on Extinguishment of Debt (d)
 
 (40) 
Total Special Items included in Other Income (Loss)$(37) $
 $(77) $
        
Detail of Special Items included in Provision (Benefit) for Income Taxes       
Tax Effect of Special Items$27
 $13
 $37
 $13
        
Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income       
Reported Operating Income (Loss)$(151) $54
 $177
 $437
Special Items included in Operating Income (Loss)248
 101
 248
 101
Adjusted Operating Income$97
 $155
 $425
 $538
        
Reconciliation of Reported Net Income (Loss) to Adjusted Net Income       
Reported Net Income (Loss)$(252) $(43) $(174) $104
Special Items included in Net Income (Loss)258
 88
 288
 88
Adjusted Net Income$6
 $45
 $114
 $192
        
Reconciliation of Reported Earnings Per Diluted Share to Adjusted Earnings Per Diluted Share       
Reported Earnings (Loss) Per Diluted Share$(0.91) $(0.16) $(0.63) $0.37
Special Items included in Earnings (Loss) Per Diluted Share0.93
 0.32
 1.04
 0.31
Adjusted Earnings Per Diluted Share$0.02
 $0.16
 $0.41
 $0.69
 Second Quarter Year-to-Date
(in millions, except per share amounts)2020 2019 2020 2019
Detail of Special Items - Income (Expense)       
Victoria's Secret Store and Lease Asset Impairment (a)$(117) $
 $(214) $
Restructuring Charges (b)(81) 
 (81) 
Hong Kong Store Closure and Lease Termination (c)36
 
 36
 
Special Items included in Operating Income (Loss)(162) 
 (258) 
Loss on Extinguishment of Debt (d)
 (40) 
 (40)
Special Items included in Other Income (Loss)
 (40) 
 (40)
Tax Benefit from the Resolution of Certain Tax Matters and Changes in Tax Legislation (e)21
 
 71
 
Tax Effect of Special Items included in Operating Income (Loss) and Other Income (Loss)22
 10
 47
 10
Special Items included in Net Income (Loss)$(119) $(30) $(140) $(30)
        
Reconciliation of Reported Operating Income (Loss) to Adjusted Operating Income (Loss)
Reported Operating Income (Loss)$44
 $175
 $(274) $328
Special Items included in Operating Income (Loss)162
 
 258
 
Adjusted Operating Income (Loss)$206
 $175
 $(15) $328
        
Reconciliation of Reported Net Income (Loss) to Adjusted Net Income (Loss)       
Reported Net Income (Loss)$(49) $38
 $(346) $78
Special Items included in Net Income (Loss)119
 30
 140
 30
Adjusted Net Income (Loss)$69
 $68
 $(206) $108
        
Reconciliation of Reported Earnings (Loss) Per Diluted Share to Adjusted Earnings (Loss) Per Diluted Share
Reported Earnings (Loss) Per Diluted Share$(0.18) $0.14
 $(1.25) $0.28
Special Items included in Earnings (Loss) Per Diluted Share0.42
 0.11
 0.50
 0.11
Adjusted Earnings (Loss) Per Diluted Share$0.25
 $0.24
 $(0.74) $0.39
 ________________
(a)We recognized a $248 million pre-tax impairment chargecharges of $117 million ($23099 million after-tax) in the third quarter of 2019after tax) and an $81$97 million pre-tax impairment charge ($7372 million after-tax) in the third quarter of 2018after tax) related to certain Victoria's Secret assets.store and lease assets in the second and first quarter of 2020, respectively. For additional information see Note 7, “Property and Equipment, Net" and Note 8, "Goodwill and Trade Names""Long-Lived Assets" included in Item 1. Financial Statements.
(b)In the thirdsecond quarter of 2018,2020, we recognized $20pre-tax severance charges of $81 million ($1565 million after-tax) of closure costsafter tax) related to the closureheadcount reductions as a result of the Henri Bendel business.restructuring activities. For additional information, see Note 5, “Restructuring Activities"4, “Restructuring" included in Item 1. Financial Statements.

(c)In the thirdsecond quarter of 2019,2020, we recognized $37a net pre-tax gain of $36 million of pre-tax charges ($2825 million after-tax) to increase reservesafter tax) related to ongoing contingent obligationsthe closure and termination of our lease for the La Senza business, which was sold in the fourth quarter of 2018.Victoria’s Secret Hong Kong flagship store. For additional information, see Note 5, “Restructuring Activities" and Note 16, "Commitments and Contingencies"7, "Long-Lived Assets" included in Item 1. Financial Statements.
(d)In the second quarter of 2019, we redeemed $764 million of outstanding notes maturing between 2020 and 2022, resulting in a pre-tax loss on extinguishment of $40 million (after-tax loss of $30 million). For additional information see Note 12,10, "Long-term Debt and Borrowing Facilities" included in Item 1. Financial Statements.
(e)In the second quarter of 2020, we recognized a $21 million income tax benefit related to recent changes in tax legislation included in the CARES Act. In the first quarter of 2020, we recognized a $50 million tax benefit related to the resolution of certain tax matters. For additional information see Note 9, "Income Taxes" included in Item 1. Financial Statements.
Company-Owned Store Data
The following table compares the thirdsecond quarter of 20192020 company-owned store data to the thirdsecond quarter of 20182019 and year-to-date 20192020 store data to year-to-date 2018:2019:
Third Quarter Year-to-DateSecond Quarter Year-to-Date
2019 2018 % Change 2019 2018 % Change2020 2019 % Change 2020 2019 % Change
Sales per Average Selling Square Foot(a)                      
Bath & Body Works U.S.$148
 $196
 (24%) $240
 $356
 (33%)
Victoria’s Secret U.S.$145
 $152
 (5%) $460
 $492
 (7%)54
 166
 (67%) 129
 317
 (59%)
Sales per Average Store (in thousands)(a)           
Bath & Body Works U.S.190
 182
 4% 546
 520
 5%$389
 $510
 (24%) $634
 $925
 (32%)
Sales per Average Store (in thousands)(a)           
Victoria’s Secret U.S.$948
 $982
 (4%) $2,997
 $3,167
 (5%)364
 1,083
 (66%) 867
 2,066
 (58%)
Average Store Size (selling square feet)           
Bath & Body Works U.S.497
 466
 7% 1,421
 1,328
 7%2,638
 2,606
 1%      
Average Store Size (selling square feet)           
Victoria’s Secret U.S.6,542
 6,454
 1%      6,937
 6,543
 6%      
Total Selling Square Feet (in thousands)           
Bath & Body Works U.S.2,621
 2,575
 2%      4,308
 4,253
 1%      
Total Selling Square Feet (in thousands)           
Victoria’s Secret U.S.6,973
 7,216
 (3%)      5,952
 6,961
 (14%)      
Bath & Body Works U.S.4,301
 4,177
 3%      
 ________________
(a)Sales per average selling square foot and sales per average store, which are indicators of store productivity, are calculated based on store sales for the period divided by the average, including the beginning and end of period, of total square footage and store count, respectively. As a result of the COVID-19 pandemic, all our stores in the U.S. were closed on March 17, and almost all remained closed as of the beginning of the second quarter. As of August 1, 2020 we have reopened the majority of our U.S. stores for both businesses. As a result, comparisons of year-over-year trends are not a meaningful way to discuss our operating results this quarter.

The following table represents company-owned store data for year-to-date 2019: 2020:
 Stores Operating at     Stores Operating at
 February 2, 2019 Opened Closed November 2, 2019
Victoria’s Secret U.S.1,098
 6
 (38) 1,066
Victoria’s Secret Canada45
 
 
 45
Total Victoria's Secret1,143
 6
 (38) 1,111
Bath & Body Works U.S.1,619
 34
 (12) 1,641
Bath & Body Works Canada102
 1
 
 103
Total Bath & Body Works1,721
 35
 (12) 1,744
Victoria's Secret U.K. / Ireland26
 
 
 26
Victoria's Secret Beauty and Accessories38
 9
 (5) 42
Victoria's Secret Greater China15
 6
 
 21
Total Victoria's Secret and Bath & Body Works International79
 15
 (5) 89
Total L Brands Stores2,943
 56
 (55) 2,944











 Stores at     Stores at
 February 1, 2020 Opened Closed August 1, 2020
Bath & Body Works U.S.1,637
 10
 (14) 1,633
Bath & Body Works Canada102
 
 
 102
Total Bath & Body Works1,739
 10
 (14) 1,735
Victoria’s Secret U.S.1,053
 3
 (198) 858
Victoria’s Secret Canada38
 
 (12) 26
Total Victoria's Secret1,091
 3
 (210) 884
Victoria's Secret U.K. / Ireland26
 
 
 26
Victoria's Secret Beauty and Accessories41
 1
 (3) 39
Victoria's Secret Greater China23
 3
 (1) 25
Total Victoria's Secret and Bath & Body Works International90
 4
 (4) 90
Total L Brands Stores2,920
 17
 (228) 2,709


The following table represents company-owned store data for year-to-date 2018:
 Stores Operating at     Stores Operating at
 February 3, 2018 Opened Closed November 3, 2018
Victoria’s Secret U.S.1,124
 1
 (7) 1,118
Victoria’s Secret Canada46
 
 (1) 45
Total Victoria's Secret1,170
 1
 (8) 1,163
Bath & Body Works U.S.1,592
 47
 (17) 1,622
Bath & Body Works Canada102
 1
 
 103
Total Bath & Body Works1,694
 48
 (17) 1,725
Victoria's Secret U.K. / Ireland24
 1
 
 25
Victoria's Secret Beauty and Accessories29
 4
 (3) 30
Victoria's Secret Greater China7
 7
 
 14
Total Victoria's Secret and Bath & Body Works International60

12

(3)
69
Henri Bendel27
 
 (4) 23
La Senza Canada119
 
 (1) 118
La Senza U.S.5
 6
 
 11
Total L Brands Stores3,075
 67
 (33) 3,109

Noncompany-Owned Store Data
The following table represents noncompany-owned store data for year-to-date 2019:
 Stores Operating at     Stores Operating at
 February 2, 2019 Opened Closed November 2, 2019
Victoria’s Secret Beauty & Accessories383
 20
 (29) 374
Victoria's Secret56
 15
 
