Company Quick10K Filing
Quick10K
L Brands
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$24.25 275 $6,670
10-Q 2019-05-04 Quarter: 2019-05-04
10-K 2019-02-02 Annual: 2019-02-02
10-Q 2018-11-03 Quarter: 2018-11-03
10-Q 2018-08-04 Quarter: 2018-08-04
10-Q 2018-05-05 Quarter: 2018-05-05
10-K 2018-02-03 Annual: 2018-02-03
10-Q 2017-10-28 Quarter: 2017-10-28
10-Q 2017-07-29 Quarter: 2017-07-29
10-Q 2017-04-29 Quarter: 2017-04-29
10-K 2017-01-28 Annual: 2017-01-28
10-Q 2016-10-29 Quarter: 2016-10-29
10-Q 2016-07-30 Quarter: 2016-07-30
10-Q 2016-04-30 Quarter: 2016-04-30
10-K 2016-01-30 Annual: 2016-01-30
10-Q 2015-10-31 Quarter: 2015-10-31
10-Q 2015-08-01 Quarter: 2015-08-01
10-Q 2015-05-02 Quarter: 2015-05-02
10-K 2015-01-31 Annual: 2015-01-31
10-Q 2014-11-01 Quarter: 2014-11-01
10-Q 2014-08-02 Quarter: 2014-08-02
10-Q 2014-05-03 Quarter: 2014-05-03
10-K 2014-02-01 Annual: 2014-02-01
8-K 2019-06-20 Enter Agreement, Other Events, Exhibits
8-K 2019-06-05 Enter Agreement, Other Events, Exhibits
8-K 2019-05-22 Earnings, Regulation FD, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-04-18 Enter Agreement, Other Events, Exhibits
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2019-01-06 Earnings, Regulation FD, Exit Costs, Exhibits
8-K 2018-12-12 Exit Costs, Other Events, Exhibits
8-K 2018-11-19 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-11-08 Earnings, Regulation FD, Exhibits
8-K 2018-09-13 Other Events, Exhibits
8-K 2018-08-22 Earnings, Regulation FD, Exhibits
8-K 2018-08-09 Earnings, Regulation FD, Exhibits
8-K 2018-06-14 Other Events, Exhibits
8-K 2018-05-31 Other Events, Exhibits
8-K 2018-05-23 Earnings, Regulation FD, Exhibits
8-K 2018-05-17 Shareholder Vote
8-K 2018-05-10 Earnings, Regulation FD, Exhibits
8-K 2018-03-08 Regulation FD, Exhibits
8-K 2018-02-28 Earnings, Regulation FD, Exhibits
8-K 2018-02-08 Earnings, Regulation FD, Exhibits
8-K 2018-01-23 Other Events, Exhibits
8-K 2018-01-04 Earnings, Regulation FD, Exhibits
8-K 2018-01-03 Off-BS Arrangement, Other Events, Exhibits
LOPE Grand Canyon Education 5,650
APU Amerigas Partners 3,270
JACK Jack In The Box 1,990
CBLK Carbon Black 1,280
USDP USD Partners 280
EMMS Emmis Communications 47
FTMR Fortem Resources 0
SSWH Sansal Wellness Holdings 0
PCFO Pacific Office Properties Trust 0
CHGH China Herb Group 0
LB 2019-05-04
Part I-Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-15 ltd-201954_ex15.htm
EX-31.1 ltd-201954_ex311.htm
EX-31.2 ltd-201954_ex312.htm
EX-32 ltd-201954_ex32.htm

L Brands Earnings 2019-05-04

LB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ltd-201954_10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 _________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 1-8344
 _________________________________
L BRANDS, INC.
(Exact name of registrant as specified in its charter)
 _______________________________
Delaware
 
31-1029810
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
Three Limited Parkway
Columbus, Ohio
 
43230
(Address of principal executive offices)
 
(Zip Code)
(614) 415-7000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
 
 
Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  o    No  ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.50 Par Value
LB
The New York Stock Exchange
As of May 31, 2019, the number of outstanding shares of the Registrant’s common stock, was 276,340,439 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, “first quarter of 2019” and “first quarter of 2018” refer to the thirteen-week periods ended May 4, 2019 and May 5, 2018, respectively.


2


PART I—FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS

L BRANDS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions except per share amounts)
(Unaudited)
 
 
First Quarter
 
2019
 
2018
Net Sales
$
2,629

 
$
2,626

Costs of Goods Sold, Buying and Occupancy
(1,695
)
 
(1,682
)
Gross Profit
934

 
944

General, Administrative and Store Operating Expenses
(781
)
 
(789
)
Operating Income
153

 
155

Interest Expense
(99
)
 
(98
)
Other Income
6

 
2

Income Before Income Taxes
60

 
59

Provision for Income Taxes
20

 
11

Net Income
$
40

 
$
48

Net Income Per Basic Share
$
0.15

 
$
0.17

Net Income Per Diluted Share
$
0.14

 
$
0.17

Dividends Per Share
$
0.30

 
$
0.60



L BRANDS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
 
First Quarter
 
2019
 
2018
Net Income
$
40

 
$
48

Other Comprehensive Income (Loss), Net of Tax:
 
 
 
