SEC Filing | Victoria's Secret & Co.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________

FORM 10-Q

_________________________________


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

For the quarterly period ended October 30, 2021


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

For the transition period from to

Commission file number 001-40515

_________________________________

VICTORIA'S SECRET & CO.

(Exact name of registrant as specified in its charter)

_______________________________

Delaware

86-3167653

(State or other jurisdiction of
incorporation or organization)

(IRS Employer Identification No.)

4 Limited Parkway East

Reynoldsburg,

Ohio

43068

(Address of principal executive offices)

(Zip Code)

(614)

577-7000

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

		Emerging growth company	☐

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

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	VSCO	The New York Stock Exchange

As of November 26, 2021, the number of outstanding shares of the Registrant’s common stock, was 88,592,885 shares.

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VICTORIA'S SECRET & CO.

TABLE OF CONTENTS


			Page No.
Part I. Financial Information

Item 1. Financial Statements *

Co nsolidated and Co mbined Statements of Income (Loss) for the Thirteen-Weeks and T hir ty-Nine -Weeks Ended October 3 0 , 2021 and October 3 1, 2020 (Unaudited)			3

Co nsolidated and Co mbined Statements of Comprehensive Income (Loss) for the Thirteen-Weeks and T hir ty-Nine -Weeks Ended October 3 0 , 2021 and October 3 1, 2020 (Unaudited)			3

Co ns olidated and Co mbined Balance Sheets as of October 3 0 , 2021 (Unaudited), January 30, 2021 and October 3 1 , 2020 (Unaudited)			4

Co nsol idated and Co mbined Statements of Equity for the Thirteen-Weeks and T hir ty-Nine -Weeks Ended October 3 0 , 2021 and October 3 1, 2020 (Unaudited)			5

Co nsolidat ed and Co mbined Statements of Cash Flows for the T hir ty-Nine -Weeks Ended October 3 0 , 2021 and October 3 1, 2020 (Unaudited)			7

Notes to Consolidated and Combined Financial Statements (Unaudited)			8

Report of Independent Registered Public Accounting Firm			21

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995			22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23

Item 3. Quantitative and Qualitative Disclosures About Market Risk			35

Item 4. Controls and Procedures			36

Part II. Other Information			37

Item 1. Legal Proceedings			37

Item 1A. Risk Factors			37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			38

Item 3. Defaults Upon Senior Securities			38

Item 4. Mine Safety Disclosures			38

Item 5. Other Information			38

Item 6. Exhibits			39

Signature			40


*			Victoria's Secret & Co.'s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2021” and “third quarter of 2020” refer to the thirteen-week periods ended October 30, 2021 and October 31, 2020, respectively. “Year-to-date 2021” and “year-to-date 2020” refer to the thirty-nine-week periods ending October 30, 2021 and October 31, 2020, respectively.

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (LOSS)

(in millions except per share amounts)

(Unaudited)


	Third Quarter				Year-to-Date
	2021		2020		2021		2020
Net Sales	$	1,441	$	1,353	$	4,609	$	3,313
Costs of Goods Sold, Buying and Occupancy	(876)		(856)		(2,702)		(2,643)
Gross Profit	565		497		1,907		670
General, Administrative and Store Operating Expenses	(457)		(370)		(1,371)		(1,159)
Operating Income (Loss)	108		127		536		(489)
Interest Expense	(12)		(1)		(16)		(5)
Other Income (Loss)	1		1		—		(1)
Income (Loss) Before Income Taxes	97		127		520		(495)
Provision (Benefit) for Income Taxes	22		(16)		120		(140)
Net Income (Loss)	$	75	$	143	$	400	$	(355)
Net Income (Loss) Per Basic Share	$	0.85	$	1.62	$	4.53	$	(4.02)
Net Income (Loss) Per Diluted Share	$	0.81	$	1.62	$	4.46	$	(4.02)

VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)


	Third Quarter				Year-to-Date
	2021		2020		2021		2020
Net Income (Loss)	$	75	$	143	$	400	$	(355)
Other Comprehensive Income (Loss), Net of Tax:
Foreign Currency Translation	(1)		(1)		3		(4)
Unrealized Gain (Loss) on Cash Flow Hedges	—		—		—		2
Reclassification of Cash Flow Hedges to Earnings	—		—		—		(1)
Total Other Comprehensive Income (Loss), Net of Tax	(1)		(1)		3		(3)
Total Comprehensive Income (Loss)	$	74	$	142	$	403	$	(358)

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

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VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED BALANCE SHEETS

(in millions except par value amounts)


	October 30, 2021		January 30, 2021		October 31, 2020
	(Unaudited)				(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents	$	331	$	335	$	189

Accounts Receivable, Net	145		121		135

Inventories	1,019		701		981

Other	114		82		78
Total Current Assets	1,609		1,239		1,383
Property and Equipment, Net	976		1,078		1,167
Operating Lease Assets	1,448		1,590		1,683