 71
Bath & Body Works235
 24
 (4) 255
Total674
 59
 (33) 700
 Stores at     Stores at
 February 2, 2019 Opened Closed August 3, 2019
Bath & Body Works U.S.1,619
 23
 (10) 1,632
Bath & Body Works Canada102
 1
 
 103
Total Bath & Body Works1,721
 24
 (10) 1,735
Victoria’s Secret U.S.1,098
 3
 (37) 1,064
Victoria’s Secret Canada45
 
 
 45
Total Victoria's Secret1,143
 3
 (37) 1,109
Victoria's Secret U.K. / Ireland26
 
 
 26
Victoria's Secret Beauty and Accessories38
 6
 (5) 39
Victoria's Secret Greater China15
 3
 
 18
Total Victoria's Secret and Bath & Body Works International79

9

(5)
83
Total L Brands Stores2,943
 36
 (52) 2,927
Noncompany-Owned Store Data
The following table represents noncompany-owned store data for year-to-date 2018:2020:
Stores Operating at     Stores Operating atStores at     Stores at
February 3, 2018 Opened Closed November 3, 2018February 1, 2020 Opened Closed August 1, 2020
Bath & Body Works278
 7
 (1) 284
Victoria’s Secret Beauty & Accessories397
 25
 (25) 397
360
 2
 (13) 349
Victoria's Secret37
 13
 
 50
84
 4
 
 88
Bath & Body Works185
 35
 (4) 216
La Senza194
 2
 (10) 186
Total813
 75
 (39) 849
722
 13
 (14) 721
The following table represents noncompany-owned store data for year-to-date 2019:
 Stores at     Stores at
 February 2, 2019 Opened Closed August 3, 2019
Bath & Body Works235
 14
 (2) 247
Victoria’s Secret Beauty & Accessories383
 15
 (21) 377
Victoria's Secret56
 7
 
 63
Total674
 36
 (23) 687


Results of Operations
ThirdSecond Quarter of 20192020 Compared to ThirdSecond Quarter of 20182019
Operating Income (Loss)
The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for the thirdsecond quarter of 20192020 in comparison to the thirdsecond quarter of 20182019:
    Operating Income (Loss) Rate    Operating Income (Loss) Rate
2019 2018 2019 20182020 2019 2020 2019
Third Quarter(in millions)    
Second Quarter(in millions)    
Bath & Body Works$326
 $180
 27.2% 17.0%
Victoria’s Secret$(122) $(36) (8.7%) (2.3%)(140) 17
 (14.4%) 1.0 %
Bath & Body Works196
 178
 18.4% 18.6 %
Victoria’s Secret and Bath & Body Works International(215) (42) (161.3%) (31.2%)
Victoria's Secret and Bath & Body Works International(19) (1) (23.3%) (0.8%)
Other (a)(10) (46) (14.2%) (29.4%)(123) (21) (187.6%) (26.0%)
Total Operating Income (Loss)$(151) $54
 (5.6%) 2.0 %$44
 $175
 1.9% 6.0 %
  _______________
(a)Includes Mast Globalsourcing and corporate functions. Results for 2018 also include La Senza and Henri Bendel.
For the thirdsecond quarter of 2019,2020, operating income (loss) decreased $205$131 million, to a loss of $151$44 million, and the operating income (loss) rate decreased to (5.6%)1.9% from 2.0%6.0%. The drivers of the operating income (loss) results are discussed in the following sections.
Net Sales
The following table provides net sales for the thirdsecond quarter of 20192020 in comparison to the thirdsecond quarter of 20182019:
2019 2018 % Change2020 2019 % Change
Third Quarter(in millions)  
Second Quarter(in millions)  
Bath & Body Works Stores (a)$678
 $883
 (23%)
Bath & Body Works Direct519
 178
 191%
Total Bath & Body Works1,197
 1,061
 13%
Victoria’s Secret Stores (a)$1,081
 $1,178
 (8%)364
 1,233
 (70%)
Victoria’s Secret Direct331
 351
 (6%)614
 373
 65%
Total Victoria’s Secret1,412
 1,529
 (8%)978
 1,606
 (39%)
Bath & Body Works Stores (a)872
 808
 8%
Bath & Body Works Direct192
 148
 30%
Total Bath & Body Works1,064
 956
 11%
Victoria’s Secret and Bath & Body Works International (b)134
 134
 %
Victoria's Secret and Bath & Body Works International (b)80
 155
 (48%)
Other (c)67
 156
 (57%)64
 80
 (19%)
Total Net Sales$2,677
 $2,775
 (4%)$2,319
 $2,902
 (20%)
 _______________________________
(a)Includes company-owned stores in the U.S. and Canada.
(b)Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.
(c)Includes wholesale revenues from our sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri Bendel.


The following table provides a reconciliation of net sales for the thirdsecond quarter of 20192020 to the thirdsecond quarter of 2018:2019:
Victoria’s
Secret
 
Bath &
Body Works
 
Victoria’s Secret
and
Bath & Body Works International
 Other Total
Bath &
Body Works
 
Victoria’s
Secret
 
Victoria’s Secret
and
Bath & Body
Works
International
 Other Total
Third Quarter(in millions)
2018 Net Sales$1,529
 $956
 $134
 $156
 $2,775
Second Quarter(in millions)
2019 Net Sales$1,061
 $1,606
 $155
 $80
 $2,902
Comparable Store Sales(87) 36
 (13) 
 (64)294
 (37) (13) 
 244
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net(6) 29
 9
 
 32
(497) (810) (27) 
 (1,334)
Divested/Closed Businesses
 
 
 (77) (77)
Foreign Currency Translation(1) (1) (2) 
 (4)(1) (1) (1) 
 (3)
Direct Channels(19) 44
 (1) 
 24
340
 238
 (1) 
 577
Private Label Credit Card(4) 
 
 
 (4)
 (18) 
 
 (18)
International Wholesale, Royalty and Other
 
 7
 (12) (5)
 
 (33) (16) (49)
2019 Net Sales$1,412
 $1,064
 $134
 $67
 $2,677
2020 Net Sales$1,197
 $978
 $80
 $64
 $2,319
The following table compares the thirdsecond quarter of 20192020 comparable sales to the thirdsecond quarter of 2018:2019:
Third Quarter2019 2018
Second Quarter2020 2019
Comparable Sales (Stores and Direct) (a)      
Bath & Body Works (b)123% 8%
Victoria's Secret (b)(7%) (2%)28% (6%)
Bath & Body Works (b)9% 13%
Total Comparable Sales(2%) 4%63% (1%)
      
Comparable Store Sales (a)      
Bath & Body Works (b)87% 4%
Victoria’s Secret (b)(8%) (6%)(10%) (9%)
Bath & Body Works (b)5% 10%
Total Comparable Store Sales(3%) %33% (4%)
________
(a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. A store is typically included in the calculation of comparable sales when it has been open or owned 12 months or more and it has not had a change in selling square footage of 20% or more. Stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Therefore, comparable sales results for the second quarter of 2020 exclude stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
(b)Includes company-owned stores in the U.S. and Canada.
The results by segment are as follows:
Victoria's Secret
For the third quarter of 2019, net sales decreased $117 million to $1.412 billion, comparable sales decreased 7%, and comparable store sales decreased 8%. Victoria's Secret Lingerie comparable sales decreased low-double digits, principally driven by a decline in bras, and partially as a result of a decrease in promotional activity. PINK comparable sales decreased in the mid-single digit range as a decline in apparel, principally driven by a decline in tops, was only partially offset by increases in intimate apparel, driven by growth in sport bras, bralettes and panties. Victoria's Secret Beauty comparable sales increased in the low-single digit range due to growth in prestige fragrance, driven by a strong launch of Bombshell Intense, the mist collection and PINK beauty.
The decrease in comparable sales was driven by declines in average unit retail prices and store traffic.

Bath & Body Works
For the thirdsecond quarter of 2019,2020, net sales increased $108$136 million to $1.064$1.197 billion, comparable sales increased 9%,123% and comparable store sales increased 5%87% (during the period the stores were open). Net sales increased primarily as a result of an increase in our direct channel, which increased 191% to $519 million. During the quarter, we focused on increasing our direct fulfillment capacity to meet the significant increase in demand and, as a result, are achieving strong productivity and maintaining standard delivery times for our customers after experiencing delays earlier in the year. In both channels, sales were strong across all majorregions, store types and merchandise categories, including home fragrance,driven by continued high demand for soaps and sanitizers and also strong comparable sales performance in body care and soaps and sanitizers, which incorporated newness, innovation and fashion.home fragrance. These increases were partially offset by the COVID-19-related store closures as, on average, Bath & Body Works stores were closed for about half of the quarter.
The increase in comparable sales was driven by increases in bothdigital traffic, conversion and conversion.average unit retail.