   Foreign Currency Translation
(4
)
 
(13
)
   Unrealized Gain on Cash Flow Hedges
2

 
6

   Reclassification of Cash Flow Hedges to Earnings
(2
)
 
2

Total Other Comprehensive Income (Loss), Net of Tax
(4
)
 
(5
)
Total Comprehensive Income
$
36

 
$
43



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

3


L BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
(in millions except par value amounts)
 
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(Unaudited)
 
 
 
(Unaudited)
ASSETS
 
 
 
 
 
Current Assets:
 
 
 
 
 
Cash and Cash Equivalents
$
1,146

 
$
1,413

 
$
1,032

Accounts Receivable, Net
274

 
367

 
274

Inventories
1,357

 
1,248

 
1,350

Other
170

 
232

 
234

Total Current Assets
2,947

 
3,260

 
2,890

Property and Equipment, Net
2,794

 
2,818

 
2,894

Operating Lease Assets
3,271

 

 

Goodwill
1,348

 
1,348

 
1,348

Trade Names
411

 
411

 
411

Deferred Income Taxes
61

 
62

 
22

Other Assets
166

 
191

 
184

Total Assets
$
10,998

 
$
8,090

 
$
7,749

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
Accounts Payable
$
688

 
$
711

 
$
717

Accrued Expenses and Other
872

 
1,082

 
848

Current Debt
72

 
72

 
89

Current Operating Lease Liabilities
443

 

 

Income Taxes
122

 
121

 
204

Total Current Liabilities
2,197

 
1,986

 
1,858

Deferred Income Taxes
238

 
226

 
234

Long-term Debt
5,749

 
5,739

 
5,719

Long-term Operating Lease Liabilities
3,234

 

 

Other Long-term Liabilities
478

 
1,004

 
907

Shareholders’ Equity (Deficit):
 
 
 
 
 
Preferred Stock - $1.00 par value; 10 shares authorized; none issued

 

 

Common Stock - $0.50 par value; 1,000 shares authorized; 284, 283 and 283 shares issued; 276, 275 and 278 shares outstanding, respectively
142

 
141

 
141

Paid-in Capital
786

 
771

 
696

Accumulated Other Comprehensive Income
55

 
59

 
17

Retained Earnings (Deficit)
(1,527
)
 
(1,482
)
 
(1,580
)
Less: Treasury Stock, at Average Cost; 8, 8 and 5 shares, respectively
(358
)
 
(358
)
 
(245
)
Total L Brands, Inc. Shareholders’ Equity (Deficit)
(902
)
 
(869
)
 
(971
)
Noncontrolling Interest
4

 
4

 
2

Total Equity (Deficit)
(898
)
 
(865
)
 
(969
)
Total Liabilities and Equity (Deficit)
$
10,998

 
$
8,090

 
$
7,749


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

4


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

 
Common Stock
 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 
Noncontrolling Interest
 
Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, February 2, 2019
275

 
$
141

 
$
771

 
$
59

 
$
(1,482
)
 
$
(358
)
 
$
4

 
$
(865
)
Cumulative Effect of Accounting Change

 

 

 

 
(2
)
 

 

 
(2
)
Balance, February 3, 2019
275

 
141

 
771

 
59

 
(1,484
)
 
(358
)
 
4

 
(867
)
Net Income

 

 

 

 
40

 

 

 
40

Other Comprehensive Income (Loss)

 

 

 
(4
)
 

 

 

 
(4
)
Total Comprehensive Income

 

 

 
(4
)
 
40

 

 

 
36

Cash Dividends ($0.30 per share)

 

 

 

 
(83
)
 

 

 
(83
)
Share-based Compensation and Other
1

 
1

 
15

 

 

 

 

 
16

Balance, May 4, 2019
276

 
$
142

 
$
786

 
$
55

 
$
(1,527
)
 
$
(358
)
 
$
4

 
$
(898
)

 
Common Stock
 
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income
 
Retained
Earnings (Accumulated Deficit)
 
Treasury
Stock, at
Average
Cost
 
Noncontrolling Interest
 
Total Equity (Deficit)
Shares
Outstanding
 
Par
Value
Balance, February 3, 2018
280

 
$
141

 
$
678

 
$
24

 
$
(1,434
)
 
$
(162
)
 
$
2

 
$
(751
)
Cumulative Effect of Accounting Changes

 

 

 
(2
)
 
(26
)
 

 

 
(28
)
Balance, February 4, 2018
280

 
141

 
678

 
22

 
(1,460
)
 
(162
)
 
2

 
(779
)
Net Income

 

 

 

 
48

 

 

 
48

Other Comprehensive Income (Loss)

 

 

 
(5
)
 

 

 

 
(5
)
Total Comprehensive Income

 

 

 
(5
)
 
48

 

 

 
43

Cash Dividends ($0.60 per share)

 

 

 

 
(168
)
 

 

 
(168
)
Repurchase of Common Stock
(2
)
 

 

 

 

 
(83
)
 

 
(83
)
Share-based Compensation and Other

 

 
18

 

 

 

 

 
18

Balance, May 5, 2018
278

 
$
141

 
$
696

 
$
17

 
$
(1,580
)
 
$
(245
)
 
$
2

 
$
(969
)