Trade Name	246		246		246
Deferred Income Taxes	10		20		81
Other Assets	80		56		57
Total Assets	$	4,369	$	4,229	$	4,617
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable	$	560	$	338	$	548
Accrued Expenses and Other	696		776		665
Current Debt	4		—		11
Current Operating Lease Liabilities	320		421		443
Income Taxes	18		15		34
Due to Former Parent	—		6		—
Total Current Liabilities	1,598		1,556		1,701
Deferred Income Taxes	107		19		—
Long-term Debt	978		—		87
Long-term Debt due to Former Parent	—		97		—
Long-term Operating Lease Liabilities	1,391		1,553		1,709
Other Long-term Liabilities	43		113		97
Total Liabilities	4,117		3,338		3,594
Shareholders' Equity:
Preferred Stock — $0.01 par value; 10 shares authorized; none issued	—		—		—
Common Stock — $0.01 par value; 1,000 shares authorized; 89, 0, and 0 shares issued and outstanding, respectively	1		—		—
Paid-in Capital	172		—		—
Accumulated Other Comprehensive Income (Loss)	7		4		(32)
Retained Earnings	72		—		—
Net Investment by Former Parent	—		887		1,052
Total Shareholders' Equity	252		891		1,020
Noncontrolling Interest	—		—		3
Total Equity	252		891		1,023
Total Liabilities and Equity	$	4,369	$	4,229	$	4,617

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

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VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(in millions)

(Unaudited)

Third Quarter 2021


	Common Stock					Net Investment by Former Parent		Accumulated Other Comprehensive Income (Loss)		Retained Earnings
	Shares Outstanding	Par Value		Paid-In Capital								Noncontrolling Interest		Total Equity
Balance, July 31, 2021	—	$	—	$	—	$	876	$	8	$	—	$	—	$	884
Net Income	—	—		—		3		—		72		—		75
Other Comprehensive Loss	—	—		—		—		(1)		—		—		(1)
Total Comprehensive Income (Loss)	—	—		—		3		(1)		72		—		74
Net Transfers to Former Parent	—	—		—		(717)		—		—		—		(717)
Transfer of Former Parent Investment to Additional Paid-in Capital	—	—		162		(162)		—		—		—		—
Issuance of Common Stock	88	1		—		—		—		—		—		1
Share-based Compensation and Other	1	—		10		—		—		—		—		10
Balance, October 30, 2021	89	$	1	$	172	$	—	$	7	$	72	$	—	$	252

Third Quarter 2020


	Common Stock					Net Investment by Former Parent		Accumulated Other Comprehensive Income (Loss)		Retained Earnings
	Shares Outstanding	Par Value		Paid-In Capital								Noncontrolling Interest		Total Equity
Balance, August 1, 2020	—	$	—	$	—	$	1,014	$	(31)	$	—	$	3	$	986
Net Income	—	—		—		143		—		—		—		143
Other Comprehensive Loss	—	—		—		—		(1)		—		—		(1)
Total Comprehensive Income (Loss)	—	—		—		143		(1)		—		—		142
Net Transfers to Former Parent	—	—		—		(105)		—		—		—		(105)
Balance, October 31, 2020	—	$	—	$	—	$	1,052	$	(32)	$	—	$	3	$	1,023

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

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VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(in millions)

(Unaudited)

Year-to-Date 2021


	Common Stock					Net Investment by Former Parent		Accumulated Other Comprehensive Income (Loss)		Retained Earnings
	Shares Outstanding	Par Value		Paid-In Capital								Noncontrolling Interest		Total Equity
Balance, January 30, 2021	—	$	—	$	—	$	887	$	4	$	—	$	—	$	891
Net Income	—	—		—		328		—		72		—		400
Other Comprehensive Income	—	—		—		—		3		—		—		3
Total Comprehensive Income	—	—		—		328		3		72		—		403
Net Transfers to Former Parent	—	—		—		(1,053)		—		—		—		(1,053)
Transfer of Former Parent Investment to Additional Paid-in Capital	—	—		162		(162)		—		—		—		—
Issuance of Common Stock	88	1		—		—		—		—		—		1
Share-based Compensation and Other	1	—		10		—		—		—		—		10
Balance, October 30, 2021	89	$	1	$	172	$	—	$	7	$	72	$	—	$	252

Year-to-Date 2020


	Common Stock					Net Investment by Former Parent		Accumulated Other Comprehensive Income (Loss)		Retained Earnings
	Shares Outstanding	Par Value		Paid-In Capital								Noncontrolling Interest		Total Equity
Balance, February 1, 2020	—	$	—	$	—	$	1,341	$	(29)	$	—	$	2	$	1,314
Net Loss	—	—		—		(355)		—		—		—		(355)
Other Comprehensive Loss	—	—		—		—		(3)		—		—		(3)
Total Comprehensive Loss	—	—		—		(355)		(3)		—		—		(358)
Other	—	—		—		—		—		—		1		1
Net Transfers from Former Parent	—	—		—		66		—		—		—		66
Balance, October 31, 2020	—	$	—	$	—	$	1,052	$	(32)	$	—	$	3	$	1,023

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

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VICTORIA'S SECRET & CO.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Year-to-Date
	2021		2020
Operating Activities:
Net Income (Loss)	$	400	$	(355)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Depreciation of Long-lived Assets	233		250

Asset Impairment Charges	—		214
Share-based Compensation Expense	24		20
Deferred Income Taxes	58		(144)
Gain from Hong Kong Store Closure and Lease Termination	—		(39)
Gain related to formation of U.K. Joint Venture	—		(30)
Changes in Assets and Liabilities:
Accounts Receivable	(4)		22
Inventories	(318)		(139)
Accounts Payable, Accrued Expenses and Other	163		149
Income Taxes	29		(3)
Other Assets and Liabilities	(207)		116
Net Cash Provided by Operating Activities	378		61
Investing Activities:
Capital Expenditures	(117)		(111)
Other Investing Activities	—		6
Net Cash Used for Investing Activities	(117)		(105)
Financing Activities:
Proceeds from Issuance of Long-Term Debt, net of Issuance Costs and Discounts	982		—