Victoria's Secret
For the second quarter of 2020, net sales decreased $628 million to $978 million, comparable sales increased 28% and comparable store sales decreased 10% (during the period stores were open). Net sales decreased primarily as a result of the COVID-19-related store closures as, on average, Victoria’s Secret stores were closed for about 70% of the quarter (including the impact of the approximately 250 stores which we plan to close). This was partially offset by an increase in Victoria's Secret Direct channel sales, which increased 65% to $614 million, reflecting significant growth in the Lingerie, PINK and Beauty businesses.
The increase in comparable sales was driven by increases in digital traffic, conversion and average unit retail.
Victoria's Secret and Bath & Body Works International
For the thirdsecond quarter of 2019,2020, net sales remained flat at $134decreased $75 million asto $80 million primarily due to the increases from new stores opened by our partners were offset by declines in the Victoria's Secret U.K.significant number of COVID-19-related store closures impacting Company-owned and Greater China businesses.partner-operated stores.
Other
For the thirdsecond quarter of 2019,2020, net sales decreased $89$16 million to $67$64 million due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, and a decrease in wholesale sales to our international partners.partners, impacted significantly by COVID-19-related store closures.
Gross Profit
For the thirdsecond quarter of 2019,2020, our gross profit decreased $187$272 million to $741$711 million, and our gross profit rate (expressed as a percentage of net sales) decreased to 27.7%30.7% from 33.5%33.9%, primarily driven by the following:
Bath & Body Works
For the second quarter of 2020, the gross profit increase was due to increased merchandise margin dollars related to the increase in net sales and a decrease in promotional activity, partially offset by higher occupancy expenses due to increased direct channel fulfillment and shipping costs.
The gross profit rate increase was driven by an increase in the merchandise margin rate due to a more profitable semi-annual sale period and less promotional activity.
Victoria's Secret
For the thirdsecond quarter of 2019,2020, the gross profit decrease was due to lower merchandise margin dollars related to the decrease in net sales due to the COVID-19-related store closures and store and lease asset impairment charges of $75 million. These decreases were partially offset by a reductionmeaningful pullback in promotional activity, better pricing during semi-annual sale and reduced occupancy expenses due to the store asset impairment charges, from $50 million in the third quarter of 2018 to $41 million in the third quarter of 2019.closures.
The gross profit rate decrease was primarily driven by the store and lease asset impairment charges and buying and occupancy deleverage on lower net sales, andpartially offset by a decline in thehigher merchandise margin rate due to sourcing cost concessions received from vendorsreflecting a meaningful pullback in 2018.
Bath & Body Works
For the third quarter of 2019, the gross profit increase was due to higher merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to investments in store real estate.
The gross profit rate decrease was driven by a decline in the merchandise margin rate due to increases in supply chainpromotional activity and sourcing costs and the sales mix shift into the direct business, which has a lower merchandise margin rate than the stores channel.better pricing during semi-annual sale.
Victoria's Secret and Bath & Body Works International
For the thirdsecond quarter of 2019,2020, the gross profit decrease was due to lower merchandise margin dollars related to the increasedecrease in net sales due to the COVID-19-related store closures and lease asset impairment charges from $31of $42 million, in the third quarter of 2018 to $177partially offset by a $36 million in the third quarter of 2019, which werenet gain related to storesthe closure and termination of our lease for the Victoria’s Secret Hong Kong flagship store and reduced depreciation expense due to store and lease asset impairments recognized in Greater China, the U.K. and Ireland.prior periods.
The gross profit (loss) rate decrease was driven by the increase in storelease asset impairment charges.charges and buying and occupancy deleverage on lower net sales.
General, Administrative and Store Operating Expenses
For the thirdsecond quarter of 2019,2020, our general, administrative and store operating expenses increased $18decreased $141 million to $892$667 million due to declines in store selling payroll, supplies, credit card fees and marketing expenses as a $30 million goodwill impairment charge related to Greater China and higher selling expenses related to higher sales volume at Bath & Body Works,result of the COVID-19-related store closures, partially offset by declines due to the elimination of the La Senzaseverance and Henri Bendelrelated costs associated with headcount reductions totaling $81 million and increased credit card fees in our direct businesses.
The general, administrative and store operating expense rate increased to 33.3%28.8% from 31.5%27.8% due to the goodwill impairment chargeseverance and deleverage on lower net sales.related costs.

Other Income and Expense
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for the thirdsecond quarter of 20192020 and 2018:2019:
Third Quarter2019 2018
Second Quarter2020 2019
Average daily borrowings (in millions)$5,614
 $5,844
$6,173
 $5,792
Average borrowing rate (in percentages)6.6% 6.6%6.8% 6.6%
For the thirdsecond quarter of 2019,2020, our interest expense decreased $4increased $9 million to $92$104 million due to lowerboth higher average daily borrowings.

borrowings and average borrowing rate.
Other Income (Loss)
For the thirdsecond quarter of 2019,2020, our other income (loss)loss decreased $35$38 million primarily due to a $34$40 million loss due to $37 millionassociated with the early extinguishment of charges to increase reserves related to ongoing contingent obligations for the La Senza business, which was soldoutstanding notes recognized in the fourthsecond quarter of 2018.2019.
Provision (Benefit) for Income Taxes
For the thirdsecond quarter of 2019,2020, our effective tax rate was 9.1%17.7% compared to (3.9%)10.1% in the thirdsecond quarter of 2018.2019. The thirdsecond quarter rates wereof 2020 rate was lower than the Company'sour combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges,losses related to certain foreign subsidiaries, which generate no tax benefit, forpartially offset by recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit. The second quarter of 2019 rate was lower than our combined federal and state statutory rate primarily due to the resolution of certain foreign subsidiaries.tax matters.

Results of Operations
Year-to-Date 20192020 Compared to Year-to-Date 20182019
Operating Income (Loss)
The following table provides our segment operating income (loss) and operating income (loss) rates (expressed as a percentage of net sales) for year-to-date 20192020 in comparison to year-to-date 2018:2019:
    Operating Income (Loss) Rate    Operating Income (Loss) Rate
2019 2018 2019 20182020 2019 2020 2019
Year-to-Date(in millions)    (in millions)    
Bath & Body Works$395
 $335
 20.7 % 17.3 %
Victoria’s Secret$(73) $162
 (1.6%) 3.3 %(440) 49
 (24.5%) 1.6 %
Bath & Body Works531
 470
 17.7 % 17.5 %
Victoria’s Secret and Bath & Body Works International(220) (56) (52.1%) (13.5%)(54) (5) (37.1%) (1.8%)
Other (a)(61) (139) (23.4%) (31.0%)(175) (51) (145.2%) (26.5%)
Total Operating Income$177
 $437
 2.2 % 5.2 %
Total Operating Income (Loss)$(274) $328
 (6.9%) 5.9 %
  _______________
(a)Includes Mast Globalsourcing and corporate functions. Results for 2018 also include La Senza and Henri Bendel.
For year-to-date 2019,2020, operating income (loss) decreased $260$602 million, or 59%184%, to $177a loss of $274 million, and the operating income (loss) rate decreased to 2.2%(6.9%) from 5.2%5.9%. The drivers of the operating income results are discussed in the following sections.

Net Sales
The following table provides net sales for year-to-date 20192020 in comparison to year-to-date 2018:2019:
2019 2018 % Change2020 2019 % Change
Year-to-Date(in millions)  (in millions)  
Bath & Body Works Stores (a)$1,102
 $1,597
 (31%)
Bath & Body Works Direct807
 335
 141%
Total Bath & Body Works1,909
 1,932
 (1%)
Victoria’s Secret Stores (a)$3,462
 $3,778
 (8%)877
 2,381
 (63%)
Victoria’s Secret Direct1,067
 1,065
 %922
 735
 25%
Total Victoria’s Secret4,529
 4,843
 (6%)1,799
 3,116
 (42%)
Bath & Body Works Stores (a)2,469
 2,281
 8%
Bath & Body Works Direct527
 399
 32%
Total Bath & Body Works2,996
 2,680
 12%
Victoria’s Secret and Bath & Body Works International (b)423
 415
 2%146
 289
 (50%)
Other (c)259
 447
 (42%)120
 193
 (38%)
Total Net Sales$8,207
 $8,385
 (2%)$3,974
 $5,530
 (28%)
 _______________
(a)Includes company-owned stores in the U.S. and Canada.
(b)Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.
(c)Includes wholesale revenues from our sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri Bendel.


The following table provides a reconciliation of net sales for year-to-date 20192020 to year-to-date 2018:
2019:
Victoria’s
Secret
 
Bath &
Body Works
 
Victoria’s Secret
and
Bath & Body Works International
 Other Total
Bath &
Body Works
 Victoria's Secret 
Victoria’s Secret
and
Bath & Body Works International
 Other Total
Year-to-Date(in millions)(in millions)
2018 Net Sales$4,843
 $2,680
 $415
 $447
 $8,385
2019 Net Sales$1,932
 $3,116
 $289
 $193
 $5,530
Comparable Store Sales(281) 111
 (28) 
 (198)359
 (121) (39) 
 199
Sales Associated with New, Closed and Non-comparable Remodeled Stores, Net(39) 80
 45
 
 86
(848) (1,342) (40) 
 (2,230)
Divested/Closed Businesses
 
 
 (222) (222)
Foreign Currency Translation(3) (3) (12) 
 (18)(7) (4) (8) 
 (19)
Direct Channels(2) 128
 4
 
 130
473
 185
 (2) 
 656
Private Label Credit Card11
 
 
 
 11

 (35) 
 
 (35)
International Wholesale, Royalty and Other
 
 (1) 34
 33

 
 (54) (73) (127)
2019 Net Sales$4,529
 $2,996
 $423
 $259
 $8,207
2020 Net Sales$1,909
 $1,799
 $146
 $120
 $3,974

The following table compares year-to-date 20192020 comparable sales to year-to-date 2018:2019:
Year-to-Date2019 20182020 2019
Comparable Sales (Stores and Direct) (a)      
Bath & Body Works (b)84% 10%
Victoria's Secret (b)(6%) (1%)6% (6%)
Bath & Body Works (b)10% 10%
Total Comparable Sales(1%) 3%32% (1%)
      
Comparable Store Sales (a)      
Bath & Body Works (b)54% 6%
Victoria’s Secret (b)(8%) (5%)(13%) (8%)
Bath & Body Works (b)5% 8%
Total Comparable Store Sales(3%) (1%)12% (3%)
________
(a)The percentage change in comparable sales represents direct and comparable store sales. The percentage change in comparable store sales represents the change in sales at comparable stores only and excludes the change in sales from our direct channels. A store is typically included in the calculation of comparable sales when it has been open or owned 12 months or more and it has not had a change in selling square footage of 20% or more. Stores are excluded from the comparable sales calculation if they have been closed for four consecutive days or more. Therefore, comparable sales results for 2020 exclude stores that were closed for four consecutive days or more as a result of the COVID-19 pandemic. Additionally, stores of a given brand are excluded if total selling square footage for the brand in the mall changes by 20% or more through the opening or closing of a second store. The percentage change in comparable sales is calculated on a comparable calendar period as opposed to a fiscal basis. Comparable sales attributable to our international stores are calculated on a constant currency basis.
(b)Includes company-owned stores in the U.S. and Canada.
The results by segment are as follows:
Victoria's Secret
For year-to-date 2019, net sales decreased $314 million to $4.529 billion, comparable sales decreased 6%, and comparable store sales decreased 8%. PINK comparable sales decreased in the low-double digit range, due to merchandise performance in apparel and the exit of the swim business, partially offset by growth in sports bras. Victoria's Secret Lingerie comparable sales were down in the high-single digit range, due to declines in bras and apparel, driven by merchandise performance. Victoria's Secret Beauty comparable sales increased in the low-single digit range, as growth in accessories was partially offset by a decline in the lip business.
The decrease in comparable sales was driven by declines in average unit retail prices and store traffic.

