NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
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 U.S., Canada, U.K., Ireland and Greater China, 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:
On February 20, 2020, the Company and SP VS Buyer LP ("Sycamore''), an affiliate of Sycamore Partners Management, L.P., entered into a Transaction Agreement pursuant to which, among other things, the Company will transfer certain assets and liabilities relating to its business conducted under the Victoria's Secret and PINK brands to a newly formed subsidiary of the Company ("Victoria's Secret Holdco'') and sell 55% of the equity interests of Victoria's Secret Holdco to Sycamore. The Company will retain 45% of the equity interests of Victoria's Secret Holdco. For additional information, see Note 23, "Subsequent Events."
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. As used herein, “2019” and "2018" refer to the 52-week periods ended February 1, 2020 and February 2, 2019, respectively. “2017” refers to the 53-week period ended February 3, 2018.
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."
Cash and Cash Equivalents
Cash and Cash Equivalents include cash on hand, demand deposits with financial institutions and highly liquid investments with original maturities of less than 90 days. The Company’s outstanding checks, which totaled $15 million as of February 1, 2020 and $13 million as of February 2, 2019, are included in Accounts Payable on the Consolidated Balance Sheets.
Concentration of Credit Risk
The Company maintains cash and cash equivalents and derivative contracts with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacts and limits the amount of credit exposure with any one entity. Typically, the Company’s investment portfolio is primarily comprised of U.S. government obligations, U.S. Treasury and AAA-rated money market funds, commercial paper and bank deposits.
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.
Inventories
Inventories are principally valued at the lower of cost or net realizable value, on a weighted-average cost basis.
The Company records valuation adjustments to its inventories if the cost of inventory on hand exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future demand, market conditions and analysis of historical experience.
The Company also records inventory loss adjustments for estimated physical inventory losses that have occurred since the date of the last physical inventory. These estimates are based on management’s analysis of historical results and operating trends.
Advertising Costs
Advertising and marketing costs are expensed at the time the promotion first appears in media, in the store or when the advertising is mailed. Advertising and marketing costs totaled $428 million for 2019, $476 million for 2018 and $383 million for 2017.
Property and Equipment
The Company’s property and equipment are recorded at cost and depreciation is computed on a straight-line basis using the following depreciable life ranges:
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Category of Property and Equipment
|
|
Depreciable Life Range
|
Software, including software developed for internal use
|
|
3 - 5 years
|
Store related assets
|
|
3 - 10 years
|
Leasehold improvements
|
|
Shorter of lease term or 10 years
|
Non-store related building and site improvements
|
|
10 - 15 years
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Other property and equipment
|
|
20 years
|
Buildings
|
|
30 years
|
When a decision has been made to dispose of property and equipment prior to the end of the previously estimated useful life, depreciation estimates are revised to reflect the use of the asset over the shortened estimated useful life. The Company’s cost of assets sold or retired and the related accumulated depreciation are removed from the accounts with any resulting gain or loss included in net income (loss). Maintenance and repairs are charged to expense as incurred. Major renewals and betterments that extend useful lives are capitalized.
Long-lived store assets, which include leasehold improvements, store related assets and operating lease assets (subsequent to the adoption of ASC 842, Leases), are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group. For operating lease assets, the Company determines the fair value of the assets by comparing the contractual rent payments to estimated market rental rates. An individual asset within an asset group is not impaired below its estimated fair value. The fair value of long-lived store assets are determined using Level 3 inputs within the fair value hierarchy.
Leases and Leasehold Improvements
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 the 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 ten 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.
The Company also has leasehold improvements which are amortized over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the initial lease term. Leasehold improvements made after the inception of the initial lease term are depreciated over the shorter of their estimated useful lives or the remaining lease term, including renewal periods, if reasonably assured.
Goodwill and Intangible Assets
The Company has certain intangible assets resulting from business combinations and acquisitions that are recorded at cost.
Goodwill is reviewed for impairment at the reporting unit level each year in the fourth quarter, and may be reviewed more frequently if certain events occur or circumstances change. The Company has 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 the Company determines that the fair value of a reporting unit is less than its carrying value, the Company recognizes an impairment charge equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. The Company's reporting units are determined in accordance with the provisions of ASC 350, Intangibles - Goodwill and Other.
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 Company has the option to either first perform a qualitative assessment to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired, or to proceed directly to the quantitative assessment which requires a comparison of the fair value of the intangible asset to its carrying value. To determine if the fair value of the asset is less than its carrying amount, the Company will estimate the fair value, usually determined by the relief from royalty method under the income approach, and compare that value with its carrying amount. If the carrying value of the intangible asset exceeds its fair value, the Company recognizes an impairment charge equal to the difference.
Foreign Currency Translation
The functional currency of the Company’s foreign operations is generally the applicable local currency. Assets and liabilities are translated into U.S. dollars using the current exchange rates in effect as of the balance sheet date, while revenues and expenses are translated at the average exchange rates for the period. The Company’s resulting translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in shareholders’ equity. Accumulated foreign currency translation adjustments are reclassified to net income (loss) when realized upon sale or upon complete, or substantially complete, liquidation of the investment in the foreign entity.
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.
For derivative financial instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (loss) in shareholders’ equity and reclassified into earnings in the same period during which the hedged item affects earnings. Gains and losses that are reclassified into earnings are recognized in the same line item on the Consolidated Statement of Income (Loss) as the underlying hedged item.
For derivative financial instruments that are not designated as hedging instruments, the gain or loss on the derivative instrument is recognized in current earnings in Other Income (Loss) on the Consolidated Statements of Income (Loss).
Fair Value
The authoritative guidance included in ASC 820, Fair Value Measurement, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. This authoritative guidance further establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
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•
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Level 1—Quoted market prices in active markets for identical assets or liabilities.
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•
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Level 2—Observable inputs other than quoted market prices included in Level 1, such as quoted prices of similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
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•
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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
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The Company estimates the fair value of financial instruments, property and equipment and goodwill and intangible assets in accordance with the provisions of ASC 820.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, taxes currently payable or refundable are accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the Company’s Consolidated Statement of Income (Loss) in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
In determining the Company’s provision for income taxes, the Company considers permanent differences between book and tax income and statutory income tax rates. The Company’s effective income tax rate is affected by items including changes in tax law, the tax jurisdiction of new stores or business ventures and the level of earnings.
The Company follows a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and for which actual outcomes may differ from forecasted outcomes. The Company's policy is to include interest and penalties related to uncertain tax positions in income tax expense.
The Company’s income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. A number of years may elapse before a particular matter for which the Company has established an accrual is audited and fully resolved or clarified. The Company adjusts its tax contingencies accrual and income tax provision in the period in which matters are effectively settled with tax authorities at amounts different from its established accrual, when the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. The Company includes its tax contingencies accrual, including accrued penalties and interest, in Other Long-term Liabilities on the Consolidated Balance Sheets unless the liability is expected to be paid within one year. Changes to the tax contingencies accrual, including accrued penalties and interest, are included in Provision for Income Taxes on the Consolidated Statements of Income (Loss).
Self-Insurance
The Company is self-insured for medical, workers’ compensation, property, general liability and automobile liability up to certain stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred but not reported (“IBNR”) claims. IBNR claims are estimated using historical claim information and actuarial estimates.
Noncontrolling Interest
Noncontrolling interest represents the portion of equity interests of consolidated affiliates not owned by the Company.
Share-based Compensation
The Company recognizes all share-based payments to employees and directors as compensation cost over the service period based on their estimated fair value on the date of grant. The Company estimates award forfeitures at the time awards are granted and adjusts, if necessary, in subsequent periods based on historical experience and expected future forfeitures.
Compensation cost is recognized over the service period for the fair value of awards that actually vest. Compensation expense for awards without a performance condition is recognized, net of estimated forfeitures, using a single award approach (each award is valued as one grant, irrespective of the number of vesting tranches). Compensation expense for awards with a performance condition is recognized, net of estimated forfeitures, using a multiple award approach (each vesting tranche is valued as one grant).
Revenue Recognition
In the first quarter of 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach. Results for 2019 and 2018 are presented under ASC 606, while results for 2017 have not been adjusted and continue to be presented under the accounting standards in effect for that period.
The Company recognizes revenue based on the amount it expects to receive when control of the goods or services is transferred to the customer. The Company recognizes sales upon customer receipt of merchandise, which for direct channel revenues reflect an estimate of shipments that have not yet been received by the customer based on shipping terms and historical delivery times. The Company’s shipping and handling revenues are included in Net Sales with the related costs included in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss). The Company also provides a reserve for projected merchandise returns based on historical experience. Net Sales exclude sales and other similar taxes collected from customers.
The Company offers certain loyalty programs that allow customers to earn points based on purchasing activity. As customers accumulate points and reach point thresholds, they can use the points to purchase merchandise in stores or online. The Company allocates revenue to points earned on qualifying purchases and defers recognition until the points are redeemed. The amount of revenue deferred is based on the relative stand-alone selling price method, which includes an estimate for points not expected to be redeemed based on historical experience.
The Company sells gift cards with no expiration dates to customers. The Company does not charge administrative fees on unused gift cards. The Company recognizes revenue from gift cards when they are redeemed by the customer. In addition, the Company recognizes revenue on unredeemed gift cards where the likelihood of the gift card being redeemed is remote and there is no legal obligation to remit the unredeemed gift cards to relevant jurisdictions (gift card breakage). Gift card breakage revenue is recognized in proportion, and over the same period, as actual gift card redemptions. The Company determines the gift card breakage rate based on historical redemption patterns. Gift card breakage is included in Net Sales in the Consolidated Statements of Income (Loss).
Revenue earned in connection with Victoria’s Secret's private label credit card arrangement is recognized over the term of the license arrangement and is included in Net Sales in the 2019 and 2018 Consolidated Statements of Income (Loss).
The Company also recognizes revenues associated with franchise, license, wholesale and sourcing arrangements. Revenue recognized under franchise and license arrangements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. Revenue is generally recognized under wholesale and sourcing arrangements at the time the title passes to the partner.
Costs of Goods Sold, Buying and Occupancy
The Company’s costs of goods sold include merchandise costs, net of discounts and allowances, freight and inventory shrinkage. The Company’s buying and occupancy expenses primarily include payroll, benefit costs and operating expenses for its buying departments and distribution network, rent, common area maintenance, real estate taxes, utilities, maintenance, fulfillment expenses and depreciation for the Company’s stores, warehouse facilities and equipment.
General, Administrative and Store Operating Expenses
The Company’s general, administrative and store operating expenses primarily include payroll and benefit costs for its store-selling and administrative departments (including corporate functions), marketing, advertising and other operating expenses not specifically categorized elsewhere in the Consolidated Statements of Income (Loss).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 FASB issued ASC 842, Leases, which requires companies classified as lessees to account for most leases on their balance sheet but recognize expense on their income statement 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 8, “Leases” for additional disclosures required by the new standard.
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. The Company adopted the standard in the first quarter of 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 required a hypothetical purchase price allocation to determine the implied fair value of goodwill. Under the new standard, the goodwill impairment charge is 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 its interim and annual goodwill impairment assessments in accordance with ASU 2017-04. For additional information, see Note 9, "Goodwill and Trade Names."