Borrowings from Foreign Facilities	—		34
Repayments of Foreign Facilities	—		(91)


Tax Payments related to Share-based Awards	(3)		—
Proceeds from Stock Option Exercises	3		—
Net Transfers from (to) Former Parent	(1,253)		46
Other Financing Activities	5		—
Net Cash Used for Financing Activities	(266)		(11)
Effects of Exchange Rate Changes on Cash and Cash Equivalents	1		(1)
Net Decrease in Cash and Cash Equivalents	(4)		(56)
Cash and Cash Equivalents, Beginning of Period	335		245
Cash and Cash Equivalents, End of Period	$	331	$	189

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

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VICTORIA'S SECRET & CO.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

Description of Business

Victoria's Secret & Co. (together with its subsidiaries unless the context otherwise requires, the "Company") is a specialty retailer of women's intimate and other apparel and beauty products marketed under the Victoria's Secret and PINK brand names. The Company operates more than 900 Victoria’s Secret and PINK stores in the U.S., Canada and Greater China as well as online at www.VictoriasSecret.com and www.PINK.com and other online channels worldwide. Additionally, Victoria’s Secret and PINK have more than 450 stores in more than 70 countries operating under franchise, license and wholesale arrangements. The Company also includes the Victoria's Secret and PINK merchandise sourcing and production function serving the Company and its international partners. The Company operates as a single segment designed to serve customers worldwide seamlessly through stores and online channels.

Victoria's Secret & Co. Spin-Off

On July 9, 2021, L Brands, Inc. (“L Brands” or the “Former Parent”) announced that its Board of Directors approved the previously announced separation of the Victoria's Secret business, including PINK, into an independent, publicly traded company (the "Separation"). Prior to the Separation, L Brands operated the Bath & Body Works, Victoria’s Secret and PINK retail brands.

On August 2, 2021 (the “Distribution Date”), after the New York Stock Exchange ("NYSE") market closing, the Separation of the Victoria's Secret business was completed. On August 3, 2021, Victoria's Secret & Co. became an independent, publicly-traded company trading on the NYSE under the stock symbol "VSCO."

The Separation was achieved through the Former Parent’s distribution (the “Distribution”) of 100% of the shares of the Company's common stock to holders of the Former Parent's common stock as of the close of business on the record date of July 22, 2021. The Former Parent's stockholders of record received one share of the Company's common stock for every three shares of the Former Parent's common stock. In connection with the Separation, the Company made a cash payment of approximately $976 million to the Former Parent on August 2, 2021 from the issuances of certain debt (discussed in Note 10, "Long-term Debt and Borrowing Facilities"). The Former Parent retained no ownership interest in the Company following the Separation.

The Company entered into several agreements with the Former Parent that, among other things, effect the Separation and govern the relationship of the parties following the Separation, including a Separation and Distribution Agreement, a Tax Matters Agreement, an L Brands to VS Transition Services Agreement, a VS to L Brands Transition Services Agreement, an Employee Matters Agreement and a Domestic Transportation Services Agreement. For additional information, see Note 2, "Transactions with Former Parent."

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to January 31. As used herein, “third quarter of 2021” and “third quarter of 2020” refer to the thirteen-week periods ended October 30, 2021 and October 31, 2020, respectively. “Year-to-date 2021” and “year-to-date 2020” refer to the thirty-nine-week periods ending October 30, 2021 and October 31, 2020, respectively.

Basis of Presentation - Unaudited Consolidated and Combined Financial Statements

The Company’s financial statements for periods through the Separation date of August 2, 2021 are combined financial statements prepared on a carve-out basis as discussed below. The Company’s financial statements for the period from August 3, 2021 through October 30, 2021 are consolidated financial statements based on the reported results of Victoria's Secret & Co. as a standalone company. Accordingly, the third quarter of 2021 included consolidated and combined financial statements, whereas all prior periods included combined financial statements.

The Consolidated and Combined Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). The Consolidated and Combined Financial Statements may not be indicative of the Company’s future performance and do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as an independent company during all of the periods presented.

Basis of Presentation - Prior to Separation

Through the Separation date, the Company's combined financial statements are prepared on a "carve-out" basis. The Combined Financial Statements have been derived from the consolidated financial statements and accounting records of the Former Parent in conformity with GAAP.

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Intracompany transactions have been eliminated. Transactions between the Company and the Former Parent have been included in these financial statements. For those transactions between the Company and the Former Parent that were historically settled in cash, the Company reflected such balances in the Consolidated and Combined Balance Sheets as Due from Former Parent or Due to Former Parent. The aggregate net effect of transactions between the Company and the Former Parent that were historically settled other than in cash are reflected in the Consolidated and Combined Balance Sheets as Net Investment by Former Parent and in the Consolidated and Combined Statements of Cash Flows as Net Transfers from (to) Former Parent. For additional information, see Note 2, "Transactions with Former Parent."

The Consolidated and Combined Balance Sheets include certain of the Former Parent's assets and liabilities that were specifically identifiable or otherwise attributable to the Company. The Former Parent's third-party long-term notes payable and the related interest expense have not been allocated to the Company for any of the periods presented as the Company was not the legal obligor of such debt. Except for Long-term Debt due to Former Parent, the debt reflected in the Consolidated and Combined Balance Sheets relate to third-party borrowings specifically attributable to, and legal obligations of, the Company.