Bath & Body Works
For year-to-date 2019,2020, net sales increased $316decreased $23 million to $2.996$1.909 billion, comparable sales increased 10%,84% and comparable store sales increased 5%54% (during the period the stores were open). Net sales increaseddecreased as a result of the COVID-19-related store closures. The Bath & Body Works Direct channel, which remained open throughout the period, grew sales by 141% to $807 million as we focused on increasing our fulfillment capacity to meet the significant increase in demand. In both channels, sales were strong across all majorregions, store types and merchandise categories, including home fragrance, body care anddriven by continued high demand for soaps and sanitizers which incorporated newness, innovation and fashion.also strong comparable sales performance in home fragrance and body care.
The increase in comparable sales was driven by increases in storedigital traffic, conversion and average unit retail.
Victoria's Secret
For year-to-date 2020, net sales decreased $1.317 billion to $1.799 billion, comparable sales increased 6% and comparable store sales decreased 13% (during the period the stores were open). Net sales decreased primarily as a result of the COVID-19-related store closures. This decline was partially offset by an increase in Victoria's Secret Direct channel sales, which increased 25% to $922 million despite a temporary suspension of operations in March, reflecting significant growth in the Lingerie, PINK and Beauty businesses.
The increase in comparable sales was driven by increases in digital traffic.traffic, conversion and average unit retail.
Victoria's Secret and Bath & Body Works International
For year-to-date 2019,2020, net sales increased $8decreased $143 million to $423$146 million due to the increase from new company-owned Victoria's Secret stores in Greater China, partially offset by declines in the Victoria's Secret International business.significant number of COVID-19-related store closures impacting Company-owned and partner-operated stores.
Other
For year-to-date 2019,2020, net sales decreased $188$73 million to $259$120 million due to the sale of La Senza and closure of Henri Bendel in the fourth quarter of 2018, partially offset by an increasea decrease in wholesale sales to our international partners.partners, impacted significantly by COVID-19-related store closures.
Gross Profit
For year-to-date 2019,2020, our gross profit decreased $274$916 million to $2.657$1.000 billion, and our gross profit rate (expressed as a percentage of net sales) decreased to 32.4%25.2% from 35.0%34.6%, primarily driven by the following:
Victoria's Secret
Bath & Body Works
For year-to-date 2019,2020, the gross profit decrease was primarily due to lower merchandise margin dollars related to the decrease in net sales and increased promotional activitydue to drive traffic and clear inventory,the COVID-19-related store closures. This decrease was partially offset by a decrease in promotional activity.
The gross profit rate remained about flat as a meaningful reduction in promotional activity was offset by buying and occupancy deleverage in the stores channel on lower net sales.
Victoria's Secret
For year-to-date 2020, the gross profit decrease was due to lower merchandise margin dollars related to the decrease in net sales due to the COVID-19-related store closures and store and lease asset impairment charges from $50 million year-to-date 2018of $172 million. These decreases were partially offset by reduced occupancy expenses due to $41 million year-to-date 2019.the store closures, and a meaningful pullback in promotional activity and better pricing during semi-annual sale.
The gross profit rate decrease was driven by a decline in the merchandise margin rate due to increased promotional activitystore and sourcing cost concessions received from vendors in 2018,lease asset impairment charges and buying and occupancy expense deleverage on lower net sales.
Bath & Body Works
For year-to-date 2019, the gross profit increase was due to higher merchandise margin dollars related to the increase in net sales, partially offset by higher occupancy expenses due to investments in store real estate.
The gross profit rate decrease was driven by a decline in the merchandise margin rate due to increases in supply chain and sourcing costs and the sales mix shift into the direct business, which has a lower merchandise margin rate than the stores channel.
Victoria's Secret and Bath & Body Works International
For year-to-date 2019,2020, the gross profit decrease was due to the increase in store asset impairment charges from $31 million year-to-date 2018 to $177 million year-to-date 2019 related to stores in Greater China, the U.K., and Ireland partially offset by higherlower merchandise margin dollars related to the increasedecrease in net sales due to the COVID-19-related store closures and lease asset impairment charges of $42 million, partially offset by a $36 million net gain related to the closure and termination of our lease for the Victoria’s Secret Hong Kong flagship store and reduced depreciation expense due to store and lease asset impairments recognized in Greater China.prior periods.
The gross profit (loss) rate decrease was driven by the increase in storelease asset impairment charges.charges and buying and occupancy deleverage on lower net sales.
General, Administrative and Store Operating Expenses
For year-to-date 2019,2020, our general, administrative and store operating expenses decreased $14$314 million to $2.480$1.274 billion due to the eliminationdeclines in store selling payroll, supplies, credit card fees and marketing expenses as a result of the La Senza and Henri Bendel businesses and lower marketing expenses at Victoria's Secret,COVID-19-related store closures, partially offset by higher selling expensesseverance and related to higher sales volume at Bath & Body Workscosts associated with headcount reductions totaling $81 million and a $30 million goodwill impairment charge related to Greater China.increased credit card fees in our direct businesses.
The general, administrative and store operating expense rate increased to 30.2%32.1% from 29.7%28.7% due to deleverage on lower net sales and the goodwill impairment charge.severance and related costs.
Other Income and Expense
Interest Expense
The following table provides the average daily borrowings and average borrowing rates for year-to-date 20192020 and 2018:2019:
Year-to-Date2019 20182020 2019
Average daily borrowings (in millions)$5,761
 $5,843
$6,125
 $5,835
Average borrowing rate (in percentages)6.6% 6.6%6.5% 6.6%
For year-to-date 2019,2020, our interest expense decreased $6increased $7 million to $286$201 million due to lowerhigher average daily borrowings.

Other Income (Loss)
For year-to-date 2019,2020, our other income (loss) decreased $67increased $34 million to a $66income of $3 million lossprimarily due to a $40 million pre-tax loss associated with the early extinguishment of $764 million in outstanding notes maturing between 2020 and 2022 and $37 million of charges to increase reserves related to ongoing contingent obligations for the La Senza business, which was soldrecognized in the fourthsecond quarter of 2018.2019.
Provision (Benefit) for Income Taxes
For year-to-date 2019,2020, our effective tax rate was 0.4%26.7% compared to 29.0%24.0% year-to-date 2018.2019. The year-to-date 2020 rate was generally consistent with our combined estimated federal and state statutory rate due to the resolution of certain tax matters, which resulted in a $50 million tax benefit, and recent changes in tax legislation included in the CARES Act, which resulted in a $21 million tax benefit, offset by losses related to certain foreign subsidiaries, which generate no tax benefit. The year-to-date 2019 year-to-date rate was lower than the Company'sour combined estimated federal and state statutory rate primarily due to the Victoria's Secret impairment charges, which generate noresolution of certain tax benefit for certain foreign subsidiaries. The 2018 year-to-date rate was higher than the Company's estimated federal and state statutory rate primarily due to losses related to certain foreign subsidiaries.matters.


FINANCIAL CONDITION

Liquidity and Capital Resources
Liquidity, or access to cash, is an important factor in determining our financial stability. We are committed to maintaining adequate liquidity. Cash generated from our operating activities provides the primary resources to support current operations, growth initiatives, seasonal funding requirements and capital expenditures. Our cash provided from operations is impacted by our net income (loss) and working capital changes. Our net income (loss) is impacted by, among other things, sales volume, seasonal sales patterns, success of new product introductions, profit margins and income taxes. Historically, sales are higher during the fourth quarter of the fiscal year due to seasonal and holiday-related sales patterns. Generally, our need for working capital peaks during the summer and fall months as inventory builds in anticipation of the holiday period. Our cash and cash equivalents held by foreign subsidiaries were $149 million as of November 2, 2019.August 1, 2020.
COVID-19 Response
Since the global COVID-19 crisis began, we have taken prudent actions to manage expenses and to maintain our solid cash position and financial flexibility through the pandemic, including:
Furloughing most store associates as of April 5 during their temporary store closure, while continuing to provide healthcare benefits for eligible associates;
Suspending associate merit increases;
Temporarily reducing salaries for senior vice presidents and above by 20%;
Temporarily suspending cash compensation for all members of the Board of Directors;
Reducing 2020 forecasted capital expenditures from $550 million to approximately $250 million;
Reducing Spring (first and second quarter) inventory receipts versus last year by approximately 45% at Victoria's Secret and PINK, and by approximately 20% at Bath & Body Works;
Suspending the quarterly cash dividend beginning in the second quarter of fiscal 2020;
Suspending most store and select office rent payments during the temporary closures. We are in active discussions with our landlords to negotiate with respect to these rent payments and go-forward occupancy costs;
Converting the revolving credit facility to an asset-backed loan facility and issuing $1.25 billion in new notes; and
Extending payment terms to vendors.
Working Capital and Capitalization
We believe that our available short-term and long-term capital resources are sufficient to fund foreseeable requirements.