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires the use of a forward-looking expected loss impairment model for accounts receivable and certain other financial instruments. This guidance will be effective beginning in fiscal 2020, with early adoption permitted. The Company does not expect this standard to have a material impact on its consolidated results of operations, financial position or cash flows.
3. Revenue Recognition
In the first quarter of 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective approach. Results for 2019 and 2018 are presented under ASC 606, while results for 2017 have not been adjusted and continue to be presented under the accounting standards in effect in that period.
Accounts receivable, net from revenue-generating activities were $152 million as of February 1, 2020 and $150 million as of February 2, 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.
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. The balance of deferred revenue was $342 million as of February 1, 2020 and $331 million as of February 2, 2019. The Company recognized $218 million as revenue in 2019 from amounts recorded as deferred revenue at the beginning of the period. As of February 1, 2020, the Company recorded deferred revenues of $330 million within Accrued Expenses and Other, and $12 million within Other Long-term Liabilities on the Consolidated Balance Sheet.
The following table provides a disaggregation of Net Sales for 2019, 2018 and 2017:
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2019
|
|
2018
|
|
2017 (a)
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|
(in millions)
|
Victoria’s Secret Stores (b)
|
$
|
5,112
|
|
|
$
|
5,628
|
|
|
$
|
5,879
|
|
Victoria’s Secret Direct
|
1,693
|
|
|
1,747
|
|
|
1,508
|
|
Total Victoria’s Secret
|
6,805
|
|
|
7,375
|
|
|
7,387
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|
Bath & Body Works Stores (b)
|
4,212
|
|
|
3,907
|
|
|
3,589
|
|
Bath & Body Works Direct
|
958
|
|
|
724
|
|
|
559
|
|
Total Bath & Body Works
|
5,170
|
|
|
4,631
|
|
|
4,148
|
|
Victoria's Secret and Bath & Body Works International (c)
|
600
|
|
|
605
|
|
|
502
|
|
Other (d)
|
339
|
|
|
626
|
|
|
595
|
|
Total Net Sales
|
$
|
12,914
|
|
|
$
|
13,237
|
|
|
$
|
12,632
|
|
_______________
|
|
(a)
|
2017 represents a 53-week fiscal year.
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|
|
(b)
|
Includes company-owned stores in the U.S. and Canada.
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|
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(c)
|
Includes company-owned stores in the U.K., Ireland and Greater China, direct sales in Greater China and wholesale sales, royalties and other fees associated with non-company owned stores.
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|
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(d)
|
Includes wholesale revenues from the Company's sourcing function. Results for 2018 and 2017 also include store and direct sales for Henri Bendel and La Senza.
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4. 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 2019, 2018 and 2017:
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|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017 (a)
|
|
(in millions)
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Weighted-average Common Shares:
|
|
|
|
|
|
Issued Shares
|
284
|
|
|
283
|
|
|
308
|
|
Treasury Shares
|
(8
|
)
|
|
(7
|
)
|
|
(24
|
)
|
Basic Shares
|
276
|
|
|
276
|
|
|
284
|
|
Effect of Dilutive Options and Restricted Stock
|
—
|
|
|
3
|
|
|
3
|
|
Diluted Shares
|
276
|
|
|
279
|
|
|
287
|
|
Anti-dilutive Options and Awards (b)
|
9
|
|
|
5
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|
|
4
|
|
________________
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|
(a)
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In November 2017, the Company retired 36 million shares of its Treasury Stock.
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(b)
|
These options and awards were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For 2019, the dilutive impact of outstanding options and awards were excluded from dilutive shares as a result of the Company's net loss for the period.
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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 loss is included in Loss on Divestiture of La Senza in the 2018 Consolidated Statement of Income (Loss). 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 Investing Activities in 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. In 2019, the Company's subsidiaries recognized pre-tax non-cash charges of $37 million to increase the reserves for potential exposure related to the La Senza business. These charges are included in Other Income (Loss) in the 2019 Consolidated Statement of Income (Loss). For additional information, see Note 17, "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. Restructuring charges of $14 million and $9 million are included in Costs of Goods Sold, Buying and Occupancy and General, Administrative and Store Operating Expenses, respectively, in the 2018 Consolidated Statement of Income (Loss).
6. Inventories
The following table provides details of inventories as of February 1, 2020 and February 2, 2019:
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|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Finished Goods Merchandise
|
$
|
1,152
|
|
|
$
|
1,107
|
|
Raw Materials and Merchandise Components
|
135
|
|
|
141
|
|
Total Inventories
|
$
|
1,287
|
|
|
$
|
1,248
|
|
7. Property and Equipment, Net
The following table provides details of property and equipment, net as of February 1, 2020 and February 2, 2019:
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|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Land and Improvements
|
$
|
116
|
|
|
$
|
116
|
|
Buildings and Improvements
|
496
|
|
|
492
|
|
Furniture, Fixtures, Software and Equipment
|
3,861
|
|
|
3,725
|
|
Leasehold Improvements
|
2,018
|
|
|
2,277
|
|
Construction in Progress
|
122
|
|
|
123
|
|
Total
|
6,613
|
|
|
6,733
|
|
Accumulated Depreciation and Amortization
|
(4,127
|
)
|
|
(3,915
|
)
|
Property and Equipment, Net
|
$
|
2,486
|
|
|
$
|
2,818
|
|
Depreciation expense was $588 million in 2019, $590 million in 2018 and $571 million in 2017.
Long-Lived Store Assets
In 2019 and 2018, the Company concluded that the negative operating results for certain of its Victoria's Secret stores were an indicator of potential impairment of the related store asset groups. The Company determined that the estimated undiscounted future cash flows were less than the carrying values and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows and estimated market rental rates. Long-lived store asset impairment charges are included in Costs of Goods Sold, Buying & Occupancy in the Consolidated Statements of Income (Loss).
The following table provides long-lived store asset impairment charges included in the Consolidated Statements of Income (Loss) for 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Asset
Impairment
|
|
Operating Lease
Asset Impairment
|
|
Total
Impairment
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Victoria's Secret (a)
|
$
|
47
|
|
|
$
|
70
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
51
|
|
|
$
|
70
|
|
Victoria's Secret and Bath & Body Works International (b)
|
151
|
|
|
31
|
|
|
61
|
|
|
—
|
|
|
212
|
|
|
31
|
|
Total
|
$
|
198
|
|
|
$
|
101
|
|
|
$
|
65
|
|
|
$
|
—
|
|
|
$
|
263
|
|
|
$
|
101
|
|
________________
|
|
(a)
|
Includes stores in the U.S. and Canada.
|
|
|
(b)
|
Includes stores in Greater China, the U.K. and Ireland.
|
8. 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 periods consolidated financial statements have not been adjusted and continue to be presented under the accounting standards in effect at that time.
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 17, “Commitments and Contingencies.”
The following table provides the components of lease cost for operating leases for 2019:
|
|
|
|
|
|
(in millions)
|
Operating Lease Costs (a)
|
$
|
769
|
|
Variable Lease Costs
|
100
|
|
Short-term Lease Costs
|
30
|
|
Total Lease Cost
|
$
|
899
|
|
_______________
|
|
(a)
|
As discussed in Note 7, "Property and Equipment, Net," the Company recognized operating lease asset impairment charges of $65 million during 2019, which is included as additional operating lease costs.
|
The following table provides future maturities of operating lease liabilities as of February 1, 2020:
|
|
|
|
|
Fiscal Year
|
(in millions)
|
2020
|
$
|
674
|
|
2021
|
693
|
|
2022
|
619
|
|
2023
|
558
|
|
2024
|
481
|
|
Thereafter
|
1,475
|
|
Total Lease Payments
|
$
|
4,500
|
|
Less: Interest
|
(970
|
)
|
Present Value of Operating Lease Liabilities
|
$
|
3,530
|
|
As of February 1, 2020, the Company has additional operating lease commitments that have not yet commenced of approximately $264 million.
The following table provides the weighted-average remaining lease term and discount rate for operating leases with lease liabilities as of February 1, 2020:
|
|
|
|
Weighted Average Remaining Lease Term (years)
|
7.4
|
|
Weighted Average Discount Rate
|
6.2
|
%
|
During 2019, the Company paid $708 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.
During 2019, the Company obtained $313 million of additional lease assets as a result of new operating lease obligations.
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 $21 million and $26 million of finance lease assets, net of accumulated amortization, in Property and Equipment, Net on the February 1, 2020 and February 2, 2019 Consolidated Balance Sheets, respectively. Additionally, the Company recorded finance lease liabilities of $8 million in Accrued Expenses and Other and $13 million in Other Long-term Liabilities on the February 1, 2020 Consolidated Balance Sheet, and $8 million in Accrued Expenses and Other and $19 million in Other Long-term Liabilities on the February 2, 2019 Consolidated Balance Sheet.
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 liabilities for asset retirement obligations totaled $22 million as of February 1, 2020 and $18 million as of February 2, 2019. These liabilities are included in Other Long-term Liabilities on the Consolidated Balance Sheets.
Disclosures for 2018 and 2017
The following table provides rent expense, as presented under the prior accounting standard, for 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(in millions)
|
Store Rent:
|
|
|
|
Fixed Minimum
|
$
|
663
|
|
|
$
|
642
|
|
Contingent
|
72
|
|
|
67
|
|
Total Store Rent
|
735
|
|
|
709
|
|
Office, Equipment and Other
|
98
|
|
|
94
|
|
Gross Rent Expense
|
833
|
|
|
803
|
|
Sublease Rental Income
|
(2
|
)
|
|
(2
|
)
|
Total Rent Expense
|
$
|
831
|
|
|
$
|
801
|
|
9. Goodwill and Trade Names
Goodwill
The following table provides detail regarding the composition of goodwill as of February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1, 2020
|
|
February 2, 2019
|
|
(in millions)
|
Bath & Body Works
|
$
|
628
|
|
|
$
|
628
|
|
Victoria's Secret
|
—
|
|
|
690
|
|
Victoria's Secret and Bath & Body Works International
|
—
|
|
|
30
|
|
Goodwill
|
$
|
628
|
|
|
$
|
1,348
|
|
As of the end of the third quarter of 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, which was based on a weighted average of the income and market approaches, exceeded its carrying value. However, the fair value of the Greater China reporting unit, which was based on the income approach, 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. This charge is included in Impairment of Goodwill in the 2019 Consolidated Statement of Income (Loss).
As of the end of the fourth quarter of 2019, the Company performed its annual goodwill impairment assessment over the Bath & Body Works and Victoria's Secret reporting units. The fair value of the Bath & Body Works reporting unit was estimated using a weighted average of the income and market approaches. As a result of continued fourth quarter declines in business performance and increased risk, volatility and uncertainty related to the Victoria's Secret reporting unit, the Company estimated its fair value using a market approach.
The annual assessment concluded that the fair value of the Victoria's Secret reporting unit did not exceed its carrying value. Accordingly, the Company recognized a goodwill impairment charge of $690 million in the fourth quarter of 2019 related to the Victoria's Secret reporting unit. This charge is included in Impairment of Goodwill in the 2019 Consolidated Statement of Income (Loss). The annual assessment also concluded that the fair value of the Bath & Body Works reporting unit exceeded its carrying value.