The Former Parent utilized a centralized approach to cash management and financing its operations. The Cash and Cash Equivalents held by the Former Parent at the corporate level were not specifically identifiable to the Company and, therefore, were not reflected in the Company’s Consolidated and Combined Balance Sheets. Cash transfers between the Former Parent and the Company were accounted for through Net Investment by the Former Parent. Cash and Cash Equivalents in the Consolidated and Combined Balance Sheets represent cash and cash equivalents held by the Company at period-end prior to any potential transfer to the centralized cash management pool of the Former Parent.

The Consolidated and Combined Statements of Income (Loss) include costs for certain functions, including information technology, human resources and store design and construction, that historically were provided and administered on a centralized basis by the Former Parent. Starting in the third quarter of 2020, as part of the steps to prepare the Company to operate as a separate, standalone company, these functions were transitioned to the business and began to be operated and administered as part of Victoria’s Secret & Co. For additional information, see Note 4, "Restructuring Activities." Costs applicable to the Company related to these functions are included in the Consolidated and Combined Statements of Income (Loss) for all periods presented. Prior to the transition of these functions, these costs were directly charged to the Company by the Former Parent.

In addition, for purposes of preparing the combined financial statements on a “carve-out” basis prior to the Separation, a portion of the Former Parent's corporate expenses were allocated to the Company. These expense allocations include the cost of corporate functions and resources provided by, or administered by, the Former Parent including, but not limited to, executive management and other corporate and governance functions, such as corporate finance, internal audit, tax and treasury. The related employee payroll and benefit costs associated with such functions, such as share-based compensation, were included in the expense allocations. Corporate expenses of $17 million in the third quarter of 2020 were allocated and included within General, Administrative and Store Operating Expenses in the Consolidated and Combined Statements of Income (Loss). For year-to-date 2021 and year-to-date 2020, corporate expenses of $49 million and $62 million, respectively, were allocated and included within General, Administrative, and Store Operating Expenses in the Consolidated and Combined Statements of Income (Loss).

Costs were allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net sales. Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, the Company during the periods presented. However, the allocations may not reflect the expenses the Company would have incurred if the Company had been a standalone company for the periods presented. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic or capital decisions. Going forward, the Company may perform these functions using its own resources or outsourced services. For a period following the Separation, however, some of these functions will continue to be provided by the Former Parent under a transition services agreement, and the Company will provide some services to the Former Parent under a transition services agreement. The Company has also entered into certain commercial arrangements with the Former Parent in connection with the Separation. For more information, see Note 2, "Transactions with Former Parent."

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During the periods prior to the Separation that are presented in these Consolidated and Combined Financial Statements, the Company's income tax expense (benefit) and deferred tax balances were included in the Former Parent's income tax returns. Income tax expense (benefit) and deferred tax balances contained in these Consolidated and Combined Financial Statements for periods prior to the Separation are presented on a separate return basis, as if the Company had filed its own income tax returns. As a result, actual tax transactions included in the consolidated financial statements of the Former Parent may or may not be included in the Consolidated and Combined Financial Statements of the Company. Similarly, the tax treatment of certain items reflected in the Consolidated and Combined Financial Statements of the Company may or may not be reflected in the consolidated financial statements and income tax returns of the Former Parent. The taxes recorded in the Consolidated and Combined Statements of Income (Loss) for periods prior to the Separation are not necessarily representative of the taxes that may arise in the future when the Company files its income tax returns independent from the Former Parent's returns.

Interim Financial Statements

The Consolidated and Combined Financial Statements as of and for the periods ended October 30, 2021 and October 31, 2020 are unaudited. These Consolidated and Combined Financial Statements should be read in conjunction with the audited Combined Financial Statements and Notes thereto for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019, the unaudited Combined Financial Statements and Notes thereto for the thirteen-week periods ended May 1, 2021 and May 2, 2020, included in our Registration Statement on Form 10, as amended and filed with the Securities and Exchange Commission on July 9, 2021, and the unaudited Combined Financial Statements and Notes thereto for the thirteen-week and twenty-six week periods ended July 31, 2021 and August 1, 2020.

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

Impacts of COVID-19

The coronavirus pandemic ("COVID-19") has created significant public health concerns as well as economic disruption, uncertainty and volatility. The Company's operations and financial performance have been materially impacted by the COVID-19 pandemic. In the first quarter of 2020, all the Company's stores in North America were closed on March 17, 2020, but the Company was able to re-open the majority of its stores as of the beginning of the third quarter of 2020. Operations in the direct channel were temporarily suspended for approximately one week in late March 2020.

The Company has adopted new operating models focused on providing a safe store environment for its customers and associates, while also delivering an engaging shopping experience. The Company remains focused on the safe operations of its distribution, fulfillment and call centers while maximizing its direct channel. There remains the potential for COVID-19-related risks of closure or operating restrictions, as well as risks related to delays or disruptions in our supply chain and related pricing impacts, which could materially impact the Company's operations and financial performance in future periods.

Seasonality of Business

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

Equity Method Investments

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 and Combined Statements of Income (Loss). The Company’s share of net income or loss from its investment in the Victoria's Secret U.K. joint venture is included in General, Administrative and Store Operating Expenses in the Consolidated and Combined 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. The carrying values of equity method investments were $32 million as of October 30, 2021, $35 million as of January 30, 2021 and $36 million as of October 31, 2020. These investments are recorded in Other Assets on the Consolidated and Combined Balance Sheets.