The following table provides a summary of our working capital position and capitalization as of November 2, 2019,August 1, 2020, February 2, 20191, 2020 and NovemberAugust 3, 2018:2019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Net Cash Provided by (Used for) Operating Activities (a)$(90) $1,377
 $13
Net Cash Provided by Operating Activities (a)$286
 $1,236
 $162
Capital Expenditures (a)392
 629
 561
124
 458
 244
Working Capital (b)383
 1,274
 791
1,072
 873
 437
Capitalization:          
Long-term Debt5,477
 5,739
 5,814
6,269
 5,487
 5,475
Shareholders’ Equity (Deficit)(1,242) (869) (1,314)(1,908) (1,499) (933)
Total Capitalization$4,235
 $4,870
 $4,500
$4,361
 $3,988
 $4,542
Amounts Available Under Credit Agreements (c)$990
 $991
 $991
Amounts Available Under the Credit Agreement (b)$
 $981
 $990
 _______________
(a)The February 2, 20191, 2020 amounts represent a fifty-two-week period, and the November 2,August 1, 2020 and August 3, 2019 and November 3, 2018 amounts represent thirty-nine-weektwenty-six-week periods.
(b)
The November 2, 2019 amount includes Current Operating Lease LiabilitiesAs of August 1, 2020, our borrowing base was $844 million but we were unable to draw upon the Credit Agreement as a result of our adoption of ASC 842, Leases, in the first quarter of 2019.
(c)Letters of credit issued reduce our availability under the Secured Revolving Facility.consolidated cash balance exceeded $350 million. We had outstanding letters of credit, that reducedwhich reduce our availability under the Secured Revolving FacilityCredit Agreement, of $61 million as of August 1, 2020, $19 million as of February 1, 2020 and $10 million as of November 2, 2019, and $9 million as of February 2, 2019 and NovemberAugust 3, 2018.2019.


Cash Flow
The following table provides a summary of our cash flow activity for year-to-date 20192020 and 2018:2019:
 Year-to-Date
 2019 2018
 (in millions)
Cash and Cash Equivalents, Beginning of Period$1,413
 $1,515
Net Cash Flows Provided by (Used for) Operating Activities(90) 13
Net Cash Flows Used for Investing Activities(408) (538)
Net Cash Flows Used for Financing Activities(570) (643)
Effects of Exchange Rate Changes on Cash and Cash Equivalents(5) 1
Net Decrease in Cash and Cash Equivalents(1,073) (1,167)
Cash and Cash Equivalents, End of Period$340
 $348
 Year-to-Date
 2020 2019
 (in millions)
Cash and Cash Equivalents and Restricted Cash, Beginning of Period$1,499
 $1,413
Net Cash Flows Provided by Operating Activities286
 162
Net Cash Flows Used for Investing Activities(116) (237)
Net Cash Flows Provided by (Used for) Financing Activities1,071
 (483)
Effects of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash(1) (2)
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash1,240
 (560)
Cash and Cash Equivalents and Restricted Cash, End of Period$2,739
 $853
Operating Activities
Net cash used forprovided by operating activities in 20192020 was $90$286 million, including a net loss of $174$346 million. Net loss included depreciation of $443$266 million, store and lease asset impairment charges of $248$214 million, gain from Victoria's Secret Hong Kong store closure and lease termination of $39 million and share-based compensation expense of $28 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal and COVID-19-related changes in Accounts Payable, Accrued Expenses and Other, Inventories, Income Taxes Payable and Accounts Receivable.
Net cash provided by operating activities in 2019 was $162 million, including net income of $78 million. Net income included depreciation of $295 million, share-based compensation expense of $67$44 million and loss on extinguishment of debt of $40 million and La Senza charges of $37 million. Other changes in assets and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Inventories (and related increases in Accounts Payable), as we build our inventory levels in anticipation of the holiday season, which generates a substantial portion of our operating cash flow for the year. In addition, our Income Taxes Payable decrease was due to seasonal tax payments.
Net cash provided by operating activities in 2018 was $13 million, including net income of $104 million. Net income included depreciation of $444 million, asset impairment charges of $81 million and share-based compensation expense of $75 million. OtherInventories, and the changes in assetsAccounts Payable, Accrued Expenses and liabilities represent items that had a current period cash flow impact, such as changes in working capital. The most significant items in working capital were the seasonal changes in Inventories (and related increases inOther and Accounts Payable). In addition, our Income Taxes Payable decrease was due to seasonal tax payments.Receivable.

Investing Activities
Net cash used for investing activities in 20192020 was $408$116 million consisting primarily of capital expenditures of $392$124 million. The capital expenditures were primarily related to spending on technology and logistics to support our digital businesses and other retail capabilities. Capital expenditures of $45 million related to the opening of new stores or the remodeling and improving of existing stores, primarily for Bath & Body Works.
Net cash used for investing activities in 2019 was $237 million consisting primarily of capital expenditures of $244 million, partially offset by proceeds of $12 million related to our divestiture of La Senza. The capital expenditures included $222$169 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and logistics to support our digital businesses and other retail capabilities.
Financing Activities
Net cash used for investingprovided by financing activities in 20182020 was $538 million$1.071 billion consisting primarily of capital expendituresnet proceeds of $561 million$1.231 billion from the issuance of new notes, partially offset by a $15dividend payments of $0.30 per share, or $83 million, returnand $52 million of capital from certain ofnet repayments under our Easton investments. The capital expenditures included $452Foreign Facilities. We also borrowed and repaid $950 million for opening new stores and remodeling and improving existing stores. Remaining capital expenditures were primarily related to spending on technology and infrastructure to support growth.
We anticipate spending approximately $500 million for capital expenditures in 2019 relating to remodeling and improving existing stores and opening new stores, as well as investments in technology and logistics for initiatives supportingunder our direct businesses and other retail capabilities.
Financing ActivitiesCredit Agreement during 2020.
Net cash used for financing activities in 2019 was $570$483 million consisting primarily of $799 million in payments for the early extinguishment of outstanding notes maturing between 2020 and 2022, quarterly dividend payments of $0.90$0.60 per share, or $249$166 million, and tax payments related to share-based awards of $12$11 million, partially offset by the net proceeds of $486 million from the issuance of the 2029 Notes and $15$11 million of net new borrowings under our Foreign Facilities.
Net cash used for financing activities in 2018 was $643 million consisting primarily of quarterly dividend payments of $1.80 per share, or $500 million, payments for repurchases of common stock of $198 million, payment of long-term debt related to our exchange of notes of $52 million and tax payments related to share-based awards of $13 million, partially offset by an $85 million borrowing from our Secured Revolving Facility and $39 million of net new borrowings under our Foreign Facilities.

Common Stock Share Repurchases
Our Board of Directors will determine share repurchase authorizations, giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our share repurchase programs. The timing and amount of any repurchases will be made at our discretion, taking into account a number of factors, including market conditions.
We did not repurchase any shares during year-to-date2020 or 2019.
Under the authority of our Board of Directors, we repurchased shares of our common stock under the following repurchase programs during year-to-date 2018:
 
Amount
Authorized
 
Shares
Repurchased
 
Amount
Repurchased
 Average Stock Price of Shares Repurchased within Program
Repurchase Program   
 (in millions) (in thousands) (in millions)  
March 2018$250
  4,852
 $171
 $35.29
September 2017250
  527
 25
 $46.98
Total   5,379
 $196
  
In March 2018, our Board of Directors approved a $250 million repurchase program, which included the $23 million remaining under the September 2017 repurchase program.
The March 2018 repurchase program had $79 million remaining as of November 2, 2019.August 1, 2020.
Dividend Policy and Procedures
Our Board of Directors will determine future dividends after giving consideration to our levels of profit and cash flow, capital requirements, current and forecasted liquidity, the restrictions placed upon us by our borrowing arrangements as well as financial and other conditions existing at the time. We use cash flow generated from operating and financing activities to fund our dividendsdividends.
Our Board of Directors suspended our quarterly cash dividend beginning in the second quarter of fiscal 2020 as a proactive measure to strengthen our financial flexibility and share repurchase programs.manage through the COVID-19 pandemic.
Under the authority and declaration of our Board of Directors, we paid the following dividends during year-to-date 20192020 and 2018:2019:
  Ordinary Dividends Total Paid
  (per share) (in millions)
2019    
Third Quarter $0.30
 $83
Second Quarter 0.30
 83
First Quarter 0.30
 83
Total $0.90
 $249
2018    
Third Quarter $0.60
 $165
Second Quarter 0.60
 167
First Quarter 0.60
 168
Total $1.80
 $500









  Ordinary Dividends Total Paid
  (per share) (in millions)
2020    
Second Quarter $
 $
First Quarter 0.30
 83
Total $0.30
 $83
2019    
Second Quarter $0.30
 $83
First Quarter 0.30
 83
Total $0.60
 $166

Long-term Debt and Borrowing Facilities
The following table provides our outstanding debt balance, net of unamortized debt issuance costs and discounts, as of November 2, 2019,August 1, 2020, February 2, 20191, 2020 and NovemberAugust 3, 2018:2019:
November 2,
2019
 February 2,
2019
 November 3,
2018
August 1,
2020
 February 1,
2020
 August 3,
2019
(in millions)(in millions)
Senior Secured Debt with Subsidiary Guarantee     
$750 million, 6.875% Fixed Interest Rate Secured Notes due July 2025 ("2025 Secured Notes")$739
 $
 $
Secured Foreign Facilities101
 103
 95
Total Senior Secured Debt with Subsidiary Guarantee$840
 $103
 $95
Senior Debt with Subsidiary Guarantee          
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)$991
 $990
 $990
$991
 $991
 $990
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)857
 952
 951
858
 858
 857
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)693
 693
 693
693
 693
 693
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)498
 498
 498
498
 498
 498
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)496
 496
 495
496
 496
 496
$500 million, 9.375% Fixed Interest Rate Notes due July 2025 ("2025 Notes")492
 
 
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")487
 
 
488
 487
 486
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)449
 776
 776
450
 450
 449
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)275
 273
 273
277
 276
 274
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)
 337
 337
Secured Revolving Facility
 
 85
Secured Foreign Facilities95
 91
 94
Total Senior Debt with Subsidiary Guarantee$4,841
 $5,106
 $5,192
$5,243
 $4,749
 $4,743
Senior Debt          
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)$348
 $348
 $348
$348
 $348
 $348
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)298
 297
 297
298
 298
 297
Unsecured Foreign Facilities65
 60
 33

 50
 67
Total Senior Debt$711
 $705
 $678
$646
 $696
 $712
Total$5,552
 $5,811
 $5,870
$6,729
 $5,548
 $5,550
Current Debt(75) (72) (56)(460) (61) (75)
Total Long-term Debt, Net of Current Portion$5,477
 $5,739
 $5,814
$6,269
 $5,487
 $5,475
Issuance of Notes
In June 2019,2020, we issued $500$750 million of 7.50%6.875% senior secured notes due in June 2029.July 2025. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries (the “Guarantors”).subsidiaries. The 2025 Secured Notes are secured on a first-priority lien basis by substantially all of our and the guarantors' assets, and on a second-priority lien basis by certain collateral securing the ABL Facility, in each case, subject to certain exceptions. The proceeds from the issuance were $486$739 million, which were net of discounts and issuance costs of $14$11 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the November 2, 2019August 1, 2020 Consolidated Balance Sheet.