The market approach is based on earnings multiples of selected guideline public companies, while the income approach is based on estimated discounted future cash flows. The approaches, which are determined using Level 3 inputs within the fair value hierarchy, incorporated a number of significant assumptions and judgments including, but not limited to, estimated future cash flows, multiples of earnings of similar public companies, discount rates, income tax rates, terminal growth rates 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. The following table provides additional detail regarding the composition of trade names as of February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1, 2020
|
|
February 2, 2019
|
|
(in millions)
|
Victoria's Secret
|
$
|
246
|
|
|
$
|
246
|
|
Bath & Body Works
|
165
|
|
|
165
|
|
Trade Names
|
$
|
411
|
|
|
$
|
411
|
|
As of the end of the third quarter of 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.
As of the end of the fourth quarter of 2019, the Company performed its annual impairment assessment of the Victoria's Secret and Bath & Body Works trade names. To estimate the fair value of the trade names, the Company used the relief from royalty method under the income approach. The annual assessment concluded that the fair values of the trade names were in excess of their respective carrying values.
10. Equity Investments
The Company has land and other investments in Easton, a planned community in Columbus, Ohio, that integrates office, hotel, retail, residential and recreational space. These investments, totaling $118 million as of February 1, 2020 and $89 million as of February 2, 2019, 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 $7 million, $16 million and $29 million during 2019, 2018 and 2017, respectively, from certain of its Easton investments which are included as return of capital within Investing Activities of the Consolidated Statements of Cash Flows. As a result of these distributions, the Company recognized pre-tax gains totaling $5 million, $8 million and $20 million during 2019, 2018 and 2017, respectively, which are included in Other Income (Loss) in the Consolidated Statements of Income (Loss).
11. Accrued Expenses and Other
The following table provides additional information about the composition of Accrued Expenses and Other as of February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2, 2019
|
|
(in millions)
|
Deferred Revenue, Principally from Gift Card Sales
|
$
|
330
|
|
|
$
|
316
|
|
Compensation, Payroll Taxes and Benefits
|
216
|
|
|
215
|
|
Interest
|
94
|
|
|
92
|
|
Taxes, Other than Income
|
74
|
|
|
78
|
|
Accrued Claims on Self-insured Activities
|
40
|
|
|
45
|
|
Rent
|
35
|
|
|
39
|
|
Returns Reserve
|
23
|
|
|
27
|
|
Other
|
240
|
|
|
270
|
|
Total Accrued Expenses and Other
|
$
|
1,052
|
|
|
$
|
1,082
|
|
12. Income Taxes
Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in net deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized.
On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. The legislation significantly changes U.S. tax law by, among other things, lowering corporate income tax rates and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The TCJA reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.
The following table provides the components of the Company’s provision for income taxes for 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(in millions)
|
Current:
|
|
|
|
|
|
U.S. Federal
|
$
|
156
|
|
|
$
|
212
|
|
|
$
|
366
|
|
U.S. State
|
35
|
|
|
37
|
|
|
49
|
|
Non-U.S.
|
23
|
|
|
16
|
|
|
22
|
|
Total
|
214
|
|
|
265
|
|
|
437
|
|
Deferred:
|
|
|
|
|
|
U.S. Federal
|
(7
|
)
|
|
(4
|
)
|
|
(114
|
)
|
U.S. State
|
1
|
|
|
2
|
|
|
6
|
|
Non-U.S.
|
(23
|
)
|
|
(50
|
)
|
|
—
|
|
Total
|
(29
|
)
|
|
(52
|
)
|
|
(108
|
)
|
Provision for Income Taxes
|
$
|
185
|
|
|
$
|
213
|
|
|
$
|
329
|
|
The non-U.S. component of pre-tax income, arising principally from overseas operations, was a loss of $226 million, loss of $14 million and income of $99 million for 2019, 2018 and 2017, respectively.
The following table provides the reconciliation between the statutory federal income tax rate and the effective tax rate for 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Federal Income Tax Rate
|
21.0
|
%
|
|
21.0
|
%
|
|
33.7
|
%
|
State Income Taxes, Net of Federal Income Tax Effect
|
(23.0
|
%)
|
|
6.0
|
%
|
|
3.6
|
%
|
Impact of Non-U.S. Operations
|
(5.7
|
%)
|
|
2.3
|
%
|
|
(1.4
|
%)
|
Goodwill Impairment
|
(80.8
|
%)
|
|
—
|
%
|
|
—
|
%
|
Change in Valuation Allowance
|
(18.5
|
%)
|
|
(1.1
|
%)
|
|
(0.1
|
%)
|
Divestiture of La Senza
|
—
|
%
|
|
(2.7
|
%)
|
|
—
|
%
|
U.S. Net Deferred Tax Liability Remeasurement
|
—
|
%
|
|
—
|
%
|
|
(12.1
|
%)
|
Deemed Mandatory Repatriation
|
—
|
%
|
|
—
|
%
|
|
5.1
|
%
|
Share-Based Compensation
|
(7.7
|
%)
|
|
1.0
|
%
|
|
(1.0
|
%)
|
Uncertain Tax Positions
|
12.3
|
%
|
|
(0.5
|
%)
|
|
(1.2
|
%)
|
Other Items, Net
|
0.5
|
%
|
|
(1.1
|
%)
|
|
(1.5
|
%)
|
Effective Tax Rate
|
(101.9
|
%)
|
|
24.9
|
%
|
|
25.1
|
%
|
Deferred Taxes
The following table provides the effect of temporary differences that cause deferred income taxes as of February 1, 2020 and February 2, 2019. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2020
|
|
February 2, 2019
|
|
Assets
|
|
Liabilities
|
|
Total
|
|
Assets
|
|
Liabilities
|
|
Total
|
|
(in millions)
|
Operating Loss Carryforwards
|
$
|
247
|
|
|
$
|
—
|
|
|
$
|
247
|
|
|
$
|
217
|
|
|
$
|
—
|
|
|
$
|
217
|
|
Non-qualified Retirement Plan
|
62
|
|
|
—
|
|
|
62
|
|
|
64
|
|
|
—
|
|
|
64
|
|
Leases
|
746
|
|
|
(712
|
)
|
|
34
|
|
|
50
|
|
|
—
|
|
|
50
|
|
Share-based Compensation
|
40
|
|
|
—
|
|
|
40
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Deferred Revenue
|
20
|
|
|
—
|
|
|
20
|
|
|
28
|
|
|
—
|
|
|
28
|
|
Property and Equipment
|
—
|
|
|
(230
|
)
|
|
(230
|
)
|
|
—
|
|
|
(278
|
)
|
|
(278
|
)
|
Trade Names and Other Intangibles
|
—
|
|
|
(94
|
)
|
|
(94
|
)
|
|
—
|
|
|
(93
|
)
|
|
(93
|
)
|
Other Assets
|
—
|
|
|
(60
|
)
|
|
(60
|
)
|
|
—
|
|
|
(60
|
)
|
|
(60
|
)
|
Other, Net
|
70
|
|
|
(20
|
)
|
|
50
|
|
|
60
|
|
|
(27
|
)
|
|
33
|
|
Valuation Allowance
|
(204
|
)
|
|
—
|
|
|
(204
|
)
|
|
(172
|
)
|
|
—
|
|
|
(172
|
)
|
Total Deferred Income Taxes
|
$
|
981
|
|
|
$
|
(1,116
|
)
|
|
$
|
(135
|
)
|
|
$
|
294
|
|
|
$
|
(458
|
)
|
|
$
|
(164
|
)
|
As of February 1, 2020, the Company had available for state income tax purposes net operating loss carryforwards which expire, if unused, in the years 2020 through 2039. For those states where the Company has determined that it is more likely than not that the state net operating loss carryforwards will not be realized, a valuation allowance has been provided.
As of February 1, 2020, the Company had available for non-U.S. tax purposes net operating loss carryforwards which have an indefinite life and net operating loss carryforwards which expire, if unused, in the years 2028 through 2039. For certain jurisdictions where the Company has determined that it is more likely than not that the net operating loss carryforwards will not be realized, a valuation allowance has been provided on those net operating loss carryforwards as well as other net deferred tax assets.
Income tax payments were $228 million for 2019, $324 million for 2018 and $494 million for 2017.
Uncertain Tax Positions
The following table summarizes the activity related to the Company’s unrecognized tax benefits for U.S. federal, state & non-U.S. tax jurisdictions for 2019, 2018 and 2017, without interest and penalties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(in millions)
|
Gross Unrecognized Tax Benefits, as of the Beginning of the Fiscal Year
|
$
|
114
|
|
|
$
|
67
|
|
|
$
|
90
|
|
Increases to Unrecognized Tax Benefits for Prior Years
|
15
|
|
|
35
|
|
|
3
|
|
Decreases to Unrecognized Tax Benefits for Prior Years
|
(22
|
)
|
|
(25
|
)
|
|
(22
|
)
|
Increases to Unrecognized Tax Benefits as a Result of Current Year Activity
|
3
|
|
|
44
|
|
|
7
|
|
Decreases to Unrecognized Tax Benefits Relating to Settlements with Taxing Authorities
|
(16
|
)
|
|
—
|
|
|
(2
|
)
|
Decreases to Unrecognized Tax Benefits as a Result of a Lapse of the Applicable Statute of Limitations
|
(6
|
)
|
|
(7
|
)
|
|
(9
|
)
|
Gross Unrecognized Tax Benefits, as of the End of the Fiscal Year
|
$
|
88
|
|
|
$
|
114
|
|
|
$
|
67
|
|
Of the total gross unrecognized tax benefits, approximately $81 million, $104 million and $46 million, at February 1, 2020, February 2, 2019, and February 3, 2018, respectively, represent the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. These amounts are net of the offsetting tax effects from other tax jurisdictions.
Of the total unrecognized tax benefits, it is reasonably possible that $66 million could change in the next 12 months due to audit settlements, expiration of statute of limitations or other resolution of uncertainties. Due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in amounts which could be different
from this estimate. In such case, the Company will record additional tax expense or tax benefit in the period in which such matters are effectively settled.
The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized an income tax benefit from interest and penalties of less than $1 million, $5 million and $2 million in 2019, 2018 and 2017, respectively. The Company has accrued $12 million for the payment of interest and penalties as of both February 1, 2020 and February 2, 2019. Accrued interest and penalties are included within Other Long-term Liabilities on the Consolidated Balance Sheets.
The Company files U.S. federal income tax returns as well as income tax returns in various states and in non-U.S. jurisdictions. The Company is a participant in the Compliance Assurance Process ("CAP"), which is a program made available by the Internal Revenue Service ("IRS") to certain qualifying large taxpayers, under which participants work collaboratively with the IRS to identify and resolve potential tax issues through open, cooperative and transparent interaction prior to the annual filing of their federal income tax return. The IRS is currently examining the Company's 2018 consolidated U.S. federal income tax return.
The Company is also subject to various U.S. state and local income tax examinations for the years 2015 to 2018. Finally, the Company is subject to multiple non-U.S. tax jurisdiction examinations for the years 2007 to 2018. In some situations, the Company determines that it does not have a filing requirement in a particular tax jurisdiction. Where no return has been filed, no statute of limitations applies. Accordingly, if a tax jurisdiction reaches a conclusion that a filing requirement does exist, additional years may be reviewed by the tax authority. The Company believes it has appropriately accounted for uncertainties related to this issue.