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Net Investment by Former Parent

Net Investment by Former Parent in the Consolidated and Combined Balance Sheets represents the Former Parent's historical investment in the Company, the accumulated net earnings after taxes and the net effect of the transactions with and allocations from the Former Parent. All transactions reflected in Net Investment by Former Parent in the accompanying Consolidated and Combined Balance Sheets have been considered as financing activities for purposes of the Consolidated and Combined Statements of Cash Flows.

For additional information, see Basis of Presentation above and Note 2, "Transactions with Former Parent."

Derivative Financial Instruments

The Company from time to time 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 and Combined Balance Sheets at fair value.

The earnings of the Company’s foreign operations are subject to exchange rate risk as substantially all the merchandise is sourced through U.S. dollar transactions. The Company from time to time utilizes foreign currency forward contracts designated as cash flow hedges to mitigate this foreign currency exposure. Amounts for these designated cash flow hedges are reclassified from accumulated other comprehensive income (loss) upon sale of the hedged merchandise to the customer. These gains and losses are recognized in Costs of Goods Sold, Buying and Occupancy in the Consolidated and Combined Statements of Income (Loss). During the second quarter of 2021, the Company terminated its foreign currency forward contracts designated as cash flow hedges that were used to mitigate foreign currency exposure for its Canadian operations. The fair value of designated cash flow hedges is not significant for any period presented.

Concentration of Credit Risk

The Company maintains cash and cash equivalents with various major financial institutions. The Company monitors the relative credit standing of financial institutions with whom the Company transacted with and limits the amount of credit exposure with any one entity. As of October 30, 2021, the Company's investment portfolio is comprised of bank deposits. Prior to the Separation, cash generated by the Company was invested by the Former Parent in U.S. government obligations and U.S. Treasury and AAA-rated money market funds.

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 determines the required allowance for expected credit losses using information such as customer credit history and financial condition. Amounts are recorded to the allowance when it is determined that expected credit losses may occur.

Use of Estimates in the Preparation of Financial Statements

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

Recently Issued Accounting Pronouncements

The Company did not adopt any new accounting standards during the third quarter of 2021 that had a material impact on the Company's results of operations, financial position or cash flows. In addition, there are no new accounting standards not yet adopted that are expected to have a material impact on the Company's results of operations, financial position or cash flows.

2. Transactions with Former Parent

Prior to the Separation, the Company's financial statements were prepared on a "carve-out" basis and were derived from the consolidated financial statements and accounting records of the Former Parent. The following discussion summarizes activity between the Company and the Former Parent.

Allocation of General Corporate Expenses

Prior to the Separation, for purposes of preparing the financial statements on a "carve-out" basis, the Company was allocated a portion of the Former Parent's total corporate expenses. See Note 1 for a discussion of the methodology used to allocate corporate-related costs for purposes of preparing the financial statements on a "carve-out" basis.

Due from and Due to Former Parent

Balances between the Company and the Former Parent or its affiliates that are derived from transactions that have been historically cash settled are reflected in the Consolidated and Combined Balance Sheets as Due from and Due to Former Parent.

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Balances between the Company and the Former Parent or its affiliates derived from transactions that have been historically settled other than in cash are included in Net Investment by Former Parent within Shareholders' Equity on the Consolidated and Combined Balance Sheets.

Long-term Debt due to Former Parent

During 2020, the Company borrowed $97 million from the Former Parent to pay down outstanding debt with external parties. This borrowing was due in September 2025 and had a variable interest rate based on the China Loan Prime Rate. As a result of the Separation, the Company no longer has this Long-term Debt due to Former Parent. Prior to the Separation, the Company recognized $2 million of interest expense during 2021 related to this borrowing.

Net Transfers From (To) Former Parent

The following table presents the components of Net Transfers from (to) Former Parent in the third quarter and year-to-date 2021 and 2020 Consolidated and Combined Statements of Equity:


	Third Quarter				Year-to-Date
	2021		2020		2021		2020
	(in millions)
Cash Pooling and General Financing Activities, Net	$	259	$	(133)	$	(172)	$	(31)
Long-lived Assets (a)	—		—		16		—
Corporate Expense Allocations	—		17		49		62
Share-based Compensation Expense	—		4		15		20
Assumed Income Tax Payments	—		7		15		15
Cash Payment to Former Parent	(976)		—		(976)		—
Total Net Transfers from (to) Former Parent	$	(717)	$	(105)	$	(1,053)	$	66

_______________

(a)Represents long-lived assets transferred between the Company and the Former Parent as a result of asset allocation decisions made during the period.

Agreements with Former Parent

Under the terms of the transition services agreements, the Company will provide its Former Parent, on a transitional basis, certain services or functions, including information technology, certain logistics functions, customer marketing and customer call center services. Additionally, the Former Parent will provide to the Company various services or functions, many of which currently use a shared technology platform, including human resources, payroll and certain logistics functions. Generally, these services will be provided for a period of up to two years following the Separation, except for information technology services, which will be provided for a period of up to three years following the Separation and may be extended for a maximum of two additional one-year periods subject to increased administrative charges. Consideration and costs for the transition services will be determined using several billing methodologies as described in the agreements, including customary billing, pass-through billing, percent of sales billing or fixed fee billing. Costs for transition services provided by the Former Parent are recorded within the Consolidated and Combined Statements of Income (Loss) based on the nature of the services. Consideration for transition services provided to the Former Parent are recorded within the Consolidated and Combined Statements of Income (Loss) based on the nature of the services and as an offset to expenses incurred to provide the services. Following the Separation, the Company recognized consideration of $24 million for services provided to the Former Parent and recognized costs of $20 million for services provided by the Former Parent in the third quarter of 2021 pursuant to the transition services agreements.