In June 2020, we also issued $500 million of 9.375% notes due in July 2025 (the "2025 Notes"). The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by us and certain of our 100% owned subsidiaries. The proceeds from the issuance were $492 million, which were net of issuance costs of $8 million. The issuance costs are being amortized through the maturity date and are included within Long-term Debt on the August 1, 2020 Consolidated Balance Sheet.
Repurchases of Notes
In June 2019, we completed the early settlement of tender offers to repurchase $212 million of outstanding 2020 Notes, $330 million of outstanding 2021 Notes and $96 million of outstanding 2022 Notes for $669 million. We used the proceeds from the 2029 Notes, together with cash on hand, to fund the purchase price for the tender offers. Additionally, in July 2019, we redeemed the remaining $126 million of outstanding 2020 Notes for $130 million.

In the second quarter of 2019, we recognized a pre-tax loss on extinguishment of debt of $40 million (after-tax loss of $30 million), which includes redemption fees and the write-offs of unamortized issuance costs and redemption fees.costs. This loss is included in Other Income (Loss) in the year-to-date 2019 Consolidated StatementStatements of Income (Loss).Income.
Exchange of Notes
In June 2018, we completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain or loss was recognized. The exchange premium is being amortized through the maturity date of January 2027 and is included within Long-term Debt on the Consolidated Balance Sheets. The obligation to pay principal and interest on the 2027 Notes is jointly and severally guaranteed on a full and unconditional basis by the Guarantors.

Secured Revolving Credit Facility
We and the Guarantorscertain of our 100% owned subsidiaries guarantee and pledge collateral to secure a revolving credit facility. The Secured Revolving Facility has aggregate availability of $1 billion. The Secured Revolving Facility allows us and certain of our non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.
In August 2019,April 2020, we entered into an amendment and restatement of the Secured Revolving Facility.Credit Agreement to convert our credit facility into an asset-backed revolving credit facility. The Amendment maintainedmaintains the aggregate availability under the Secured Revolving Facilitycommitments at $1 billion, and extendedmaintains the expiration date from May 2022 toin August of 2024. The Amendment also raisedABL Facility allows borrowings and letters of credit in U.S. dollars or Canadian dollars.
Availability under the thresholdABL Facility is the lesser of consolidated debt(i) the borrowing base, determined primarily based on our eligible U.S. and Canadian credit card receivables, accounts receivable, inventory and eligible real property, or (ii) the aggregate commitment. If at any time, the outstanding amount under the ABL Facility exceeds the lesser of (i) the borrowing base and (ii) the aggregate commitment, we will be required to consolidated EBITDA in which investments and restricted payments may be made without limitation to 3.50 to 1.00.
We incurred fees relatedprepay the outstanding amounts under the ABL Facility to the Amendmentextent of $5such excess. In addition, at any time that our consolidated cash balance exceeds $350 million, whichwe will be required to prepay outstanding amounts under the ABL Facility to the extent of such excess. As of August 1, 2020, our borrowing base was $844 million but we were capitalized and recorded in Other Assets onunable to draw upon the November 2, 2019 Consolidated Balance Sheet and are being amortized over the remaining term of the Secured Revolving Facility.ABL Facility as our consolidated cash balance exceeded $350 million.
As of November 2, 2019,August 1, 2020, the Secured RevolvingABL Facility fees related to committed and unutilized amounts were 0.25%0.30% per annum, and the fees related to outstanding letters of credit were 1.50%1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings was the LIBORLondon Interbank Offered Rate plus 1.50%1.75% per annum. The interest rate on outstanding foreign-denominatedCanadian dollar-denominated borrowings was the applicable benchmark rateCanadian Dollar Offered Rate plus 1.50%1.75% per annum.
The Secured RevolvingABL Facility contains fixed charge coverage and debt to EBITDA financial covenants. We are requiredrequires us to maintain a fixed charge coverage ratio of not less than 1.751.00 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility provided that investments and restricted payments may be made, without limitationduring an event of default or any period commencing on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter periodany day when specified excess availability is less than 3.50 to 1.00 and (b) no defaultthe greater of (1) $100 million or event(2) 15% of default exists.the maximum borrowing amount. As of November 2, 2019,August 1, 2020, we were not required to maintain this ratio.
In March 2020, in compliance with bothan abundance of caution and as a proactive measure in response to the COVID-19 pandemic, we elected to borrow $950 million from our financial covenants, andrevolving facility, which was prepaid upon the ratiocompletion of consolidated debt to consolidated EBITDA was less than 3.50 to 1.00.
the Amendment. As of November 2, 2019,August 1, 2020, there were no borrowings outstanding under the Secured RevolvingABL Facility.
The Secured RevolvingABL Facility supports our letter of credit program. We had $10$61 million of outstanding letters of credit as of November 2, 2019August 1, 2020 that reduced our availability under the Secured RevolvingABL Facility.
Secured Foreign Facilities
We and the Guarantors guarantee and pledge collateral to secureCertain of our China subsidiaries utilize revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Secured Foreign Facilities which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $150 million. Theand interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. Certain of these facilities are guaranteed by us and certain of our 100% owned subsidiaries, and certain of these facilities were guaranteed by us only.
The Secured Foreign Facilities have availability totaling $128 million. During 2019,2020, we borrowed $16$20 million and made payments of $822 million under the Secured Foreign Facilities. The maximum daily amountAs of August 1, 2020, there were borrowings of $101 million outstanding at any point in time during 2019 was $96 million.under the Secured Foreign Facilities, of which $10 million is included within Current Debt on the Consolidated Balance Sheet. Borrowings on the Secured Foreign Facilities mature between December 2019September 2020 and August 2024. As
During the second quarter, we placed cash on deposit with certain financial institutions as collateral for their lending commitments under the Secured Foreign Facilities. The amount of November 2, 2019, borrowings of $10collateral required reduces over time as we make certain paydowns. These deposits, totaling $128 million, are included within Current Debtrecorded in Other Assets on the August 1, 2020 Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.Sheet.
Unsecured Foreign Facilities
We guarantee unsecured revolving and term loan bank facilities used by certain of our Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $87 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During 2019,2020, we borrowed $20$13 million and made payments of $13$63 million under the Unsecured Foreign Facilities. The maximum daily amountDuring the second quarter of 2020, with no borrowings outstanding, at any point in time during 2019 was $73 million. Borrowings onwe terminated the Unsecured Foreign Facilities mature between November 2019 and January 2020. As of November 2, 2019, borrowings of $65 million are included within Current Debt on the Consolidated Balance Sheet.Facilities.
Credit Ratings
Our borrowing costs under our Secured Revolving Facility and Secured Foreign Facilities are linked to our credit ratings. If we receive an upgrade or downgrade to our corporate credit ratings, the borrowing costs could decrease or increase, respectively. The guarantees of our obligations under the Secured Revolving Facility and Secured Foreign Facilities by the Guarantors, and the security interests granted in our and the Guarantors’ collateral securing such obligations, are released if our credit ratings are higher than a certain level. Additionally, the restrictions imposed under the Secured Revolving Facility and Secured Foreign Facilities on our ability to make investments and to make restricted payments cease to apply if our credit ratings are higher than certain levels. Credit rating downgrades by any of the agencies do not accelerate the repayment of any of our debt.

The following table provides our credit ratings as of November 2, 2019:August 1, 2020:
 Moody’s S&P
CorporateSenior Secured DebtBa1Ba2 BB
CorporateB2B+
Senior Unsecured Debt with Subsidiary GuaranteeBa1B2 BBB+
Senior Unsecured DebtBa2Caa1 B+B-
OutlookNegative Negative

Subsequent to November 2, 2019,August 1, 2020, S&P downgraded our Corporate and Senior Unsecured Debt with Subsidiary Guarantee ratings to BB-, our Senior Unsecured Debt rating to B and updated our outlook to Stable.
Guarantor Summarized Financial Information
Certain of our subsidiaries, which are listed on Exhibit 22 to this Quarterly Report on Form 10-Q, have guaranteed our obligations under the 2021 Notes, 2022 Notes, 2023 Notes, 2025 Notes, 2027 Notes, 2028 Notes, 2029 Notes, 2035 Notes and the 2036 Notes (collectively, the "Unsecured Notes") and the 2025 Secured Notes (the “Secured Notes” and together with the Unsecured Notes, the “Notes”).
The Notes have been issued by L Brands, Inc. (the “Parent Company”). The Unsecured Notes are its senior unsecured obligations and the Secured Notes are its senior secured obligations. The Unsecured Notes rank equally in right of payment with all of our existing and future senior unsecured obligations, senior to any of our future subordinated indebtedness, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien and are structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Unsecured Notes. The Secured Notes rank equally in right of payment with all of our existing and future senior obligations, senior to any of our future subordinated indebtedness, are effectively senior to all of our existing and future indebtedness that is secured by a lien on collateral that ranks junior to the lien on such collateral securing the Secured Notes, are effectively senior to all of our existing and future unsecured indebtedness to the extent of the value of the assets securing the Secured Notes, are effectively subordinated to all of our existing and future indebtedness that is secured by a lien on assets that do not constitute collateral or that is secured by a first-priority lien on certain collateral, in each case to the extent of the value of such assets, and structurally subordinated to all existing and future obligations of each of our subsidiaries that do not guarantee the Unsecured Notes.
The Notes are fully and unconditionally guaranteed on a joint and several basis by certain of our wholly-owned subsidiaries, including each subsidiary that also guarantees our obligations under certain of our senior secured credit facilities (such guarantees, the “Guarantees”; and, such guaranteeing subsidiaries, the “Subsidiary Guarantors”). The Guarantees of the Subsidiary Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor subject to avoidance under applicable fraudulent conveyance provisions of U.S. and non-U.S. law.
The following tables set forth summarized financial information for the Parent Company and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent Company and the Subsidiary Guarantors and (ii) investments in and equity in the earnings of non-Guarantor subsidiaries:
SUMMARIZED BALANCE SHEETSAugust 1,
2020
 February 1,
2020
 (in millions)
ASSETS   
Current Assets (a)$5,202
 $3,728
Noncurrent Assets5,007
 5,357
    
LIABILITIES   
Current Liabilities (b)$4,923
 $4,163
Noncurrent Liabilities (c)9,293
 8,772
 _______________
(a)Includes amounts due from non-Guarantor subsidiaries of $1.255 billion and $1.091 billion as of August 1, 2020 and February 1, 2020, respectively.
(b)Includes amounts due to non-Guarantor subsidiaries of $2.269 billion and $2.684 billion as of August 1, 2020 and February 1, 2020, respectively.
(c)Includes amounts due to non-Guarantor subsidiaries of $476 million as of both August 1, 2020 and February 1, 2020.