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

5


L BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 
Year-to-Date
 
2019
 
2018
Operating Activities:
 
 
 
Net Income
$
40

 
$
48

Adjustments to Reconcile Net Income to Net Cash Provided by (Used for) Operating Activities:
 
 
 
Depreciation of Long-lived Assets
145

 
148

Amortization of Landlord Allowances

 
(11
)
Share-based Compensation Expense
23

 
25

Deferred Income Taxes
12

 
(13
)
Gains on Distributions from Easton Investments
(2
)
 

Changes in Assets and Liabilities:
 
 
 
Accounts Receivable
65

 
41

Inventories
(110
)
 
(114
)
Accounts Payable, Accrued Expenses and Other
(231
)
 
(219
)
Income Taxes Payable
4

 
7

Other Assets and Liabilities
(19
)
 
9

Net Cash Used for Operating Activities
(73
)
 
(79
)
Investing Activities:
 
 
 
Capital Expenditures
(123
)
 
(160
)
Proceeds from Divestiture of La Senza
12

 

Proceeds from Sales of Marketable Equity Securities
3

 

Return of Capital from Easton Investments
2

 
1

Net Cash Used for Investing Activities
(106
)
 
(159
)
Financing Activities:
 
 
 
Borrowings from Foreign Facilities
21

 
21

Repayments of Foreign Facilities
(14
)
 
(8
)
Dividends Paid
(83
)
 
(168
)
Repurchases of Common Stock

 
(81
)
Tax Payments related to Share-based Awards
(9
)
 
(8
)
Proceeds from Exercise of Stock Options
1

 
1

Financing Costs and Other
(2
)
 

Net Cash Used for Financing Activities
(86
)
 
(243
)
Effects of Exchange Rate Changes on Cash and Cash Equivalents
(2
)
 
(2
)
Net Decrease in Cash and Cash Equivalents
(267
)
 
(483
)
Cash and Cash Equivalents, Beginning of Period
1,413

 
1,515

Cash and Cash Equivalents, End of Period
$
1,146

 
$
1,032


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

6


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

1. Description of Business and Basis of Presentation
Description of Business
L Brands, Inc. (“the Company”) operates in the highly competitive specialty retail business. The Company is a specialty retailer of women’s intimate and other apparel, personal care, beauty and home fragrance products. The Company sells its merchandise through company-owned specialty retail stores in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Ireland and Greater China (China and Hong Kong), and through its websites and other channels. The Company's other international operations are primarily through franchise, license and wholesale partners. The Company currently operates the following retail brands:
Victoria’s Secret
PINK
Bath & Body Works
Fiscal Year
The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “first quarter of 2019” and “first quarter of 2018” refer to the thirteen-week periods ended May 4, 2019 and May 5, 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. The Company’s share of net income or loss of all other unconsolidated entities is included in Other Income in the Consolidated Statements of Income. The Company’s equity method investments are required to be reviewed for impairment when it is determined there may be an other-than-temporary loss in value.
On January 6, 2019, the Company completed the sale of the La Senza business. For additional information, see Note 5, "Restructuring Activities."
Interim Financial Statements
The Consolidated Financial Statements as of and for the periods ended May 4, 2019 and May 5, 2018 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in the Company’s 2018 Annual Report on Form 10-K.
In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments which are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods.
Seasonality of Business
Due to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.
Concentration of Credit Risk
The Company maintains cash and cash equivalents and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. Typically, the Company’s investment portfolio is 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.

7


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

Hedging Activities
In August 2017, the FASB issued Accounting Standards Update ("ASU") 2017-12, Targeted Improvements to Accounting for Hedging Activities, which is intended to better align risk management activities and financial reporting for hedging relationships. The standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. It also eases certain documentation and assessment requirements. The Company adopted the standard in the first quarter of fiscal 2019. The adoption of this standard did not have a material impact on the Company's consolidated results of operations, financial position or cash flows.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill. The standard eliminates the second step from the goodwill impairment test, which requires a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge will be the excess of the reporting unit's carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This guidance will be effective beginning in fiscal 2020, with early adoption permitted. The Company does not expect this standard to have a material impact on its consolidated results of operations, financial position or cash flows.

3. Revenue Recognition
Accounts receivable, net from revenue-generating activities were $182 million as of May 4, 2019, $150 million as of February 2, 2019 and $147 million as of May 5, 2018. Accounts receivable primarily relate to amounts due from the Company's franchise, license and wholesale partners. Under these arrangements, payment terms are typically 60 to 75 days.
The Company records deferred revenue when cash payments are received in advance of transfer of control of goods or services. Deferred revenue primarily relates to gift cards, loyalty and private label credit card programs and direct channel shipments, which are all impacted by seasonal and holiday-related sales patterns. Deferred revenue was $280 million as of May 4, 2019, $331 million as of February 2, 2019 and $269 million as of May 5, 2018. The Company recognized $120 million as revenue in the first quarter of 2019 from amounts recorded as deferred revenue at the beginning of the period. As of May 4, 2019, the

8


Company recorded deferred revenue of $265 million within Accrued Expenses and Other, and $15 million within Other Long-term Liabilities on the Consolidated Balance Sheet.
The following table provides a disaggregation of Net Sales for the first quarter of 2019 and 2018:
 