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Under the terms of the Domestic Transportation Services Agreement, the Former Parent will continue to provide transportation services to the Company for certain personal care and apparel merchandise in the United States and Canada for an initial term of three years following the Separation, which term will thereafter continuously renew unless and until either party elects to terminate the arrangement upon written prior notice. Costs for the transportation services will be determined using customary billing and fixed billing methodologies, which are described in the agreement, and are subject to an administrative charge. Costs for transition services are recorded within Costs of Goods Sold, Buying and Occupancy in the Consolidated and Combined Statements of Income (Loss). During the third quarter of 2021, the Company recognized costs of $18 million pursuant to the Domestic Transportation Services Agreement.

Prior to the Separation, certain Company employees participated in the stock option and performance incentive plan of the Former Parent. Under the terms of the Employee Matters Agreement, in connection with the Separation, restricted stock and stock option equity awards held by Company employees were converted to awards representing approximately 6.0 million shares of the Company's common stock under the Company's 2021 Stock Option and Performance Incentive Plan.

3. Revenue Recognition

Accounts receivable, net from revenue-generating activities were $86 million as of October 30, 2021, $74 million as of January 30, 2021 and $93 million as of October 31, 2020. 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. Deferred revenue was $214 million as of October 30, 2021, $256 million as of January 30, 2021 and $215 million as of October 31, 2020. The Company recognized $125 million as revenue year-to-date 2021 from amounts recorded as deferred revenue at the beginning of the year. As of October 30, 2021, the Company recorded deferred revenue of $205 million within Accrued Expenses and Other, and $9 million within Other Long-term Liabilities on the Consolidated and Combined Balance Sheet.

The following table provides a disaggregation of Net Sales for the third quarter and year-to-date 2021 and 2020:


	Third Quarter				Year-to-Date
	2021		2020		2021		2020
	(in millions)
Stores – North America	$	920	$	755	$	2,890	$	1,633
Direct	406		470		1,396		1,391
International (a)	115		128		323		289
Total Net Sales	$	1,441	$	1,353	$	4,609	$	3,313

_______________

(a)Results include Greater China, royalties associated with franchised stores, wholesale sales and company-operated stores in the U.K. (before our joint venture with Next).

The Company recognized Net Sales of $30 million and $33 million for the third quarter of 2021 and 2020, respectively, related to revenue earned in connection with its U.S. private label credit card arrangement. The Company recognized Net Sales of $89 million and $86 million for year-to-date 2021 and 2020, respectively, related to revenue earned in connection with its U.S. private label credit card arrangement.

The Company’s international net sales include sales from company-operated 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 net sales outside of the U.S. totaled $170 million and $186 million for the third quarter of 2021 and 2020, respectively. The Company’s net sales outside of the U.S. totaled $500 million and $429 million for year-to-date 2021 and 2020, respectively.

4. Restructuring Activities

During the second quarter of 2020, management of the Former Parent and the Company reduced home office head count as a result of completing a comprehensive review of the home office organizations in order to achieve meaningful reductions in overhead expenses and to decentralize significant shared functions and services to support the creation of standalone companies. Pre-tax severance and related costs associated with these reductions, totaling $51 million, are included in General, Administrative and Store Operating Expenses in the year-to-date 2020 Consolidated and Combined Statement of Loss.

During year-to-date 2021, the Company made payments of $13 million related to severance and related costs associated with these reductions. As of October 30, 2021, a liability of $1 million related to these reductions is included in Accrued Expenses and Other on the Consolidated and Combined Balance Sheet.

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Victoria's Secret U.K.

In October 2020, the Company entered into a joint venture with Next PLC ("Next") for the Victoria’s Secret business in the United Kingdom and Ireland. Under this agreement, the Company owns 49% of the joint venture, and Next owns 51% and is responsible for the operations. The joint venture acquired the majority of the operating assets, primarily inventory, of Victoria’s Secret U.K. As of October 31, 2020, the leases for twelve stores in the U.K. were restructured and transferred to the joint venture. The Company recognized a pre-tax gain of $30 million as a result of the transaction, primarily related to the derecognition of operating lease liabilities in excess of operating lease assets for the twelve store leases that were restructured and transferred to the joint venture. This gain is included in General, Administrative and Store Operating Expenses in the 2020 Consolidated and Combined Statements of Income (Loss).

5. Earnings (Loss) Per Share

Earnings (Loss) Per Share

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

On August 2, 2021, the Separation was achieved through the Former Parent's distribution of 100% of the shares of the Company's common stock to holders of the Former Parent's common stock as of the close of business on the record date of July 22, 2021. The Former Parent's stockholders of record received one share of the Company's common stock for every three shares of the Former Parent's common stock. As a result, on August 3, 2021, the Company had 88 million shares of common stock outstanding. This share amount is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation. After the Separation, actual outstanding shares are used to calculate both basic and diluted weighted-average number of common shares outstanding.