SUMMARIZED STATEMENT OF LOSSYear-to-Date
 2020
 (in millions)
Net Sales (a)$3,802
Gross Profit970
Operating Loss(173)
Loss Before Income Taxes(407)
Net Loss (b)(263)
 _______________
(a)Includes net sales of $101 million to non-Guarantor subsidiaries.
(b)Includes net loss of $7 million related to transactions with non-Guarantor subsidiaries.
In addition to the Subsidiary Guarantors, a certain subsidiary, which is listed on Exhibit 22 to this Quarterly Report on Form 10-Q, has only guaranteed our obligations under the 2025 Notes and the 2025 Secured Notes. This subsidiary had assets, all of which were noncurrent, of $239 million and $244 million as of August 1, 2020 and February 1, 2020, respectively. In addition, this subsidiary had current liabilities of $2 million as of August 1, 2020 and $119 million as of February 1, 2020, which included $93 million due to the Subsidiary Guarantors. Year-to-date 2020 Statement of Loss activity for this subsidiary is immaterial.
Contingent Liabilities and Contractual Obligations
La Senza
In connection with the sale of La Senza in the fourth quarter of 2018, certain of our subsidiaries have remaining contingent obligations of $44$36 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business. As part of the sale, a liabilityAugust 1, 2020, we have recorded reserves of $5$37 millionwas recordedfor these obligations. During the third quarter of 2019, an additional reserve of $19 million was recorded related to these obligations. This liability is included in Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.
Additionally, we havelease-related obligations and certain other contingent obligations related to the La Senza for a periodbusiness. As of time. A reserveAugust 1, 2020, reserves of $17$6 million was recorded duringare included within Accrued Expenses and Other on the third quarter of 2019 related to these obligations, which isConsolidated Balance Sheet and the remaining reserves are included inwithin Other Long-term Liabilities on the November 2, 2019 Consolidated Balance Sheet.Liabilities.
Other
In connection with the disposition of a certain other business, we have remaining guarantees of $5 million related to lease payments under the current terms of a noncancelable lease expiring in 2021, which may remain in effect if the term is extended. We have not recorded a liability with respect to this guarantee obligation as of November 2, 2019, February 2, 2019 or November 3, 2018 as we concluded that payments under this guarantee were not probable.
In connection with noncancelable operating leaseslease of certain assets,an operating asset, we providedprovide a residual value guaranteesguarantee to the lessor if the leased assetsasset 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 throughlease expires in 2021, and the total amount of the guaranteesguarantee is $94$28 million. We recordeddid not record a liability of $11 million as of November 2, 2019 and February 2, 2019, and $3 million as of November 3, 2018 related to these guarantee obligations. This liability is included in Current Operating Lease Liabilities on the November 2, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and November 3, 2018 Consolidated Balance Sheets.August 1, 2020.
Contractual Obligations
Our contractual obligations primarily consist of long-term debt and the related interest payments, operating leases, purchase orders for merchandise inventory and other long-term obligations. These contractual obligations impact our short-term and long-term liquidity and capital resource needs. There have been no material changes in our contractual obligations since February 2, 2019,1, 2020, as discussed in “Contingent��Contingent Liabilities and Contractual Obligations” in our 20182019 Annual Report on Form 10-K, other than the newly issued 2029 Notes, repurchase of the 20202025 Secured Notes and repurchases of certain of the 2021 and 20222025 Notes. Certain of our contractual obligations may fluctuate during the normal course of business (primarily changes in our merchandise inventory-related purchase obligations, which fluctuate throughout the year as a result of the seasonal nature of our operations).

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

We adopted the standard in the first quarter of 2019 under the modified retrospective approach. As allowed by the new standard, we elected the package of transition practical expedients but elected to not apply the hindsight practical expedient to our leases at transition.
Upon adoption at the beginning of 2019, we recorded operating lease liabilities of $3.7 billion and operating lease assets for our leases of $3.3 billion. The operating lease assets are net of $470 million of liabilities for deferred rent and unamortized landlord construction allowances that were previously recorded as Other Long-term Liabilities on the Consolidated Balance Sheet. We also recorded a decrease to opening retained earnings, net of tax, of $2 million. The adoption of the standard did not materially impact the Consolidated Statements of Income (Loss) or Cash Flows.
Hedging Activities
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements. We adopted the standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on our consolidated results of operations, financial position or cash flows.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. We adopted this standard in the third quarter of 2019 and performed our interim goodwill impairment assessment in accordance with ASU 2017-04.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the use of a forward-looking expected loss impairment model for accounts receivable and certain other financial instruments. This guidance will be effective beginningWe adopted the standard in fiscal 2020, with earlythe first quarter of 2020. The adoption permitted. We are currently evaluating the impact of this standard.standard did not have a material impact on our consolidated results of operations, financial position or cash flows.


Guarantor Reporting
In March 2020, the SEC issued a final rule, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities, that simplifies the disclosure requirements related to registered securities under Rule 3-10 of Regulation S-X. The rule replaces the requirement to provide condensed consolidating financial information with a requirement to present summarized financial information of the issuers and guarantors. It also requires qualitative disclosures with respect to information about guarantors, the terms and conditions of guarantees and the factors that may affect payment. These disclosures may be provided outside the footnotes to our consolidated financial statements. We early adopted the reporting requirements of the rule in the first quarter of 2020 and elected to provide these disclosures in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
IMPACT OF INFLATION
While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on the results of operations and financial condition have been minor.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies related to estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to inventories, long-lived assets, claims and contingencies, income taxes and revenue recognition. Management bases our estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
There have been no material changes to the critical accounting policies and estimates disclosed in our 20182019 Annual Report on Form 10-K, other than the adoption of ASC 842, Leases, and ASU 2017-04, Simplifying the Test for Goodwill Impairment.
Valuation of Long-Lived Assets
Long-Lived Store Assets
Long-lived store assets, which includes leasehold improvements, store-related assets and operating leases (subsequent to the adoption of ASC 842, Leases), are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group.  An individual asset within an asset group is not impaired below its estimated fair value. For operating lease assets, we determine the fair value of the assets by comparing the

contractual rent payments to estimated market rental rates. These fair value measurements qualify as level 3 measurements in the fair value hierarchy.
In the third quarter of 2019, we concluded that the negative operating results for certain of our Victoria's Secret stores were an indicator of potential impairment of the related store asset groups. We determined that the estimated undiscounted future cash flows were less than the carrying values and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows. Accordingly, we recognized a loss equal to the difference between the carrying value of an asset group and its estimated fair value but did not impair any individual store asset below its estimated fair value. For leasehold improvements and store-related assets, we recognized impairment charges of $188 million. Impairment charges of $151 million related to stores in Greater China, the U.K. and Ireland, and impairment charges of $37 million related to stores in the U.S. and Canada. For operating lease assets, we recognized impairment charges of $30 million. Impairment charges of $26 million related to stores in the U.K., and impairment charges of $4 million related to stores in the U.S.
In total, we recognized impairment charges of $218 million for long-lived store assets, which are included in Costs of Goods Sold, Buying & Occupancy in the 2019 Consolidated Statements of Income (Loss).  Impairment charges of $177 million, related to store assets in Greater China, the U.K. and Ireland, were recorded within the Victoria's Secret and Bath & Body Works International segment. Impairment charges of $41 million, related to store assets in the U.S. and Canada, were recorded within the Victoria's Secret segment.
Our fair value estimates incorporated significant assumptions and judgments including, but not limited to, estimated future cash flows, discount rates and market rental rates. The use of different assumptions or judgments in our assessment could materially increase or decrease the fair value of our store assets and, accordingly, could materially increase or decrease any related impairment charge. Further sustained declines in our business performance could result in a material impairment charge in a future period.
Goodwill
Goodwill is reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change. We have the option to either first perform a qualitative assessment to determine whether it is more likely than not that each reporting unit's fair value is less than its carrying value (including goodwill), or to proceed directly to the quantitative assessment which requires a comparison of the reporting unit's fair value to its carrying value (including goodwill). If we determine that the fair value of a reporting unit is less than its carrying value, we recognize an impairment charge equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. Our reporting units are determined in accordance with the provisions of ASC 350, Intangibles - Goodwill and Other. Our reporting units that have goodwill are Victoria's Secret, Bath & Body Works and Greater China, which is included within the Victoria's Secret and Bath & Body Works International reportable segment.
As of November 2, 2019, we performed a quantitative interim impairment assessment over the Victoria's Secret and Greater China reporting units. An interim assessment was performed in consideration of the negative performance of these reporting units and their impact on the sustained decline in our market capitalization. Further, for the Greater China reporting unit, we considered the results of the long-lived store asset impairment assessment.
The interim assessment concluded that the fair value of the Victoria's Secret reporting unit exceeded its carrying value by approximately 24%, and that the fair value of the Greater China reporting unit did not exceed its carrying value. Accordingly, we recognized a goodwill impairment charge of $30 million in the third quarter of 2019 related to the Greater China reporting unit. This charge is included in General, Administrative and Store Operating Expenses in the 2019 Consolidated Statements of Income (Loss).
The estimated fair value of the Victoria's Secret reporting unit was based on a weighted average of the income and market approaches, while the estimated fair value of the Greater China reporting unit was based on the income approach. The income approach is based on estimated discounted future cash flows, while the market approach is based on earnings multiples of selected guideline public companies. The approaches, which qualify as level 3 in the fair value hierarchy, incorporated a number of significant assumptions and judgments including, but not limited to, estimated future cash flows, discount rates, income tax rates, terminal growth rates, multiples of earnings of similar public companies and an implied control premium relative to our market capitalization.
The use of different assumptions or judgments in our goodwill impairment assessment, including with respect to the estimated future cash flows of our reporting units, the discount rate used to discount such estimated future cash flows to their net present value, and the reasonableness of the implied control premium relative to our market capitalization, could materially increase or decrease the fair value of our reporting units and, accordingly, could materially increase or decrease any related impairment charge. Further sustained declines in our market capitalization or in our business performance could result in a material impairment charge in a future period.