First Quarter
 
2019
 
2018
 
(in millions)
Victoria’s Secret Stores (a)
$
1,149

 
$
1,236

Victoria’s Secret Direct
362

 
353

Total Victoria’s Secret
1,511

 
1,589

Bath & Body Works Stores (a)
715

 
649

Bath & Body Works Direct
156

 
112

Total Bath & Body Works
871

 
761

Victoria's Secret and Bath & Body Works International (b)
135

 
135

Other (c)
112

 
141

Total Net Sales
$
2,629

 
$
2,626

 _______________
(a)
Includes company-owned stores in the U.S. and Canada.
(b)
Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.
(c)
Includes wholesale revenues from the Company's sourcing function. Results for 2018 also include store and direct sales for La Senza and Henri Bendel.

4. Earnings Per Share and Shareholders’ Equity (Deficit)
Earnings Per Share
Earnings per basic share is computed based on the weighted-average number of outstanding common shares. Earnings per diluted share include the weighted-average effect of dilutive options and restricted stock on the weighted-average shares outstanding.
The following table provides shares utilized for the calculation of basic and diluted earnings per share for the first quarter of 2019 and 2018:
 
First Quarter
 
2019
 
2018
 
(in millions)
Weighted-average Common Shares:
 
 
 
Issued Shares
284

 
283

Treasury Shares
(8
)
 
(4
)
Basic Shares
276

 
279

Effect of Dilutive Options and Restricted Stock
2

 
3

Diluted Shares
278

 
282

Anti-dilutive Options and Awards (a)
5

 
5

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


9


Shareholders’ Equity (Deficit)
Common Stock Share Repurchases
Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs for the first quarter of 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

 
1,563

 
$
58

 
$
36.93

September 2017
250

 
527

 
25

 
$
46.98

Total
 
 
2,090

 
$
83

 
 
The Company did not repurchase any shares in the first quarter of 2019.
In March 2018, the Company's Board of Directors approved a $250 million share repurchase program, which included the $23 million remaining under the September 2017 repurchase program.
The March 2018 repurchase program had $79 million remaining as of May 4, 2019.
There were $4 million of share repurchases reflected in Accounts Payable on the May 5, 2018 Consolidated Balance Sheet.
Dividends
Under the authority and declaration of the Board of Directors, the Company paid the following dividends during the first quarter of 2019 and 2018:
 
 
Ordinary Dividends
 
Total Paid
 
 
(per share)
 
(in millions)
2019
 
 
 
 
First Quarter
 
$
0.30

 
$
83

2018
 
 
 
 
First Quarter
 
$
0.60

 
$
168


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 the first quarter of 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, the Company has guaranteed certain lease payments under the current terms of noncancelable leases. For additional information, see Note 15, "Commitments and Contingencies."
Additionally, the Company will continue to provide support to La Senza in various operational areas including logistics, technology and merchandise sourcing for periods of time ranging from one month to 18 months.

Henri Bendel
The Company announced the planned closure of Henri Bendel in the third quarter of 2018. As a result, the Company recognized a pre-tax charge, primarily cash, consisting of lease termination costs, severance and other costs of $20 million in the third quarter of 2018. In the fourth quarter of 2018, the Company recognized an additional pre-tax charge of $3 million,

10


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. Through the first quarter of 2019, the Company made cash payments of $22 million. The remaining balance of $1 million is included in Accrued Expenses and Other on the May 4, 2019 Consolidated Balance Sheet.

6. Inventories
The following table provides details of inventories as of May 4, 2019February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Finished Goods Merchandise
$
1,225

 
$
1,107

 
$
1,225

Raw Materials and Merchandise Components
132

 
141

 
125

Total Inventories
$
1,357

 
$
1,248

 
$
1,350

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

7. Property and Equipment, Net
The following table provides details of property and equipment, net as of May 4, 2019February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Property and Equipment, at Cost
$
6,744

 
$
6,733

 
$
6,760

Accumulated Depreciation and Amortization
(3,950
)
 
(3,915
)
 
(3,866
)
Property and Equipment, Net
$
2,794

 
$
2,818

 
$
2,894

Depreciation expense was $145 million and $148 million for the first quarter of 2019 and 2018, respectively.

8. Leases
In the first quarter of 2019, the Company adopted ASC 842, Leases, using the modified retrospective approach. Results for the first quarter of 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.
Since the Company typically cannot determine the implicit borrowing rate in a lease, 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.