The following table provides the weighted-average shares utilized for the calculation of basic and diluted earnings (loss) per share for the third quarter and year-to-date 2021 and 2020:


	Third Quarter		Year-to-Date
	2021	2020	2021	2020
	(in millions)
Common Shares	88	88	88	88
Treasury Shares	—	—	—	—
Basic Shares	88	88	88	88
Effect of Dilutive Options and Restricted Stock	4	—	2	—
Diluted Shares	92	88	90	88
Anti-dilutive Options and Awards (a)	—	—	—	—

_______________

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

6. Inventories

The following table provides details of inventories as of October 30, 2021, January 30, 2021 and October 31, 2020:


	October 30, 2021		January 30, 2021		October 31, 2020
	(in millions)
Finished Goods Merchandise	$	971	$	663	$	939
Raw Materials and Merchandise Components	48		38		42
Total Inventories	$	1,019	$	701	$	981

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

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7. Long-Lived Assets

The following table provides details of property and equipment, net as of October 30, 2021, January 30, 2021 and October 31, 2020:


	October 30, 2021		January 30, 2021		October 31, 2020
	(in millions)
Property and Equipment, at Cost	$	3,782	$	3,792	$	3,896
Accumulated Depreciation and Amortization	(2,806)		(2,714)		(2,729)
Property and Equipment, Net	$	976	$	1,078	$	1,167

Depreciation expense was $75 million and $79 million for the third quarter of 2021 and 2020, respectively. Depreciation expense was $233 million and $250 million for year-to-date 2021 and 2020, respectively.

Long-lived store assets, which include leasehold improvements, store related assets and operating lease assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Store assets are grouped at the lowest level for which they are largely independent of other assets or asset groups. If the estimated undiscounted future cash flows related to the asset group are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the estimated fair value, determined by the estimated discounted future cash flows of the asset group. 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.

As a result of the Company's fleet rationalization executed during 2020 and the negative operating results of certain stores, the Company determined that the estimated undiscounted future cash flows were less than the carrying values for certain asset groups and, as a result, determined the estimated fair values of the store asset groups using estimated discounted future cash flows and estimated market rental rates. Long-lived store asset impairment charges are included within Costs of Goods Sold, Buying and Occupancy in the year-to-date 2020 Consolidated and Combined Statement of Loss.

The following table provides pre-tax long-lived store asset impairment charges included in the year-to-date 2020 Consolidated and Combined Statement of Loss:


	2020
	Third Quarter		Year-to-Date
	(in millions)
Store Asset Impairment	$	—	$	111
Operating Lease Asset Impairment	—		103
Total Impairment	$	—	$	214

Victoria's Secret Hong Kong

During the second quarter of 2020, the Company closed its unprofitable Victoria's Secret flagship store in Hong Kong. As a result of the store closure, the Company recognized a non-cash pre-tax gain of $39 million, primarily due to terminating the store lease and the related write-off of the operating lease liability in excess of the operating lease asset, which was partially impaired in fiscal 2019. This gain is included in Costs of Goods Sold, Buying and Occupancy in the year-to-date 2020 Consolidated and Combined Statement of Loss. The Company also recorded $3 million of severance and related costs, included in General, Administrative and Store Operating Expenses in the year-to-date 2020 Consolidated and Combined Statement of Loss.

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8. Accrued Expenses and Other

The following table provides additional information about the composition of Accrued Expenses and Other as of October 30, 2021, January 30, 2021 and October 31, 2020:


	October 30, 2021		January 30, 2021		October 31, 2020
	(in millions)
Deferred Revenue on Gift Cards	$	158	$	178	$	142
Compensation, Payroll Taxes and Benefits	124		173		134
Rent	81		22		15
Accrued Marketing	39		44		29
Deferred Revenue on Loyalty and Private Label Credit Card	35		38		35
Taxes, Other than Income	27		45		43
Returns Reserve	18		26		18
Accrued Interest	13		—		—
Deferred Revenue on Direct Shipments not yet Delivered	12		30		27
Accrued Claims on Self-insured Activities	2		17		19
Supplemental Retirement Plan	—		66		56
Other	187		137		147
Total Accrued Expenses and Other	$	696	$	776	$	665

9. Income Taxes

Prior to the Separation, the Company's U.S. operations and certain of its non-U.S. operations were historically included in the income tax returns of the Former Parent or its subsidiaries that may not be part of the Company. For the periods prior to the Separation, the income tax expense (benefit) and all tax liabilities that are presented in these financial statements were calculated on a "carve-out" basis, which applied the accounting guidance as if we filed income tax returns for the Company on a standalone, separate return basis. The Company believes the assumptions supporting its allocation and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in these financial statements for periods prior to the Separation, may not be reflective of the results that the Company expects to generate in the future.

Post-Separation, the Company will file a consolidated U.S. federal income tax return as well as separate and combined income tax returns in numerous state, local and international jurisdictions. Income tax expense (benefit) for the period prior to the Separation is based on the combined financial statements prepared on a "carve-out" basis. Income tax expense (benefit) for the period after the Separation is based on the consolidated results of the Company on a standalone basis.

For the third quarter of 2021, the Company calculated the provision for income taxes on the current estimate of the annual effective tax rate and adjusted as necessary for quarterly events. Due to the impacts of the COVID-19 pandemic, the income tax expense for the third quarter of 2020 was computed on a year-to-date effective tax rate.

For the third quarter of 2021, the Company’s effective tax rate was 22.2% compared to a (12.8%) tax benefit rate in the third quarter of 2020. The third quarter of 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based awards that vested in the quarter. The third quarter of 2020 rate was lower than the Company's combined federal and state statutory rate primarily due to the resolution of a tax matter associated with certain foreign investments, which resulted in a $44 million tax benefit.