13. 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 February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Senior Debt with Subsidiary Guarantee
|
|
|
|
$1 billion, 6.875% Fixed Interest Rate Notes due November 2035 (“2035 Notes”)
|
$
|
991
|
|
|
$
|
990
|
|
$860 million, 5.625% Fixed Interest Rate Notes due February 2022 (“2022 Notes”)
|
858
|
|
|
952
|
|
$700 million, 6.75% Fixed Interest Rate Notes due July 2036 (“2036 Notes”)
|
693
|
|
|
693
|
|
$500 million, 5.625% Fixed Interest Rate Notes due October 2023 (“2023 Notes”)
|
498
|
|
|
498
|
|
$500 million, 5.25% Fixed Interest Rate Notes due February 2028 (“2028 Notes”)
|
496
|
|
|
496
|
|
$500 million, 7.50% Fixed Interest Rate Notes due June 2029 ("2029 Notes")
|
487
|
|
|
—
|
|
$450 million, 6.625% Fixed Interest Rate Notes due April 2021 (“2021 Notes”)
|
450
|
|
|
776
|
|
$297 million, 6.694% Fixed Interest Rate Notes due January 2027 ("2027 Notes")
|
276
|
|
|
273
|
|
$338 million, 7.00% Fixed Interest Rate Notes due May 2020 (“2020 Notes”)
|
—
|
|
|
337
|
|
Secured Foreign Facilities
|
103
|
|
|
91
|
|
Total Senior Debt with Subsidiary Guarantee
|
$
|
4,852
|
|
|
$
|
5,106
|
|
Senior Debt
|
|
|
|
$350 million, 6.95% Fixed Interest Rate Debentures due March 2033 (“2033 Notes”)
|
$
|
348
|
|
|
$
|
348
|
|
$300 million, 7.60% Fixed Interest Rate Notes due July 2037 (“2037 Notes”)
|
298
|
|
|
297
|
|
Unsecured Foreign Facilities
|
50
|
|
|
60
|
|
Total Senior Debt
|
$
|
696
|
|
|
$
|
705
|
|
Total
|
$
|
5,548
|
|
|
$
|
5,811
|
|
Current Debt
|
(61
|
)
|
|
(72
|
)
|
Total Long-term Debt, Net of Current Portion
|
$
|
5,487
|
|
|
$
|
5,739
|
|
The following table provides principal payments due on outstanding debt in the next five fiscal years and the remaining years thereafter:
|
|
|
|
|
Fiscal Year (in millions)
|
|
2020
|
$
|
61
|
|
2021
|
459
|
|
2022
|
869
|
|
2023
|
569
|
|
2024
|
5
|
|
Thereafter
|
$
|
3,648
|
|
Cash paid for interest was $363 million in 2019, $380 million in 2018 and $391 million in 2017.
Issuance of Notes
In June 2019, the Company issued $500 million of 7.50% notes due in June 2029. The obligation to pay principal and interest on these notes is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's 100% owned subsidiaries (the “Guarantors”). The proceeds from the issuance were $486 million, which were net of discounts and issuance costs of $14 million. The discounts and issuance costs are being amortized through the maturity date and are included within Long-term Debt on the February 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-off of unamortized issuance costs. This loss is included in Other Income (Loss) in the 2019 Consolidated Statement of Income (Loss).
Exchange of Notes
In June 2018, the Company completed private offers to exchange $62 million, $220 million and $44 million of outstanding 2020 Notes, 2021 Notes and 2022 Notes, respectively, for $297 million of newly issued 6.694% notes due in January 2027 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 Facility
The Company and the Guarantors guarantee and pledge collateral to secure the Secured Revolving Facility. The Secured Revolving Facility has aggregate availability of $1 billion and allows the Company and certain of the Company's non-U.S. subsidiaries to borrow and obtain letters of credit in U.S. dollars, Canadian dollars, Euros, Hong Kong dollars or British pounds.
In August 2019, the Company entered into an amendment and restatement of the Secured Revolving Facility. The Amendment maintained the aggregate availability under the Secured Revolving Facility at $1 billion and extended the expiration date from May 2022 to August 2024. The Company incurred fees related to the Amendment of $5 million, which were capitalized and are recorded in Other Assets on the February 1, 2020 Consolidated Balance Sheet and are being amortized over the remaining term of the Secured Revolving Facility.
The Secured Revolving Facility fees related to committed and unutilized amounts are 0.30% per annum, and the fees related to outstanding letters of credit are 1.75% per annum. In addition, the interest rate on outstanding U.S. dollar borrowings is LIBOR plus 1.75% per annum. The interest rate on outstanding foreign denominated borrowings is the applicable benchmark rate plus 1.75% per annum.
The Secured Revolving Facility contains fixed charge coverage and debt to EBITDA financial covenants. The Company is required to maintain a fixed charge coverage ratio of not less than 1.75 to 1.00 and a consolidated debt to consolidated EBITDA ratio not exceeding 4.00 to 1.00 for the most recent four-quarter period. Additionally, the Secured Revolving Facility 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 3.50 to 1.00 and (b) no default or event of default exists. As of February 1, 2020, the Company was in compliance with both of its financial covenants, and the ratio of consolidated debt to consolidated EBITDA was less than 3.50 to 1.00.
During 2019, the Company borrowed and repaid $12 million under the Secured Revolving Facility. As of February 1, 2020, 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 $19 million of outstanding letters of credit as of February 1, 2020 that reduced its availability under the Secured Revolving Facility.
On March 16, 2020, the Company elected to borrow $950 million from the Secured Revolving Facility, leaving our availability under the Secured Revolving Facility at $22 million. For additional information, see Note 23, "Subsequent Events."
Secured Foreign Facilities
The Company and the Guarantors guarantee and pledge collateral to secure revolving and term loan bank facilities used by certain of the Company's Greater China subsidiaries to support their operations. The Secured Foreign Facilities have availability totaling $150 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for each borrowing. During 2019, the Company borrowed $117 million and made payments of $103 million under the Secured Foreign Facilities. The maximum daily amount outstanding at any point in time in 2019 was $103 million. Borrowings on the Secured Foreign Facilities mature between March 2020 and August 2024. As of February 1, 2020, borrowings of $11 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 used by certain of the Company's Greater China subsidiaries to support their operations. The Unsecured Foreign Facilities have availability totaling $75 million. The interest rates on outstanding borrowings are based upon the applicable benchmark rate for each borrowing. During 2019, the Company
borrowed $50 million and made payments of $59 million under the Unsecured Foreign Facilities. The maximum daily amount outstanding at any point in time in 2019 was $74 million. Borrowings on the Unsecured Foreign Facilities mature between March 2020 and April 2020. As of February 1, 2020, borrowings of $50 million are included within Current Debt on the Consolidated Balance Sheet.
14. Derivative Financial Instruments
The earnings of the Company's wholly owned foreign businesses are subject to exchange rate risk as substantially all their merchandise is sourced through U.S. dollar transactions. The Company uses foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure for its Canadian and U.K. businesses. These forward contracts currently have a maximum term of 18 months. Amounts are reclassified from accumulated other comprehensive income upon the sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated Statements of Income (Loss).
The Company uses foreign currency forward contracts to mitigate the impact of fluctuations in foreign currency exchange rates relative to recognized payable balances denominated in non-functional currencies. The fair value of these non-designated foreign currency forward contracts is not significant as of February 1, 2020.
The following table provides the U.S. dollar notional amount of outstanding foreign currency derivative financial instruments as of February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Notional Amount
|
$
|
139
|
|
|
$
|
147
|
|
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 February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Other Current Assets
|
$
|
1
|
|
|
$
|
2
|
|
Accrued Expenses and Other
|
1
|
|
|
—
|
|
The following table provides a summary of the pre-tax financial statement effect of the gains and losses on derivative financial instruments designated as foreign currency cash flow hedges for 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
(in millions)
|
Gain (Loss) Recognized in Accumulated Other Comprehensive Income
|
$
|
2
|
|
|
$
|
11
|
|
(Gain) Loss Reclassified from Accumulated Other Comprehensive Income into Costs of Goods Sold, Buying and Occupancy Expense
|
(5
|
)
|
|
2
|
|
The Company estimates that less than $1 million of net gains included in accumulated other comprehensive income as of February 1, 2020 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.
15. 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 February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(in millions)
|
As of February 1, 2020
|
|
Assets:
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
1,499
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
Foreign Currency Cash Flow Hedges
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign Currency Cash Flow Hedges
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
As of February 2, 2019
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
1,413
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,413
|
|
Marketable Equity Securities
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Foreign Currency Cash Flow Hedges
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
The Company's Level 1 fair value measurements use unadjusted quoted prices in active markets for identical assets. The Company's marketable equity securities were 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 2019, the Company received cash proceeds of $10 million related to sales of its marketable equity securities, which are included within Investing Activities in 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 February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Principal Value
|
$
|
5,458
|
|
|
$
|
5,722
|
|
Fair Value, Estimated (a)
|
5,555
|
|
|
5,340
|
|
________________
|
|
(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.
16. Comprehensive Income
Comprehensive Income includes gains and losses on derivative instruments and foreign currency translation adjustments. The cumulative gains and losses on these items are included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheets and Consolidated Statements of Shareholders' Equity (Deficit).
The following table provides the rollforward of accumulated other comprehensive income for 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
|
Cash Flow Hedges
|
|
Accumulated Other Comprehensive Income
|
|
(in millions)
|
Balance as of February 2, 2019
|
$
|
57
|
|
|
$
|
2
|
|
|
$
|
59
|
|
Other Comprehensive Income (Loss) Before Reclassifications
|
(5
|
)
|
|
2
|
|
|
(3
|
)
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
Tax Effect
|
—
|
|
|
1
|
|
|
1
|
|
Current-period Other Comprehensive Income (Loss)
|
(5
|
)
|
|
(2
|
)
|
|
(7
|
)
|
Balance as of February 1, 2020
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
The following table provides the rollforward of accumulated other comprehensive income for 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
|
(20
|
)
|
|
11
|
|
|
—
|
|
|
(9
|
)
|
Amounts Reclassified from Accumulated Other Comprehensive Income
|
45
|
|
|
2
|
|
|
—
|
|
|
47
|
|
Tax Effect
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Current-period Other Comprehensive Income
|
25
|
|
|
12
|
|
|
—
|
|
|
37
|
|
Balance as of February 2, 2019
|
$
|
57
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
59
|
|
As a result of the divestiture of La Senza in 2018, the Company reclassified $45 million of accumulated foreign-currency translation adjustments out of accumulated other comprehensive income and into earnings. For additional information, see Note 5, "Restructuring Activities."
17. Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes, insurance, regulatory and other matters arising out of the normal course of business. Actions filed against the Company from time to time include commercial, tort, intellectual property, customer, employment, data privacy, securities and other claims, including purported class action lawsuits. Management believes that the ultimate liability arising from such claims and contingencies, if any, is not likely to have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
In July 2019, a plaintiff shareholder filed a putative class action complaint in the U.S. District Court for the Southern District of Ohio alleging that the Company made false and/or misleading statements relating to the November 2018 announcement that the Company was reducing its quarterly dividend. In September 2019, a different plaintiff shareholder filed a second putative class action complaint in the U.S. District Court for the Southern District of Ohio containing substantially the same allegations and seeking substantially the same relief. In October 2019, the Court issued an order consolidating the two putative class actions, appointing a lead plaintiff, and approving that lead plaintiff’s selection of lead counsel. The lead plaintiff filed a consolidated amended complaint on December 20, 2019 that asserted substantially the same allegations and sought substantially the same relief as the initial complaint. The Company filed a motion to dismiss the consolidated amended complaint on February 18, 2020. The lead plaintiff must file any opposition to our motion to dismiss no later than May 4, 2020. The Company's reply brief in further support of our motion to dismiss is due on June 3, 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 our quarterly dividend prior to the announced reduction of the dividend in November 2018. The Company intends to seek dismissal of 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 $40 million related to lease payments under the current terms of noncancelable leases expiring at various dates through 2028. These obligations include minimum rent and additional payments covering taxes, common area costs and certain other expenses and relate to leases that commenced prior to the disposition of the business. As part of the sale, a liability of $5 million was recorded for these obligations. During 2019, an additional reserve of $35 million was recorded related to these obligations and certain other items. As of February 1, 2020, reserves of $8 million are included within Accrued Expenses and Other on the Consolidated Balance Sheet and the remaining reserves are included within Other Long-term Liabilities.
Other
In connection with 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 $17 million and $11 million related to these guarantee obligations as of February 1, 2020 and February 2, 2019, respectively. This liability is included in Current Operating Lease Liabilities on the February 1, 2020 Consolidated Balance Sheet, and in Other Long-term Liabilities on the February 2, 2019 Consolidated Balance Sheet.
18. Retirement Benefits
The Company sponsors a tax-qualified defined contribution retirement plan and a non-qualified supplemental retirement plan for substantially all of its associates within the U.S. Participation in the tax-qualified plan is available to associates who meet certain age and service requirements. Participation in the non-qualified plan is available to associates who meet certain age, service, job level and compensation requirements.
The qualified plan permits participating associates to elect contributions up to the maximum limits allowable under the Internal Revenue Code. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible annual compensation and years of service. Associate contributions and Company matching contributions vest immediately. Additional Company contributions and the related investment earnings are subject to vesting based on years of service. Total expense recognized related to the qualified plan was $79 million for 2019, $76 million for 2018 and $68 million for 2017.
The non-qualified plan is an unfunded plan which provides benefits beyond the Internal Revenue Code limits for qualified defined contribution plans. The plan permits participating associates to elect contributions up to a maximum percentage of eligible compensation. The Company matches associate contributions according to a predetermined formula and contributes additional amounts based on a percentage of the associates’ eligible compensation and years of service. The plan also permits participating associates to defer additional compensation up to a maximum amount which the Company does not match. Associates’ accounts are credited with interest using a fixed rate determined by the Company and reviewed by the Compensation Committee of the Board of Directors prior to the beginning of each year. Associate contributions and the related interest vest immediately. Company contributions, along with related interest, are subject to vesting based on years of service. Associates may elect in-service distributions for the unmatched additional deferred compensation component only. The remaining vested portion of associates’ accounts in the plan will be distributed upon termination of employment in either a lump sum or in annual installments over a specified period of up to 10 years.
The definitive agreement between the Company and Sycamore for the sale to Sycamore of the 55% interest in Victoria's Secret requires that the Company terminate its non-qualified supplemental retirement plan as of the closing with respect to participants affected by the sale and for all other participants within six months. On March 11, 2020, the Compensation Committee of the Board of Directors authorized management of the Company to take steps to terminate the plan as to all participants. The timing and specifics of such termination have not yet been determined. Any remaining benefits and obligations under the non-qualified plan are expected to be paid out in full approximately one year following the applicable termination. For additional information regarding the Victoria's Secret transaction, see Note 23, "Subsequent Events."
The following table provides the Company’s annual activity for this plan and year-end liability, included in Other Long-term Liabilities on the Consolidated Balance Sheets, as of February 1, 2020 and February 2, 2019:
|
|
|
|
|
|
|
|
|
|
February 1,
2020
|
|
February 2,
2019
|
|
(in millions)
|
Balance at Beginning of Year
|
$
|
278
|
|
|
$
|
269
|
|
Contributions:
|
|
|
|
Associate
|
8
|
|
|
10
|
|
Company
|
12
|
|
|
11
|
|
Interest
|
14
|
|
|
13
|
|
Distributions
|
(32
|
)
|
|
(25
|
)
|
Balance at End of Year
|
$
|
280
|
|
|
$
|
278
|
|
Total expense recognized related to the non-qualified plan was $26 million for 2019, $24 million for 2018 and $20 million for 2017.
19. Shareholders’ Equity (Deficit)
Common Stock Share Repurchases
The Company did not repurchase any shares during 2019.
Under the authority of the Company’s Board of Directors, the Company repurchased shares of its common stock under the following repurchase programs for fiscal 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Repurchased
|
|
Amount Repurchased
|
|
Average Stock
Price of
Shares
Repurchased
within
Program
|
Repurchase Program
|
|
Amount Authorized
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
(in millions)
|
|
(in thousands)
|
|
(in millions)
|
|
|
March 2018
|
|
$
|
250
|
|
|
4,852
|
|
|
NA
|
|
|
$
|
171
|
|
|
NA
|
|
|
$
|
35.29
|
|
September 2017
|
|
250
|
|
|
527
|
|
|
3,858
|
|
|
25
|
|
|
$
|
202
|
|
|
$
|
51.72
|
|
February 2017
|
|
250
|
|
|
NA
|
|
|
5,500
|
|
|
NA
|
|
|
240
|
|
|
$
|
43.57
|
|
February 2016
|
|
500
|
|
|
NA
|
|
|
51
|
|
|
NA
|
|
|
3
|
|
|
$
|
76.47
|
|
Total
|
|
|
|
5,379
|
|
|
9,409
|
|
|
$
|
196
|
|
|
$
|
445
|
|
|
|
In March 2018, the Company's Board of Directors approved a new $250 million share repurchase program, which included the $23 million remaining under the September 2017 repurchase program.
The March 2018 repurchase program had $79 million remaining as of February 1, 2020.
Treasury Stock Retirement
In November 2017, the Company retired 36 million shares of its treasury stock. The retirement resulted in a reduction of $2.036 billion in Treasury Stock, $18 million in the par value of Common Stock, $82 million in Paid-in Capital and $1.936 billion in Retained Earnings.
Dividends
Under the authority and declaration of the Board of Directors, the Company paid the following dividends during fiscal 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
Ordinary Dividends
|
|
Total Paid
|
|
(per share)
|
|
(in millions)
|
2019
|
|
|
|
Fourth Quarter
|
$
|
0.30
|
|
|
$
|
83
|
|
Third Quarter
|
0.30
|
|
|
83
|
|
Second Quarter
|
0.30
|
|
|
83
|
|
First Quarter
|
0.30
|
|
|
83
|
|
2019 Total
|
$
|
1.20
|
|
|
$
|
332
|
|
2018
|
|
|
|
Fourth Quarter
|
$
|
0.60
|
|
|
$
|
166
|
|
Third Quarter
|
0.60
|
|
|
165
|
|
Second Quarter
|
0.60
|
|
|
167
|
|
First Quarter
|
0.60
|
|
|
168
|
|
2018 Total
|
$
|
2.40
|
|
|
$
|
666
|
|
2017
|
|
|
|
Fourth Quarter
|
$
|
0.60
|
|
|
$
|
170
|
|
Third Quarter
|
0.60
|
|
|
172
|
|
Second Quarter
|
0.60
|
|
|
172
|
|
First Quarter
|
0.60
|
|
|
172
|
|
2017 Total
|
$
|
2.40
|
|
|
$
|
686
|
|
Subsequent to February 1, 2020, the Company's Board of Directors declared the first quarter of 2020 ordinary dividend of $0.30 per share.
20. Share-based Compensation
Plan Summary
In 2015, the Company's shareholders approved the 2015 Stock Option and Performance Incentive Plan ("2015 Plan"). The 2015 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance-based restricted stock, performance units and unrestricted shares. The Company grants stock options at a price equal to the fair market value of the stock on the date of grant. Stock options have a maximum term of 10 years. Stock options generally vest ratably over three to five years. Restricted stock generally vests (the restrictions lapse) at the end of a three-year period or on a graded basis over a five-year period.
Under the Company’s plans, 160 million options, restricted and unrestricted shares have been authorized to be granted to employees and directors. There were 5 million options and shares available for grant as of February 1, 2020.
Stock Options
The following table provides the Company’s stock option activity for the fiscal year ended February 1, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Option
Price Per
Share
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
(in thousands)
|
|
|
|
(in years)
|
|
(in thousands)
|
Outstanding as of February 2, 2019
|
5,292
|
|
|
$
|
53.14
|
|
|
|
|
|
Granted
|
519
|
|
|
27.67
|
|
|
|
|
|
Exercised
|
(136
|
)
|
|
7.44
|
|
|
|
|
|
Cancelled
|
(395
|
)
|
|
52.22
|
|
|
|
|
|
Outstanding as of February 1, 2020
|
5,280
|
|
|
$
|
51.87
|
|
|
6.03
|
|
$
|
318
|
|
Vested and Expected to Vest as of February 1, 2020 (a)
|
5,190
|
|
|
52.29
|
|
|
5.99
|
|
318
|
|
Options Exercisable as of February 1, 2020
|
3,372
|
|
|
57.07
|
|
|
4.93
|
|
318
|
|
________________
|
|
(a)
|
The number of options expected to vest includes an estimate of expected forfeitures.
|
Intrinsic value for stock options is the difference between the current market value of the Company’s stock and the option strike price. The total intrinsic value of options exercised was $3 million for 2019, $2 million for 2018 and $44 million for 2017.
The total fair value at grant date of option awards vested was $9 million for 2019 and 2018, and $10 million for 2017.
The Company’s total unrecognized compensation cost, net of estimated forfeitures, related to nonvested options was $8 million as of February 1, 2020. This cost is expected to be recognized over a weighted-average period of 1.8 years.
The weighted-average estimated fair value of stock options granted was $6.05 per share for 2019, $6.76 per share for 2018 and $5.96 per share for 2017.
Cash received from stock options exercised was $1 million for 2019 and 2018, and $38 million for 2017. Tax benefits realized from tax deductions associated with stock options exercised was less than $1 million for 2019 and 2018, and $16 million for 2017.
The Company uses the Black-Scholes option-pricing model for valuation of options granted to employees and directors. The Company’s determination of the fair value of options is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and projected employee stock option exercise behaviors.
The following table contains the weighted-average assumptions used during 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Expected Volatility
|
40
|
%
|
|
36
|
%
|
|
28
|
%
|
Risk-free Interest Rate
|
2.2
|
%
|
|
2.5
|
%
|
|
1.5
|
%
|
Dividend Yield
|
4.4
|
%
|
|
5.8
|
%
|
|
5.1
|
%
|
Expected Life (in years)
|
3.2
|
|
|
2.9
|
|
|
3.0
|
|
The majority of the Company’s stock-based compensation awards are granted on an annual basis in the first quarter of each year. The expected volatility assumption is based on the Company’s analysis of historical volatility. The risk-free interest rate assumption is based upon the average daily closing rates during the period for U.S. treasury notes that have a life which approximates the expected life of the option. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts in relation to the stock price at the grant date. The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding.