11


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. See Note 15, “Commitments and Contingencies.”
The following table provides the components of lease cost for operating leases for the first quarter of 2019:
 
(in millions)
Operating Lease Costs
$
175

Variable Lease Costs
17

Short-term Lease Costs
5

Total Lease Cost
$
197


The following table provides future maturities of operating lease liabilities as of the first quarter of 2019:
Fiscal Year
(in millions)
2019
$
474

2020
692

2021
654

2022
585

2023
528

Thereafter
1,800

Total Lease Payments
$
4,733

Less: Interest
(1,056
)
Present Value of Operating Lease Liabilities
$
3,677

As of May 4, 2019, the Company has additional operating lease commitments that have not yet commenced of approximately $71 million.
The following table provides the weighted-average remaining lease term and discount rate for operating leases with lease liabilities as of the first quarter of 2019:
Weighted Average Remaining Lease Term (years)
7.8

Weighted Average Discount Rate
6.1
%
In the first quarter of 2019, the Company paid $171 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.
In the first quarter of 2019, the Company obtained $125 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 first quarter of 2018:
 
(in millions)
Store Rent:
 
Fixed Minimum
$
167

Contingent
12

Total Store Rent
179

Office, Equipment and Other
22

Total Rent Expense
$
201


12


The following table provides future minimum rent commitments under noncancelable operating leases in the next five fiscal years and the remaining years thereafter, as determined under the prior accounting standard, as of February 2, 2019:
Fiscal Year (a)
(in millions)
2019
$
698

2020
676

2021
630

2022
562

2023
504

Thereafter
$
1,738

 _______________
(a)
Excludes additional payments covering taxes, common area costs and certain other expenses generally required by store lease terms.
Finance Leases
The Company leases certain fulfillment equipment under finance leases that expire at various dates through 2023. The Company records finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the Consolidated Balance Sheet. Additionally, the Company records finance lease liabilities in Accrued Expenses and Other and Other Long-term Liabilities on the Consolidated Balance Sheet. Finance lease costs are comprised of the straight-line amortization of the right-of-use asset and the accretion of interest expense under the effective interest method.
The Company recorded $24 million and $5 million of finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the May 4, 2019 and May 5, 2018 Consolidated Balance Sheets, respectively. Additionally, the Company recorded finance lease liabilities of $7 million and $1 million in Accrued Expenses and Other and $17 million and $3 million in Other Long-term Liabilities, on the May 4, 2019 and May 5, 2018 Consolidated Balance Sheets, respectively.

Asset Retirement Obligations
The Company has asset retirement obligations related to certain company-owned international stores that contractually obligate the Company to remove leasehold improvements at the end of a lease. The Company’s liability for asset retirement obligations totaled $19 million as of May 4, 2019 and $8 million as of May 5, 2018. These liabilities are included in Other Long-term Liabilities on the Consolidated Balance Sheets.

9. 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 $94 million as of May 4, 2019, $89 million as of February 2, 2019, and $82 million as of May 5, 2018, are recorded in Other Assets on the Consolidated Balance Sheets.
Included in the Company’s Easton investments are equity interests in Easton Town Center, LLC (“ETC”) and Easton Gateway, LLC (“EG”), entities that own and develop commercial entertainment and shopping centers. The Company’s investments in ETC and EG are accounted for using the equity method of accounting. The Company has a majority financial interest in ETC and EG, but another unaffiliated member manages them, and certain significant decisions regarding ETC and EG require the consent of unaffiliated members in addition to the Company.

10. Income Taxes
The provision for income taxes is based on the current estimate of the annual effective tax rate and is adjusted as necessary for quarterly events.
For the first quarter of 2019, the Company’s effective tax rate was 33.6% compared to 18.5% in the first quarter of 2018. The first quarter 2019 rate was higher than the Company's combined federal and state statutory rate primarily due to the recognition of tax expense recorded through the income statement on share-based awards that vested in the quarter. The first quarter 2018 rate was lower than the Company's combined federal and state statutory rate primarily due to the release of a valuation allowance against certain deferred tax assets that are more likely than not to be realized. 
Income taxes paid were $12 million and $11 million for the first quarter of 2019 and 2018, respectively.


13


11. Long-term Debt and Borrowing Facilities
The following table provides the Company’s outstanding debt balance, net of unamortized debt issuance costs and discounts, as of May 4, 2019February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Senior Debt with Subsidiary Guarantee
 
 
 
 
 
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)
$
990


$
990


$
990

$956 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)
952


952


994

$780 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)
777


776


995

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


693


693

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


498


497

$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)
496

 
496

 
495

$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)
338


337


398

$297 million, 6.694% Fixed Interest Rate Notes due January 2027 (“2027 Notes”)
274

 
273

 

Secured Foreign Facilities
91

 
91

 
12

Total Senior Debt with Subsidiary Guarantee
$
5,109


$
5,106


$
5,074

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


$
348


$
348

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


297


297

Unsecured Foreign Facilities
67


60


89

Total Senior Debt
$
712


$
705


$
734

Total
$
5,821


$
5,811


$
5,808

Current Debt
(72
)

(72
)

(89
)
Total Long-term Debt, Net of Current Portion
$
5,749


$
5,739


$
5,719

Exchange of Notes
In June 2018, the Company completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 and $52 million in cash consideration, which included a $24 million exchange premium. The exchange was treated as a modification under ASC 470, Debt, and no gain or loss was recognized. The exchange premium will be amortized through the maturity date of January 2027 and is included within Long-term Debt on the May 4, 2019 and February 2, 2019 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 certain of the Company's 100% owned subsidiaries (the “Guarantors”).
Secured Revolving Facility
The Company and the Guarantors guarantee and pledge collateral to secure a revolving credit facility ("Secured Revolving Facility"). The Secured Revolving Facility has aggregate availability of $1 billion and expires in May 2022. The Secured Revolving Facility allows the Company and certain of the Company's non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.
The Secured Revolving Facility fees related to committed and unutilized amounts are 0.25% per annum, and the fees related to outstanding letters of credit are 1.50% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings is the London Interbank Offered Rate (“LIBOR”) plus 1.50% per annum. The interest rate on outstanding foreign denominated borrowings is the applicable benchmark rate plus 1.50% per annum.
The Secured Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. In addition, the Secured Revolving Facility provides that investments and restricted payments may be made, without limitation on amount, if (a) at the time of and after giving effect to such investment or restricted payment, the ratio of consolidated debt to consolidated EBITDA for the most recent four-quarter period is less than 3.00 to 1.00 and (b) no default or event of default exists. As of May 4, 2019, the Company was in