Intangible Assets - Indefinite Lives
Intangible assets with indefinite lives represent the Victoria’s Secret and Bath & Body Works trade names. Intangible assets with indefinite lives are reviewed for impairment each year in the fourth quarter and may be reviewed more frequently if certain events occur or circumstances change.
As of November 2, 2019, we performed a quantitative interim impairment assessment of the Victoria's Secret trade name. An interim assessment was performed in consideration of the negative performance of Victoria's Secret. To estimate the fair value of the Victoria's Secret trade name, we used the relief from royalty method under the income approach. The interim assessment concluded that the fair value of the Victoria's Secret trade name exceeded its carrying value.

10-K.
Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in foreign currency exchange rates or interest rates. We may use derivative financial instruments like cross-currency swaps, foreign currency forward contracts, cross-currency swaps and interest rate swap arrangements to manage exposure to market risks. We do not use derivative financial instruments for trading purposes.
Foreign Exchange Rate Risk
We have operations in foreign countries which expose us to market risk associated with foreign currency exchange rate fluctuations. Our Canadian dollar, British pound, Chinese Yuan Hong Kong dollar and Euro denominated earnings are subject to exchange rate risk as substantially all our merchandise sold in Canada, the U.K., Ireland and Greater China is sourced through U.S. dollar transactions. Although we utilize foreign currency forward contracts to partially offset risks associated with our operations in Canada and the U.K., these measures may not succeed in offsetting all the short-term impact of foreign currency rate movements and generally may not be effective in offsetting the long-term impact of sustained shifts in foreign currency rates.
Further, although our royalty arrangements with our international partners are denominated in U.S. dollars, the royalties we receive in U.S. dollars are calculated based on sales in the local currency. As a result, our royalties in these arrangements are exposed to foreign currency exchange rate fluctuations.
Interest Rate Risk
Our investment portfolio primarily consists of interest-bearing instruments that are classified as cash and cash equivalents based on their original maturities. Our investment portfolio is maintained in accordance with our investment policy, which specifies permitted types of investments, specifies credit quality standards and maturity profiles and limits credit exposure to any single issuer. The primary objective of our investment activities is the preservation of principal, the maintenance of liquidity and the maximization of interest income while minimizing risk. Typically, our investment portfolio is comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. Given the short-term nature and quality of investments in our portfolio, we do not believe there is any material risk to principal associated with increases or decreases in interest rates.

Excluding our Foreign Facilities, all of our long-term debt as of November 2, 2019August 1, 2020 has fixed interest rates. We will from time to time adjust our exposure to interest rate risk by entering into interest rate swap arrangements. Our exposure to interest rate changes is limited to the fair value of the debt issued, which would not have a material impact on our earnings or cash flows.
Fair Value of Financial Instruments
As of November 2, 2019,August 1, 2020, we believe that the carrying values of accounts receivable, accounts payable and accrued expenses and current debt approximate fair value because of their short maturity.

The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt and other financial instruments as of November 2, 2019,August 1, 2020, February 2, 20191, 2020 and NovemberAugust 3, 2018:2019:
 November 2,
2019
 February 2,
2019
 November 3,
2018
 (in millions)
Long-term Debt:     
Principal Value$5,458
 $5,722
 $5,722
Fair Value, Estimated (a)5,156
 5,340
 5,301
Foreign Currency Cash Flow Hedges (b)
 (2) (3)
Marketable Equity Securities (b)(1) (11) (9)
 August 1,
2020
 February 1,
2020
 August 3,
2019
 (in millions)
Principal Value$6,708
 $5,458
 $5,458
Fair Value, Estimated (a)6,692
 5,555
 5,215
 _______________
(a)The estimated fair value is based on reported transaction prices. The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.
(b)Financial instruments are in a net asset position.
Concentration of Credit Risk
We maintain cash and cash equivalents, restricted cash and derivative contracts with various major financial institutions. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Typically, our investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits. We also periodically review the relative credit standing of franchise, license and wholesale partners and other entities to which we grant credit terms in the normal course of business.

Item 4.CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred in the thirdsecond quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

We are a defendant in a variety of lawsuits arising in the ordinary course of business. Actions filed against our Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, our current legal proceedings are not expected to have a material adverse effect on our financial position or results of operations.
In July 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that we made false and/or misleading statements relating to the November 2018 announcement that we were reducing our quarterly dividend. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief.  In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel.  The deadline forlead plaintiff filed a consolidated amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint.  We filed a motion to dismiss the consolidated amended complaint on February 18, 2020, the lead plaintiff filed an opposition to file anour motion to dismiss on May 4, 2020, and we filed a reply brief in further support of its motion to dismiss on June 3, 2020.  Our motion to dismiss the consolidated amended complaint is December 20, 2019.now fully briefed and pending before the court.  The court will hear oral argument on the motion to dismiss on September 23, 2020. We view this lawsuit as meritless and intend to defend against this lawsuit vigorously. 

On February 19, 2020, a plaintiff shareholder filed a complaint in the U.S. District Court for the Southern District of Ohio alleging derivative claims on our behalf against certain of our current and former directors and officers.  We were named as nominal defendant.  The lawsuit asserts claims for breach of fiduciary duty, corporate waste and unjust enrichment in connection with alleged misstatements about our quarterly dividend prior to the announced reduction of the dividend in November 2018. On July 21, 2020, the court so-ordered a stipulation staying all proceedings in this lawsuit, pending resolution of the motion to dismiss that we filed on February 18, 2020 in the putative class action lawsuit described above.  We intend to seek dismissal of the lawsuit at the appropriate time.
On May 19, 2020, a purported shareholder filed a derivative lawsuit on behalf of L Brands, Inc. in the Court of Common Pleas for Franklin County, Ohio.  The complaint names as defendants certain current and former directors and officers of L Brands, Inc. and alleges, among other things, that these defendants breached their fiduciary duties by violating law and/or company policies relating to workplace conduct.  We were named as nominal defendant only, and there are no claims asserted against us.  On June 16, 2020, the lawsuit was removed to the United States District Court for the Southern District of Ohio.  On July 6, 2020, the court so-ordered a stipulation staying the lawsuit until December 29, 2020.  We are currently evaluating potential options for responding to the lawsuit.
Item 1A.RISK FACTORS

The following information supplements the risk factors that affect our business and financial results are discusseddescribed in “Item 1A: Risk Factors” in our 20182019 Annual Report on Form 10-K and should be read in conjunction with the risk factors described in the 2019 Annual Report on Form 10-K. We wish to caution the reader that the risk factors discussed in “Item 1A: Risk Factors” in our 20182019 Annual Report on Form 10-K and those described elsewhere in this report or other SEC filings could cause actual results to differ materially from those stated in any forward-looking statements.

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

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

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

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

The following table provides our repurchases of our common stock during the thirdsecond quarter of 2019:2020:
Period
Total
Number of
Shares
Purchased (a)
 
Average Price
Paid per
Share (b)
 Total Number of Shares Purchased as Part of Publicly Announced Programs (c) Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
 (in thousands)   (in thousands)
August 201921
 $21.62
 
 $78,677
September 20197
 17.97
 
 78,677
October 201918
 16.87
 
 78,677
Total46
   
  
Period
Total
Number of
Shares
Purchased (a)
 
Average Price
Paid per
Share (b)
 Total Number of Shares Purchased as Part of Publicly Announced Programs (c) Maximum Number of Shares (or Approximate Dollar Value) that May Yet be Purchased Under the Programs (c)
 (in thousands)   (in thousands)
May 202074
 $10.31
 
 $78,677
June 202023
 17.50
 
 78,677
July 20204
 20.39
 
 78,677
Total101
   
  
  _______________
(a)The total number of shares repurchased includes shares repurchased in connection with tax payments due upon vesting of employee restricted stock awards and the use of our stock to pay the exercise price on employee stock options.
(b)The average price paid per share includes any broker commissions.
(c)For additional share repurchase program information, see Note 4,5, “Earnings (Loss) Per Share and Shareholders' Equity (Deficit)” included in Item 1. Financial Statements.

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.MINE SAFETY DISCLOSURES

Not applicable.

Item 5.OTHER INFORMATION

None.


Item 6. EXHIBITS

Exhibits 
  
   
15 
22
   
31.1 
   
31.2 
   
32 
   
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 
 
L BRANDS, INC.
 (Registrant)
 By:/s/ STUART B. BURGDOERFER
  
Stuart B. Burgdoerfer
Executive Vice President and Chief Financial Officer *
Date: December 6, 2019September 3, 2020
*Mr. Burgdoerfer is the principal financial officer and the principal accounting officer and has been duly authorized to sign on behalf of the Registrant.


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