Restricted Stock
The following table provides the Company’s restricted stock activity for the fiscal year ended February 1, 2020:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
(in thousands)
|
|
|
Unvested as of February 2, 2019
|
6,689
|
|
|
$
|
45.29
|
|
Granted
|
4,161
|
|
|
23.34
|
|
Vested
|
(1,570
|
)
|
|
66.44
|
|
Cancelled
|
(618
|
)
|
|
30.75
|
|
Unvested as of February 1, 2020
|
8,662
|
|
|
$
|
32.00
|
|
The Company’s total intrinsic value of restricted stock vested was $39 million for 2019, $44 million for 2018 and $86 million for 2017.
The Company’s total fair value at grant date of awards vested was $104 million for 2019, $86 million for 2018 and $87 million for 2017. The fair value of restricted stock awards is based on the market value of an unrestricted share on the grant date adjusted for anticipated dividend yields.
As of February 1, 2020, there was $103 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock. That cost is expected to be recognized over a weighted-average period of 1.9 years.
The weighted-average estimated fair value of restricted stock granted was $23.34 per share for 2019, $30.43 per share for 2018 and $39.21 per share for 2017.
Tax benefits realized from tax deductions associated with restricted stock vested were $10 million for 2019 and 2018, and $32 million for 2017.
Income Statement Impact
The following table provides share-based compensation expense included in the Consolidated Statements of Income (Loss) for 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(in millions)
|
Costs of Goods Sold, Buying and Occupancy
|
$
|
29
|
|
|
$
|
29
|
|
|
$
|
32
|
|
General, Administrative and Store Operating Expenses
|
58
|
|
|
68
|
|
|
70
|
|
Total Share-based Compensation Expense
|
$
|
87
|
|
|
$
|
97
|
|
|
$
|
102
|
|
The tax benefit associated with recognized share-based compensation expense was $18 million for 2019, $20 million for 2018 and $23 million for 2017.
21. 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.
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 and 2017 also include La Senza and Henri Bendel.
The following table provides the Company’s segment information as of and for the fiscal years ended February 1, 2020, February 2, 2019 and February 3, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria’s
Secret
|
|
Bath & Body
Works
|
|
Victoria’s Secret
and
Bath &
Body Works
International
|
|
Other
|
|
Total
|
|
(in millions)
|
2019
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
6,805
|
|
|
$
|
5,170
|
|
|
$
|
600
|
|
|
$
|
339
|
|
|
$
|
12,914
|
|
Depreciation and Amortization
|
284
|
|
|
155
|
|
|
40
|
|
|
109
|
|
|
588
|
|
Operating Income (Loss) (a)
|
(616
|
)
|
|
1,191
|
|
|
(236
|
)
|
|
(81
|
)
|
|
258
|
|
Total Assets (b) (c)
|
3,883
|
|
|
2,837
|
|
|
939
|
|
|
2,466
|
|
|
10,125
|
|
Capital Expenditures
|
76
|
|
|
206
|
|
|
24
|
|
|
152
|
|
|
458
|
|
2018
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
7,375
|
|
|
$
|
4,631
|
|
|
$
|
605
|
|
|
$
|
626
|
|
|
$
|
13,237
|
|
Depreciation and Amortization
|
280
|
|
|
121
|
|
|
43
|
|
|
103
|
|
|
547
|
|
Operating Income (Loss) (d)
|
462
|
|
|
1,077
|
|
|
(37
|
)
|
|
(265
|
)
|
|
1,237
|
|
Total Assets (b)
|
3,129
|
|
|
1,898
|
|
|
842
|
|
|
2,221
|
|
|
8,090
|
|
Capital Expenditures
|
150
|
|
|
242
|
|
|
97
|
|
|
140
|
|
|
629
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
7,387
|
|
|
$
|
4,148
|
|
|
$
|
502
|
|
|
$
|
595
|
|
|
$
|
12,632
|
|
Depreciation and Amortization
|
279
|
|
|
101
|
|
|
30
|
|
|
114
|
|
|
524
|
|
Operating Income (Loss)
|
932
|
|
|
953
|
|
|
5
|
|
|
(162
|
)
|
|
1,728
|
|
Total Assets (b)
|
3,369
|
|
|
1,753
|
|
|
800
|
|
|
2,227
|
|
|
8,149
|
|
Capital Expenditures
|
270
|
|
|
232
|
|
|
111
|
|
|
94
|
|
|
707
|
|
________________
|
|
(a)
|
Victoria's Secret includes goodwill and long-lived store asset impairment charges of $690 million and $51 million, respectively. Victoria's Secret and Bath & Body Works International includes long-lived store asset and goodwill impairment charges of $212 million and $30 million, respectively. For additional information see Note 7, “Property and Equipment, Net" and Note 9, "Goodwill and Trade Names."
|
|
|
(b)
|
Assets are allocated to the operating segments based on decision making authority relevant to the applicable assets.
|
|
|
(c)
|
The 2019 amounts reflect the Company's adoption of ASC 842, Leases, in the first quarter of 2019.
|
|
|
(d)
|
Victoria's Secret and Victoria's Secret and Bath & Body Works International includes long-lived store asset impairment charges of $70 million and $31 million, respectively, and Other includes a loss on the sale of La Senza of $99 million and Henri Bendel closures costs of $23 million. For additional information see Note 5, “Restructuring Activities" and Note 7, “Property and Equipment, Net."
|
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 $1.496 billion in 2019, $1.683 billion in 2018 and $1.553 billion in 2017. The Company’s internationally based long-lived assets were $713 million as of February 1, 2020 and $454 million as of February 2, 2019.
22. Quarterly Financial Data (Unaudited)
The following table provides summarized quarterly financial data for 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
May 4,
2019
|
|
August 3,
2019 (a)
|
|
November 2,
2019 (b)(c)(d)
|
|
February 1,
2020 (e)(f)
|
|
(in millions except per share data)
|
Net Sales
|
$
|
2,629
|
|
|
$
|
2,902
|
|
|
$
|
2,677
|
|
|
$
|
4,707
|
|
Gross Profit
|
934
|
|
|
983
|
|
|
741
|
|
|
1,794
|
|
Operating Income (Loss)
|
153
|
|
|
175
|
|
|
(151
|
)
|
|
82
|
|
Income (Loss) Before Income Taxes
|
60
|
|
|
42
|
|
|
(277
|
)
|
|
(7
|
)
|
Net Income (Loss)
|
40
|
|
|
38
|
|
|
(252
|
)
|
|
(192
|
)
|
Net Income (Loss) Per Basic Share (g)
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
(0.91
|
)
|
|
$
|
(0.70
|
)
|
Net Income (Loss) Per Diluted Share (g)
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
(0.91
|
)
|
|
$
|
(0.70
|
)
|
________________
|
|
(a)
|
Net income includes the effect of a $40 million pre-tax loss ($30 million after-tax) associated with the early redemption of $764 million of outstanding notes maturing between 2020 and 2022.
|
|
|
(b)
|
Gross profit includes the effect of a $218 million pre-tax impairment charge ($200 million after-tax) related to certain Victoria's Secret long-lived store assets.
|
|
|
(c)
|
Operating loss includes the effect of a $30 million (no tax impact) goodwill impairment charge related to the Greater China reporting unit.
|
|
|
(d)
|
Net loss includes the effect of a $37 million pre-tax charge ($28 million after-tax) to increase reserves related to ongoing contingent obligations for the La Senza business.
|
|
|
(e)
|
Gross profit includes the effect of a $35 million pre-tax impairment charge ($30 million after-tax) related to certain Victoria's Secret long-lived store assets.
|
|
|
(f)
|
Operating income includes the effect of a $690 million pre-tax goodwill impairment charge ($687 million after-tax) related to the Victoria's Secret reporting unit.
|
|
|
(g)
|
Due to changes in stock prices during the year and timing of issuances of shares, the cumulative total of quarterly net income (loss) per share amounts may not equal the net income (loss) per share for the year.
|
The following table provides summarized quarterly financial data for 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
May 5,
2018
|
|
August 4,
2018
|
|
November 3,
2018 (a)(b)
|
|
February 2,
2019 (c)
|
|
(in millions except per share data)
|
Net Sales
|
$
|
2,626
|
|
|
$
|
2,984
|
|
|
$
|
2,775
|
|
|
$
|
4,852
|
|
Gross Profit
|
944
|
|
|
1,059
|
|
|
928
|
|
|
1,968
|
|
Operating Income
|
155
|
|
|
228
|
|
|
54
|
|
|
800
|
|
Income (Loss) Before Income Taxes
|
59
|
|
|
129
|
|
|
(41
|
)
|
|
710
|
|
Net Income (Loss)
|
48
|
|
|
99
|
|
|
(43
|
)
|
|
540
|
|
Net Income (Loss) Per Basic Share (d)
|
$
|
0.17
|
|
|
$
|
0.36
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.96
|
|
Net Income (Loss) Per Diluted Share (d)
|
$
|
0.17
|
|
|
$
|
0.36
|
|
|
$
|
(0.16
|
)
|
|
$
|
1.94
|
|
________________
|
|
(a)
|
Gross profit includes the effect of an $81 million pre-tax impairment charge ($73 million after-tax) related to certain Victoria's Secret long-lived store assets.
|
|
|
(b)
|
Operating income includes the effect of $20 million ($15 million after-tax) of Henri Bendel closure costs.
|
|
|
(c)
|
Operating income includes the effect of a pre-tax loss of $99 million ($55 million after-tax) related to the divestiture of La Senza.
|
|
|
(d)
|
Due to changes in stock prices during the year and timing of issuances and repurchases of shares, the cumulative total of quarterly net income (loss) per share amounts may not equal the net income per share for the year.
|
23. Subsequent Events
Victoria's Secret Transaction
On February 20, 2020, the Company and Sycamore entered into a definitive agreement that is intended to deliver long-term value to L Brands, Inc. shareholders by positioning Bath & Body Works as a standalone public company and transitioning Victoria's Secret, including business conducted under the Victoria's Secret and PINK brands and certain support functions, into a privately-held entity.
After taking into account certain liabilities, Sycamore will purchase a 55% interest in Victoria’s Secret for approximately $525 million. The Company will retain a 45% interest in Victoria’s Secret to enable its shareholders to participate in the upside potential of the business. The Company intends to use the proceeds from the transaction, along with excess balance sheet cash, to reduce debt. The transaction is expected to close in the second quarter of 2020, subject to customary closing conditions. The Company will report the results of Victoria's Secret as discontinued operations beginning in the first quarter of 2020. The Company expects to recognize a loss in the first quarter of 2020 as a result of classifying Victoria's Secret as held for sale.
Legal Proceedings
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. For additional information, see Note 17, "Commitments and Contingencies."
Company Response to Coronavirus
Subsequent to February 1, 2020, the Company announced actions in response to the continued spread of the coronavirus.
On March 16, 2020, in an abundance of caution and as a proactive measure, the Company elected to borrow $950 million from its Secured Revolving Facility, leaving its availability under the Secured Revolving Facility at $22 million.
On March 17, 2020, the Company announced the temporary closure of all Bath & Body Works, Victoria’s Secret and PINK stores in the United States and Canada through March 29, 2020. Associates will continue to receive pay and benefits through April 4, 2020, which is one week longer than originally announced.
Based on the continued spread of the coronavirus and stay-at-home orders by government officials across the country, the Company is extending the closure of its stores beyond the initial March 29th date. As the situation continues to evolve rapidly, the Company is not currently able to predict the timing of store reopenings. However, it is monitoring the situation closely and will provide updates as appropriate. The Company continues to serve customers through its direct channels.