14


compliance with both of its financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.00 to 1.00.
As of May 4, 2019, there were no borrowings outstanding under the Secured Revolving Facility.
The Secured Revolving Facility supports the Company’s letter of credit program. The Company had $10 million of outstanding letters of credit as of May 4, 2019 that reduced its remaining availability under the Secured Revolving Facility.
Secured Foreign Facilities
The Company and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities ("Secured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Secured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During the first quarter of 2019, the Company borrowed and made payments of $8 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time during the first quarter of 2019 was $96 million. Borrowings on the Secured Foreign Facilities mature between December 2019 and May 2022. As of May 4, 2019, borrowings of $5 million are included within Current Debt on the Consolidated Balance Sheet, and the remaining borrowings are included within Long-term Debt.
Unsecured Foreign Facilities
The Company guarantees unsecured revolving and term loan bank facilities ("Unsecured Foreign Facilities") used by certain of the Company's Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities, which allow borrowings in U.S. dollars and Chinese Yuan, have availability totaling $100 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for the currency of each borrowing. During the first quarter of 2019, the Company borrowed $13 million and made payments of $6 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time during the first quarter of 2019 was $73 million. Borrowings on the Unsecured Foreign Facilities mature between June 2019 and December 2019. As of May 4, 2019, borrowings of $67 million are included within Current Debt on the Consolidated Balance Sheet.

12. Derivative Financial Instruments
The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all their merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. These forward contracts currently have a maximum term of 18 months. Amounts are reclassified from accumulated other comprehensive income upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income.
The Company uses foreign currency forward contracts to mitigate the impact of fluctuations in foreign currency exchange rates relative to recognized payable balances denominated in non-functional currencies. The fair value of these non-designated foreign currency forward contracts is not significant as of May 4, 2019.
The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of May 4, 2019, February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Notional Amount
$
152

 
$
147

 
$
208


The following table provides a summary of the fair value and balance sheet classification of outstanding derivative financial instruments designated as foreign currency cash flow hedges as of May 4, 2019, February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Other Current Assets
$
3

 
$
2

 
$
1

Accrued Expenses and Other

 

 
2



15


The following table provides a summary of the pre-tax financial statement effect of the gains and losses on derivative financial instruments designated as foreign currency cash flow hedges for the first quarter of 2019 and 2018:
 
First Quarter
 
2019
 
2018
 
(in millions)
Gain (Loss) Recognized in Accumulated Other Comprehensive Income
$
2

 
$
6

(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense
(2
)
 
2

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

13. Fair Value Measurements
The following table provides a summary of assets and liabilities measured in the consolidated financial statements at fair value on a recurring basis as of May 4, 2019, February 2, 2019 and May 5, 2018:
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
As of May 4, 2019
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,146

 
$

 
$

 
$
1,146

Marketable Equity Securities
8

 

 

 
8

Foreign Currency Cash Flow Hedges

 
3

 

 
3

As of February 2, 2019
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,413

 
$

 
$

 
$
1,413

Marketable Equity Securities
11

 

 

 
11

Foreign Currency Cash Flow Hedges

 
2

 

 
2

As of May 5, 2018
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and Cash Equivalents
$
1,032

 
$

 
$

 
$
1,032

Marketable Equity Securities
17

 

 

 
17

Foreign Currency Cash Flow Hedges

 
1

 

 
1

Liabilities:
 
 
 
 
 
 
 
Foreign Currency Cash Flow Hedges

 
2

 

 
2


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

16


The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt as of May 4, 2019February 2, 2019 and May 5, 2018:
 
May 4,
2019
 
February 2,
2019
 
May 5,
2018
 
(in millions)
Principal Value
$
5,722

 
$
5,722

 
$
5,750

Fair Value (a)
5,486

 
5,340

 
5,735

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

14. Comprehensive Income
The following table provides the rollforward of accumulated other comprehensive income for the first quarter of 2019:
 
Foreign Currency Translation
 
Cash Flow Hedges
 
Accumulated Other Comprehensive Income
 
(in millions)
Balance as of February 2, 2019
$
57

 
$
2

 
$
59

Other Comprehensive Income (Loss) Before Reclassifications
(4
)
 
2

 
(2
)
Amounts Reclassified from Accumulated Other Comprehensive Income

 
(2
)
 
(2
)
Tax Effect

 

 

Current-period Other Comprehensive Income (Loss)
(4
)
 

 
(4
)
Balance as of May 4, 2019
$
53

 
$
2

 
$
55

The following table provides the rollforward of accumulated other comprehensive income for the first quarter of 2018:
 
Foreign Currency Translation
 
Cash Flow Hedges
 
Marketable Equity Securities
 
Accumulated Other Comprehensive Income
 
(in millions)
Balance as of February 3, 2018
$
32

 
$
(10
)
 
$
2

 
$
24

Amount reclassified to Retained Earnings upon adoption of ASC 321, Investments - Equity Securities

 

 
(2
)
 
(2
)
Balance as of February 4, 2018
32

 
(10
)
 

 
22

Other Comprehensive Income (Loss) Before Reclassifications
(13
)
 
6

 

 
(7
)
Amounts Reclassified from Accumulated Other Comprehensive Income

 
2

 

 
2

Tax Effect

 

 

 

Current-period Other Comprehensive Income (Loss)
(13
)
 
8

 

 
(5
)
Balance as of May 5, 2018
$
19

 
$
(2
)
 
$

 
$
17



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

17


Guarantees
In connection with the sale of La Senza in the fourth quarter of 2018, the Company has remaining guarantees of $71 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These guarantees include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business. The Company recorded a liability of $5 million as of May 4, 2019 and February 2, 2019 representing the estimated fair value of its obligation as guarantor in accordance with ASC 460, Guarantees. In connection with the disposition of a certain other business, the Company has remaining guarantees of $5 million related to lease payments under the current terms of a noncancelable lease expiring in 2021, which may remain in effect if the term is extended. The Company has not recorded a liability with respect to this guarantee obligation as of May 4, 2019, February 2, 2019 or May 5, 2018 as it concluded that payments under this guarantee were not probable.
In connection with noncancelable operating leases of certain assets, the Company provided residual value guarantees to the lessor if the leased assets cannot be sold for an amount in excess of a specified minimum value at the conclusion of the lease term. The leases expire at various dates through 2021, and the total amount of the guarantees is $94 million. The Company recorded a liability of $10 million as of May 4, 2019, $11 million as of February 2, 2019 and $3 million as of May 5, 2018 related to these guarantee obligations. This liability is included in Long-term Operating Lease Liabilities on the May 4, 2019 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 and May 5, 2018 Consolidated Balance Sheets.

16. Retirement Benefits
The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all its associates within the U.S. Participation in the tax-qualified plan is available to associates who meet certain age and service requirements. Participation in the non-qualified plan is available to associates who meet certain age, service, job level and compensation requirements.
The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $19 million for the first quarter of 2019 and $18 million for the first quarter of 2018.
The non-qualified plan is an unfunded plan which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount which the Company does not match. Associates’ accounts are credited with interest using a fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors prior to the beginning of each year. Associate contributions and the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only. The remaining vested portion of associates’ accounts in the plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years. Total expense recognized related to the non-qualified plan was $6 million for both the first quarter of 2019 and 2018.

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

18


The Victoria's Secret and Bath & Body Works International segment includes the Victoria's Secret and Bath & Body Works company-owned and partner-operated stores located outside of the U.S. and Canada, as well as the online business in Greater China. This segment includes the following:
Victoria's Secret International, comprised of company-owned stores in the U.K., Ireland and Greater China, as well as stores operated by partners under franchise and license arrangements;
Victoria's Secret Beauty and Accessories, comprised of company-owned stores in Greater China, as well as stores operated by partners under franchise, license and wholesale arrangements, which feature Victoria's Secret branded beauty and accessories products in travel retail and other locations; and
Bath & Body Works International stores operated by partners under franchise, license and wholesale arrangements.
Other includes Mast Global, a merchandise sourcing and production function serving the Company and its international partners, and Corporate functions, including non-core real estate, equity investments and other governance functions such as treasury and tax. Results for 2018 also include La Senza and Henri Bendel.
The following table provides the Company’s segment information for the first quarter of 2019 and 2018:
 
Victoria’s
Secret
 
Bath &
Body Works
 
Victoria’s Secret
and
Bath & Body Works International
 
Other
 
Total
 
(in millions)
2019
 
 
 
 
 
 
 
 
 
First Quarter
 
 
 
 
 
 
 
 
 
Net Sales
$
1,511

 
$
871

 
$
135

 
$
112

 
$
2,629

Operating Income (Loss)
33

 
155

 
(4
)
 
(31
)
 
153

2018
 
 
 
 
 
 
 
 
 
First Quarter
 
 
 
 
 
 
 
 
 
Net Sales
$
1,589

 
$
761

 
$
135

 
$
141

 
$
2,626

Operating Income (Loss)
83

 
124

 
(5
)
 
(47
)
 
155

The Company's international net sales include sales from company-owned stores, royalty revenue from franchise and license arrangements, wholesale revenues and direct sales shipped internationally. Certain of these sales are subject to the impact of fluctuations in foreign currency. The Company’s international net sales across all segments totaled $349 million and $359 million for the first quarter of 2019 and 2018, respectively.

18. Supplemental Guarantor Financial Information
The Company’s 2020 Notes, 2021 Notes, 2022 Notes, 2023 Notes, 2027 Notes, 2028 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 May 4, 2019, February 2, 2019 and May 5, 2018 and the Condensed Consolidating Statements of Income, Comprehensive Income and Cash Flows for the periods ended May 4, 2019 and May 5, 2018.