In an effort to further strengthen its financial flexibility and efficiently manage through the pandemic, the Company is proactively taking the following additional actions:
|
|
•
|
Suspending its quarterly cash dividend beginning in the second quarter of fiscal 2020. The Company remains committed to paying dividends over the long-term and will re-evaluate when appropriate.
|
|
|
•
|
Executing a substantial reduction in expenses and capital expenditures. This includes an ongoing reduction in forward inventory receipts.
|
|
|
•
|
Temporarily reducing base compensation by 20% for senior vice presidents and above. The cash compensation of Chairman and CEO Leslie H. Wexner and other members of the Board of Directors has been suspended. Additionally, the Company is deferring annual merit increases.
|
|
|
•
|
Furloughing most store associates and those who are not currently working to support the online businesses or who cannot work from home, effective April 5, 2020 until further notice. All furloughed associates will continue to receive existing healthcare benefits. As circumstances change, the Company will make every effort to bring these associates back to work as soon as possible. Furloughed associates will also be able to apply for unemployment benefits, if eligible.
|
As of March 27, 2020, the Company currently has more than $2 billion in cash, which includes the $950 million borrowed under the Secured Revolving Facility on March 16, 2020. The Company's Secured Revolving Facility has certain financial covenants, including a debt to consolidated EBITDA covenant, which may be breached as early as the end of the fiscal quarter ending May 2, 2020. If the Company were to violate a covenant, its lenders would have the right to accelerate the Company's Secured Revolving Facility indebtedness, demand cash collateral in respect of the letters of credit issued thereunder and terminate the funding commitments available thereunder. While the Company believes that it would be able to obtain temporary waivers for any such breach of a covenant to prevent an acceleration of its outstanding indebtedness or obtain a replacement credit facility, the Company cannot conclude with certainty that it would have the ability to obtain necessary waivers or negotiate less restrictive debt covenants with its lenders. The Company is in active conversations with the lenders
under its credit facility to obtain a replacement credit facility that does not contain a debt to consolidated EBITDA financial covenant or a temporary waiver in respect of such financial covenant in its existing Secured Revolving Facility. The Company believes that its current cash balance, along with the actions taken as outlined above, provides it with sufficient current liquidity.
24. 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 February 1, 2020 and February 2, 2019, and the Condensed Consolidating Statements of Income (Loss), Comprehensive Income (Loss) and Cash Flows for the years ended February 1, 2020, February 2, 2019 and February 3, 2018.
L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2020
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
—
|
|
|
$
|
1,231
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
Accounts Receivable, Net
|
—
|
|
|
183
|
|
|
123
|
|
|
—
|
|
|
306
|
|
Inventories
|
—
|
|
|
1,138
|
|
|
149
|
|
|
—
|
|
|
1,287
|
|
Other
|
—
|
|
|
85
|
|
|
68
|
|
|
—
|
|
|
153
|
|
Total Current Assets
|
—
|
|
|
2,637
|
|
|
608
|
|
|
—
|
|
|
3,245
|
|
Property and Equipment, Net
|
—
|
|
|
1,747
|
|
|
739
|
|
|
—
|
|
|
2,486
|
|
Operating Lease Assets
|
—
|
|
|
2,545
|
|
|
508
|
|
|
—
|
|
|
3,053
|
|
Goodwill
|
—
|
|
|
628
|
|
|
—
|
|
|
—
|
|
|
628
|
|
Trade Names
|
—
|
|
|
411
|
|
|
—
|
|
|
—
|
|
|
411
|
|
Net Investments in and Advances to/from Consolidated Affiliates
|
3,862
|
|
|
20,231
|
|
|
2,937
|
|
|
(27,030
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
8
|
|
|
76
|
|
|
—
|
|
|
84
|
|
Other Assets
|
130
|
|
|
9
|
|
|
690
|
|
|
(611
|
)
|
|
218
|
|
Total Assets
|
$
|
3,992
|
|
|
$
|
28,216
|
|
|
$
|
5,558
|
|
|
$
|
(27,641
|
)
|
|
$
|
10,125
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
$
|
—
|
|
|
$
|
331
|
|
|
$
|
316
|
|
|
$
|
—
|
|
|
$
|
647
|
|
Accrued Expenses and Other
|
93
|
|
|
593
|
|
|
366
|
|
|
—
|
|
|
1,052
|
|
Current Debt
|
—
|
|
|
—
|
|
|
61
|
|
|
—
|
|
|
61
|
|
Current Operating Lease Liabilities
|
—
|
|
|
392
|
|
|
86
|
|
|
—
|
|
|
478
|
|
Income Taxes
|
(11
|
)
|
|
89
|
|
|
56
|
|
|
—
|
|
|
134
|
|
Total Current Liabilities
|
82
|
|
|
1,405
|
|
|
885
|
|
|
—
|
|
|
2,372
|
|
Deferred Income Taxes
|
—
|
|
|
(37
|
)
|
|
256
|
|
|
—
|
|
|
219
|
|
Long-term Debt
|
5,395
|
|
|
597
|
|
|
92
|
|
|
(597
|
)
|
|
5,487
|
|
Long-term Operating Lease Liabilities
|
—
|
|
|
2,522
|
|
|
530
|
|
|
—
|
|
|
3,052
|
|
Other Long-term Liabilities
|
62
|
|
|
383
|
|
|
59
|
|
|
(14
|
)
|
|
490
|
|
Total Equity (Deficit)
|
(1,547
|
)
|
|
23,346
|
|
|
3,736
|
|
|
(27,030
|
)
|
|
(1,495
|
)
|
Total Liabilities and Equity (Deficit)
|
$
|
3,992
|
|
|
$
|
28,216
|
|
|
$
|
5,558
|
|
|
$
|
(27,641
|
)
|
|
$
|
10,125
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2019
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
$
|
—
|
|
|
$
|
997
|
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
1,413
|
|
Accounts Receivable, Net
|
—
|
|
|
241
|
|
|
126
|
|
|
—
|
|
|
367
|
|
Inventories
|
—
|
|
|
1,093
|
|
|
155
|
|
|
—
|
|
|
1,248
|
|
Other
|
—
|
|
|
139
|
|
|
93
|
|
|
—
|
|
|
232
|
|
Total Current Assets
|
—
|
|
|
2,470
|
|
|
790
|
|
|
—
|
|
|
3,260
|
|
Property and Equipment, Net
|
—
|
|
|
1,922
|
|
|
896
|
|
|
—
|
|
|
2,818
|
|
Goodwill
|
—
|
|
|
1,318
|
|
|
30
|
|
|
—
|
|
|
1,348
|
|
Trade Names
|
—
|
|
|
411
|
|
|
—
|
|
|
—
|
|
|
411
|
|
Net Investments in and Advances to/from Consolidated Affiliates
|
4,755
|
|
|
19,737
|
|
|
2,047
|
|
|
(26,539
|
)
|
|
—
|
|
Deferred Income Taxes
|
—
|
|
|
9
|
|
|
53
|
|
|
—
|
|
|
62
|
|
Other Assets
|
127
|
|
|
15
|
|
|
670
|
|
|
(621
|
)
|
|
191
|
|
Total Assets
|
$
|
4,882
|
|
|
$
|
25,882
|
|
|
$
|
4,486
|
|
|
$
|
(27,160
|
)
|
|
$
|
8,090
|
|
LIABILITIES AND EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
$
|
—
|
|
|
$
|
363
|
|
|
$
|
348
|
|
|
$
|
—
|
|
|
$
|
711
|
|
Accrued Expenses and Other
|
92
|
|
|
597
|
|
|
393
|
|
|
—
|
|
|
1,082
|
|
Current Debt
|
—
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Income Taxes
|
(7
|
)
|
|
100
|
|
|
28
|
|
|
—
|
|
|
121
|
|
Total Current Liabilities
|
85
|
|
|
1,060
|
|
|
841
|
|
|
—
|
|
|
1,986
|
|
Deferred Income Taxes
|
1
|
|
|
(44
|
)
|
|
269
|
|
|
—
|
|
|
226
|
|
Long-term Debt
|
5,661
|
|
|
606
|
|
|
79
|
|
|
(607
|
)
|
|
5,739
|
|
Other Long-term Liabilities
|
59
|
|
|
852
|
|
|
107
|
|
|
(14
|
)
|
|
1,004
|
|
Total Equity (Deficit)
|
(924
|
)
|
|
23,408
|
|
|
3,190
|
|
|
(26,539
|
)
|
|
(865
|
)
|
Total Liabilities and Equity (Deficit)
|
$
|
4,882
|
|
|
$
|
25,882
|
|
|
$
|
4,486
|
|
|
$
|
(27,160
|
)
|
|
$
|
8,090
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME (LOSS)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Sales
|
$
|
—
|
|
|
$
|
12,317
|
|
|
$
|
3,382
|
|
|
$
|
(2,785
|
)
|
|
$
|
12,914
|
|
Costs of Goods Sold, Buying and Occupancy
|
—
|
|
|
(8,074
|
)
|
|
(2,810
|
)
|
|
2,420
|
|
|
(8,464
|
)
|
Gross Profit
|
—
|
|
|
4,243
|
|
|
572
|
|
|
(365
|
)
|
|
4,450
|
|
General, Administrative and Store Operating Expenses
|
(11
|
)
|
|
(3,380
|
)
|
|
(331
|
)
|
|
250
|
|
|
(3,472
|
)
|
Impairment of Goodwill
|
—
|
|
|
(690
|
)
|
|
(30
|
)
|
|
—
|
|
|
(720
|
)
|
Operating Income (Loss)
|
(11
|
)
|
|
173
|
|
|
211
|
|
|
(115
|
)
|
|
258
|
|
Interest Expense
|
(370
|
)
|
|
(116
|
)
|
|
(7
|
)
|
|
115
|
|
|
(378
|
)
|
Other Income (Loss)
|
(40
|
)
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
(61
|
)
|
Income (Loss) Before Income Taxes
|
(421
|
)
|
|
57
|
|
|
183
|
|
|
—
|
|
|
(181
|
)
|
Provision (Benefit) for Income Taxes
|
2
|
|
|
55
|
|
|
128
|
|
|
—
|
|
|
185
|
|
Equity in Earnings (Loss), Net of Tax
|
57
|
|
|
39
|
|
|
390
|
|
|
(486
|
)
|
|
—
|
|
Net Income (Loss)
|
$
|
(366
|
)
|
|
$
|
41
|
|
|
$
|
445
|
|
|
$
|
(486
|
)
|
|
$
|
(366
|
)
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Income (Loss)
|
$
|
(366
|
)
|
|
$
|
41
|
|
|
$
|
445
|
|
|
$
|
(486
|
)
|
|
$
|
(366
|
)
|
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
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Total Other Comprehensive Income (Loss), Net of Tax
|
—
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(7
|
)
|
Total Comprehensive Income (Loss)
|
$
|
(366
|
)
|
|
$
|
41
|
|
|
$
|
438
|
|
|
$
|
(486
|
)
|
|
$
|
(373
|
)
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Sales
|
$
|
—
|
|
|
$
|
12,467
|
|
|
$
|
3,780
|
|
|
$
|
(3,010
|
)
|
|
$
|
13,237
|
|
Costs of Goods Sold, Buying and Occupancy
|
—
|
|
|
(8,015
|
)
|
|
(2,996
|
)
|
|
2,673
|
|
|
(8,338
|
)
|
Gross Profit
|
—
|
|
|
4,452
|
|
|
784
|
|
|
(337
|
)
|
|
4,899
|
|
General, Administrative and Store Operating Expenses
|
(9
|
)
|
|
(3,304
|
)
|
|
(482
|
)
|
|
232
|
|
|
(3,563
|
)
|
Loss on Divestiture of La Senza
|
—
|
|
|
(24
|
)
|
|
(75
|
)
|
|
—
|
|
|
(99
|
)
|
Operating Income (Loss)
|
(9
|
)
|
|
1,124
|
|
|
227
|
|
|
(105
|
)
|
|
1,237
|
|
Interest Expense
|
(379
|
)
|
|
(108
|
)
|
|
(6
|
)
|
|
108
|
|
|
(385
|
)
|
Other Income (Loss)
|
—
|
|
|
13
|
|
|