19


L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
(Unaudited)
 
 
May 4, 2019
 
L Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
L Brands, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
731

 
$
415

 
$

 
$
1,146

Accounts Receivable, Net

 
153

 
121

 

 
274

Inventories

 
1,235

 
122

 

 
1,357

Other

 
85

 
85

 

 
170

Total Current Assets

 
2,204

 
743

 

 
2,947

Property and Equipment, Net

 
1,895

 
899

 

 
2,794

Operating Lease Assets

 
2,665

 
606

 

 
3,271

Goodwill

 
1,318

 
30

 

 
1,348

Trade Names

 
411

 

 

 
411

Net Investments in and Advances to/from Consolidated Affiliates
4,698

 
19,854

 
2,223

 
(26,775
)
 

Deferred Income Taxes

 
9

 
52

 

 
61

Other Assets
127

 
12

 
639

 
(612
)
 
166

Total Assets
$
4,825

 
$
28,368

 
$
5,192

 
$
(27,387
)
 
$
10,998

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
$

 
$
378

 
$
310

 
$

 
$
688

Accrued Expenses and Other
61

 
485

 
326

 

 
872

Current Debt

 

 
72

 

 
72

Current Operating Lease Liabilities

 
358

 
85

 

 
443

Income Taxes
(7
)
 
102

 
27

 

 
122

Total Current Liabilities
54

 
1,323

 
820

 

 
2,197

Deferred Income Taxes
1

 
(42
)
 
279

 

 
238

Long-term Debt
5,663

 
597

 
86

 
(597
)
 
5,749

Long-term Operating Lease Liabilities

 
2,671

 
563

 

 
3,234

Other Long-term Liabilities
60

 
406

 
27

 
(15
)
 
478

Total Equity (Deficit)
(953
)
 
23,413

 
3,417

 
(26,775
)
 
(898
)
Total Liabilities and Equity (Deficit)
$
4,825

 
$
28,368

 
$
5,192

 
$
(27,387
)
 
$
10,998














20


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

 
February 2, 2019
 
L Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
L Brands, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
997

 
$
416

 
$

 
$
1,413

Accounts Receivable, Net

 
241

 
126

 

 
367

Inventories

 
1,093

 
155

 

 
1,248

Other

 
139

 
93

 

 
232

Total Current Assets

 
2,470

 
790

 

 
3,260

Property and Equipment, Net

 
1,922

 
896

 

 
2,818

Goodwill

 
1,318

 
30

 

 
1,348

Trade Names

 
411

 

 

 
411

Net Investments in and Advances to/from Consolidated Affiliates
4,755

 
19,737

 
2,047

 
(26,539
)
 

Deferred Income Taxes

 
9

 
53

 

 
62

Other Assets
127

 
15

 
670

 
(621
)
 
191

Total Assets
$
4,882

 
$
25,882

 
$
4,486

 
$
(27,160
)
 
$
8,090

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
$

 
$
363

 
$
348

 
$

 
$
711

Accrued Expenses and Other
92

 
597

 
393

 

 
1,082

Current Debt

 

 
72

 

 
72

Income Taxes
(7
)
 
100

 
28

 

 
121

Total Current Liabilities
85

 
1,060

 
841

 

 
1,986

Deferred Income Taxes
1

 
(44
)
 
269

 

 
226

Long-term Debt
5,661

 
606

 
79

 
(607
)
 
5,739

Other Long-term Liabilities
59

 
852

 
107

 
(14
)
 
1,004

Total Equity (Deficit)
(924
)
 
23,408

 
3,190

 
(26,539
)
 
(865
)
Total Liabilities and Equity (Deficit)
$
4,882

 
$
25,882

 
$
4,486

 
$
(27,160
)
 
$
8,090



21


L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
(Unaudited)
 
 
May 5, 2018
 
L Brands, Inc.
 
Guarantor
Subsidiaries
 
Non-
guarantor
Subsidiaries
 
Eliminations
 
Consolidated
L Brands, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and Cash Equivalents
$

 
$
677

 
$
355

 
$

 
$
1,032

Accounts Receivable, Net

 
152

 
122

 

 
274

Inventories

 
1,199

 
151

 

 
1,350

Other
1

 
136

 
97

 

 
234

Total Current Assets
1

 
2,164

 
725

 

 
2,890

Property and Equipment, Net

 
1,970

 
924

 

 
2,894

Goodwill

 
1,318

 
30

 

 
1,348

Trade Names

 
411

 

 

 
411

Net Investments in and Advances to/from Consolidated Affiliates
4,751

 
18,908

 
2,025

 
(25,684
)
 

Deferred Income Taxes

 
9

 
13

 

 
22

Other Assets
129

 
16

 
651

 
(612
)
 
184

Total Assets
$
4,881

 
$
24,796

 
$
4,368

 
$
(26,296
)
 
$
7,749

LIABILITIES AND EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
$
5

 
$
350

 
$
362

 
$

 
$
717

Accrued Expenses and Other
59

 
461

 
328

 

 
848

Current Debt

 

 
89

 

 
89

Income Taxes
6

 
176

 
22

 

 
204

Total Current Liabilities
70

 
987

 
801