(8
|
)
|
|
—
|
|
|
5
|
|
Income (Loss) Before Income Taxes
|
(388
|
)
|
|
1,029
|
|
|
213
|
|
|
3
|
|
|
857
|
|
Provision (Benefit) for Income Taxes
|
12
|
|
|
100
|
|
|
101
|
|
|
—
|
|
|
213
|
|
Equity in Earnings, Net of Tax
|
1,044
|
|
|
169
|
|
|
353
|
|
|
(1,566
|
)
|
|
—
|
|
Net Income (Loss)
|
$
|
644
|
|
|
$
|
1,098
|
|
|
$
|
465
|
|
|
$
|
(1,563
|
)
|
|
$
|
644
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Income (Loss)
|
$
|
644
|
|
|
$
|
1,098
|
|
|
$
|
465
|
|
|
$
|
(1,563
|
)
|
|
$
|
644
|
|
Other Comprehensive Income (Loss), Net of Tax:
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Reclassification of Foreign Currency Translation to Earnings
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
45
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Reclassification of Cash Flow Hedges to Earnings
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total Other Comprehensive Income (Loss), Net of Tax
|
—
|
|
|
—
|
|
|
37
|
|
|
—
|
|
|
37
|
|
Total Comprehensive Income (Loss)
|
$
|
644
|
|
|
$
|
1,098
|
|
|
$
|
502
|
|
|
$
|
(1,563
|
)
|
|
$
|
681
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Sales
|
$
|
—
|
|
|
$
|
11,931
|
|
|
$
|
3,728
|
|
|
$
|
(3,027
|
)
|
|
$
|
12,632
|
|
Costs of Goods Sold, Buying and Occupancy
|
—
|
|
|
(7,463
|
)
|
|
(2,868
|
)
|
|
2,658
|
|
|
(7,673
|
)
|
Gross Profit
|
—
|
|
|
4,468
|
|
|
860
|
|
|
(369
|
)
|
|
4,959
|
|
General, Administrative and Store Operating Expenses
|
(10
|
)
|
|
(3,063
|
)
|
|
(426
|
)
|
|
268
|
|
|
(3,231
|
)
|
Operating Income (Loss)
|
(10
|
)
|
|
1,405
|
|
|
434
|
|
|
(101
|
)
|
|
1,728
|
|
Interest Expense
|
(403
|
)
|
|
(99
|
)
|
|
(13
|
)
|
|
109
|
|
|
(406
|
)
|
Other Income (Loss)
|
(46
|
)
|
|
11
|
|
|
25
|
|
|
—
|
|
|
(10
|
)
|
Income (Loss) Before Income Taxes
|
(459
|
)
|
|
1,317
|
|
|
446
|
|
|
8
|
|
|
1,312
|
|
Provision (Benefit) for Income Taxes
|
65
|
|
|
316
|
|
|
(52
|
)
|
|
—
|
|
|
329
|
|
Equity in Earnings, Net of Tax
|
1,507
|
|
|
522
|
|
|
412
|
|
|
(2,441
|
)
|
|
—
|
|
Net Income (Loss)
|
$
|
983
|
|
|
$
|
1,523
|
|
|
$
|
910
|
|
|
$
|
(2,433
|
)
|
|
$
|
983
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Income (Loss)
|
$
|
983
|
|
|
$
|
1,523
|
|
|
$
|
910
|
|
|
$
|
(2,433
|
)
|
|
$
|
983
|
|
Other Comprehensive Income (Loss), Net of Tax:
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation
|
—
|
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
Unrealized Gain (Loss) on Cash Flow Hedges
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Reclassification of Cash Flow Hedges to Earnings
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Unrealized Gain on Marketable Securities
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total Other Comprehensive Income (Loss), Net of Tax
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Total Comprehensive Income (Loss)
|
$
|
983
|
|
|
$
|
1,523
|
|
|
$
|
922
|
|
|
$
|
(2,433
|
)
|
|
$
|
995
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Cash Provided by (Used for) Operating Activities
|
$
|
(427
|
)
|
|
$
|
837
|
|
|
$
|
826
|
|
|
$
|
—
|
|
|
$
|
1,236
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
—
|
|
|
(276
|
)
|
|
(182
|
)
|
|
—
|
|
|
(458
|
)
|
Net Investments in Consolidated Affiliates
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
13
|
|
|
—
|
|
Other Investing Activities
|
—
|
|
|
12
|
|
|
(34
|
)
|
|
—
|
|
|
(22
|
)
|
Net Cash Provided by (Used for) Investing Activities
|
—
|
|
|
(277
|
)
|
|
(216
|
)
|
|
13
|
|
|
(480
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs
|
486
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
486
|
|
Payments of Long-term Debt
|
(799
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(799
|
)
|
Borrowings from Secured Revolving Facility
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Repayments of Secured Revolving Facility
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Borrowings from Foreign Facilities
|
—
|
|
|
—
|
|
|
167
|
|
|
—
|
|
|
167
|
|
Repayments of Foreign Facilities
|
—
|
|
|
—
|
|
|
(162
|
)
|
|
—
|
|
|
(162
|
)
|
Dividends Paid
|
(332
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(332
|
)
|
Tax Payments related to Share-based Awards
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
Net Financing Activities and Advances to/from Consolidated Affiliates
|
1,090
|
|
|
(318
|
)
|
|
(759
|
)
|
|
(13
|
)
|
|
—
|
|
Proceeds from Exercise of Stock Options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Financing Costs and Other
|
(6
|
)
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
Net Cash Provided by (Used for) Financing Activities
|
427
|
|
|
(326
|
)
|
|
(754
|
)
|
|
(13
|
)
|
|
(666
|
)
|
Effects of Exchange Rate Changes on Cash
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
—
|
|
|
234
|
|
|
(148
|
)
|
|
—
|
|
|
86
|
|
Cash and Cash Equivalents, Beginning of Year
|
—
|
|
|
997
|
|
|
416
|
|
|
—
|
|
|
1,413
|
|
Cash and Cash Equivalents, End of Year
|
$
|
—
|
|
|
$
|
1,231
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
1,499
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Cash Provided by (Used for) Operating Activities
|
$
|
(424
|
)
|
|
$
|
1,541
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
1,377
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
—
|
|
|
(398
|
)
|
|
(231
|
)
|
|
—
|
|
|
(629
|
)
|
Net Investments in Consolidated Affiliates
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
21
|
|
|
—
|
|
Other Investing Activities
|
—
|
|
|
4
|
|
|
16
|
|
|
—
|
|
|
20
|
|
Net Cash Provided by (Used for) Investing Activities
|
—
|
|
|
(394
|
)
|
|
(236
|
)
|
|
21
|
|
|
(609
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Payments of Long-term Debt
|
(52
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52
|
)
|
Borrowings from Secured Revolving Facility
|
92
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
92
|
|
Repayments of Secured Revolving Facility
|
(92
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(92
|
)
|
Borrowings from Foreign Facilities
|
—
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
172
|
|
Repayments of Foreign Facilities
|
—
|
|
|
—
|
|
|
(109
|
)
|
|
—
|
|
|
(109
|
)
|
Dividends Paid
|
(666
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(666
|
)
|
Repurchases of Common Stock
|
(198
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(198
|
)
|
Tax Payments related to Share-based Awards
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13
|
)
|
Net Financing Activities and Advances to/from Consolidated Affiliates
|
1,355
|
|
|
(1,310
|
)
|
|
(24
|
)
|
|
(21
|
)
|
|
—
|
|
Proceeds from Exercise of Stock Options
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Financing Costs and Other
|
(3
|
)
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Net Cash Provided by (Used for) Financing Activities
|
424
|
|
|
(1,314
|
)
|
|
39
|
|
|
(21
|
)
|
|
(872
|
)
|
Effects of Exchange Rate Changes on Cash
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
—
|
|
|
(167
|
)
|
|
65
|
|
|
—
|
|
|
(102
|
)
|
Cash and Cash Equivalents, Beginning of Year
|
—
|
|
|
1,164
|
|
|
351
|
|
|
—
|
|
|
1,515
|
|
Cash and Cash Equivalents, End of Year
|
$
|
—
|
|
|
$
|
997
|
|
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
1,413
|
|
L BRANDS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
L Brands, Inc.
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
L Brands, Inc.
|
Net Cash Provided by (Used for) Operating Activities
|
$
|
(401
|
)
|
|
$
|
1,353
|
|
|
$
|
454
|
|
|
$
|
—
|
|
|
$
|
1,406
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
—
|
|
|
(495
|
)
|
|
(212
|
)
|
|
—
|
|
|
(707
|
)
|
Other Investing Activities
|
—
|
|
|
(1
|
)
|
|
10
|
|
|
—
|
|
|
9
|
|
Net Cash Provided by (Used for) Investing Activities
|
—
|
|
|
(496
|
)
|
|
(202
|
)
|
|
—
|
|
|
(698
|
)
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from Issuance of Long-term Debt, Net of Issuance Costs
|
495
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
495
|
|
Payments of Long-term Debt
|
(540
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(540
|
)
|
Borrowings from Foreign Facilities
|
—
|
|
|
—
|
|
|
96
|
|
|
—
|
|
|
96
|
|
Repayments of Foreign Facilities
|
—
|
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
(44
|
)
|
Dividends Paid
|
(686
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(686
|
)
|
Repurchases of Common Stock
|
(446
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(446
|
)
|
Tax Payments related to Share-based Awards
|
(32
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
Net Financing Activities and Advances to/from Consolidated Affiliates
|
1,577
|
|
|
(1,252
|
)
|
|
(325
|
)
|
|
—
|
|
|
—
|
|
Proceeds from Exercise of Stock Options
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Financing Costs and Other
|
(5
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
(8
|
)
|
Net Cash Provided by (Used for) Financing Activities
|
401
|
|
|
(1,255
|
)
|
|
(273
|
)
|
|
—
|
|
|
(1,127
|
)
|
Effects of Exchange Rate Changes on Cash
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
—
|
|
|
(398
|
)
|
|
(21
|
)
|
|
—
|
|
|
(419
|
)
|
Cash and Cash Equivalents, Beginning of Year
|
—
|
|
|
1,562
|
|
|
372
|
|
|
—
|
|
|
1,934
|
|
Cash and Cash Equivalents, End of Year
|
$
|
—
|
|
|
$
|
1,164
|
|
|
$
|
351
|
|
|
$
|
—
|
|
|
$
|
1,515
|
|