For year-to-date 2021, the Company's effective tax rate was 23.0% compared to 28.3% year-to-date 2020. The year-to-date 2021 rate was lower than the Company's combined estimated federal and state statutory rate primarily due to the recognition of excess tax benefits related to share-based awards that vested year-to-date. For year-to-date 2020, the Company recognized a benefit for income taxes of $140 million on a loss before income taxes of $495 million. The year-to-date 2020 rate was higher than the Company's combined estimated federal and state statutory rate primarily due to the resolution of a tax matter associated with certain foreign investments, which resulted in a $44 million tax benefit, partially offset by losses related to certain foreign subsidiaries that generated no tax benefit.

The Company paid income taxes in the amount of $6 million and $7 million for the third quarter of 2021 and 2020, respectively. Year-to-date income taxes paid were $21 million and $15 million for 2021 and 2020, respectively.

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On August 2, 2021, the Company and the Former Parent entered into a Tax Matters Agreement. Under the agreement, the Former Parent will generally be responsible for all U.S. federal, state, local and non-U.S. income taxes of the Company for any taxable period, or portion of such period, ending on or before the Distribution Date. As such, the net liabilities associated with uncertain tax positions that were presented in the financial statements in prior periods on a carve-out basis were not transferred to the Company as part of the Separation.

10. Long-term Debt and Borrowing Facilities

The following table provides the Company's outstanding debt balance, net of unamortized debt issuance costs and discounts, as of October 30, 2021, January 30, 2021 and October 31, 2020:


	October 30, 2021		January 30, 2021		October 31, 2020
	(in millions)
Senior Secured Debt with Subsidiary Guarantee
$400 million Term Loan due August 2028 ("Term Loan Facility")	$	390	$	—	$	—
Foreign Facilities	—		—		98
Total Senior Secured Debt with Subsidiary Guarantee	$	390	$	—	$	98
Senior Debt with Subsidiary Guarantee
$600 million, 4.625% Fixed Interest Rate Notes due July 2029 ("2029 Notes")	$	592	$	—	$	—
Total Senior Debt with Subsidiary Guarantee	$	592	$	—	$	—
Long-term Debt due to Former Parent	$	—	$	97	$	—
Total	$	982	$	97	$	98
Current Debt	(4)		—		(11)
Total Long-term Debt, Net of Current Portion	$	978	$	97	$	87

Issuance of Notes

In July 2021, the Company issued $600 million of 4.625% notes due in July 2029 in a transaction exempt from registration under the Securities Act of 1933, as amended. 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 wholly-owned subsidiaries in connection with the Separation. The proceeds were held in escrow for release to the Company upon satisfaction of certain conditions, including completion of the Separation.

On August 2, 2021, the Company used cash proceeds of $592 million, which were net of issuance costs of $8 million, from the 2029 Notes, to partially fund the approximately $976 million cash payment to the Former Parent in connection with the Separation.

Credit Facilities

On August 2, 2021, the Company entered into a term loan B credit facility in an aggregate principal amount of $400 million (the "Term Loan Facility"), which will mature in August 2028.

Interest under the Term Loan Facility will be calculated by reference to the London Interbank Offered Rate (“LIBOR”) or an alternative base rate, plus an interest rate margin equal to (i) in the case of LIBOR loans, 3.25% and (ii) in the case of alternate base rate loans, 2.25%. The LIBOR rate applicable to the Term Loan Facility will be subject to a floor of 0.50%. The obligation to pay principal and interest on the loans under the Term Loan Facility is jointly and severally guaranteed on a full and unconditional basis by certain of the Company's wholly-owned domestic restricted subsidiaries. The loans under the Term Loan Facility are secured on a first-priority lien basis by certain assets of the Company and guarantors that do not constitute priority collateral of the asset-based revolving credit facility and on a second-priority lien basis by priority collateral of the asset-based revolving credit facility, subject to customary exceptions.

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On August 2, 2021, the Company also entered into a senior secured asset-based revolving credit facility (the “ABL Facility"). The ABL Facility allows for borrowings and letters of credit in U.S. dollars or Canadian dollars, and has aggregate commitments of $750 million and an expiration date of August 2026. The availability under the ABL Facility will be the lesser of (i) the borrowing base, determined primarily based on the Company's eligible U.S. and Canadian credit card receivables, eligible accounts receivable, eligible inventory and eligible real property, and (ii) the aggregate commitment. Interest on the loans under the ABL Facility will be calculated by reference to (i) LIBOR or an alternative base rate and (ii) in the case of loans denominated in Canadian dollars, Canadian Dollar Offered Rate (“CDOR”) or a Canadian base rate, plus an interest rate margin based on average daily excess availability ranging from (x) in the case of LIBOR and CDOR loans, 1.50% to 2.00% and (y) in the case of alternate base rate loans and Canadian base rate loans, 0.50% to 1.00%. Unused commitments under the ABL Facility will accrue an unused commitment fee ranging from 0.25% to 0.30%.

For the reporting period ending October 30, 2021, the Company's borrowing base was $742 million and there were no borrowings outstanding under the ABL Facility. The Company had $41 million of outstanding letters of credit as of October 30, 2021 that reduced its availability under the ABL Facility.

The Company used the net cash proceeds from the credit facilities of $384 million, which were net of issuance and financing costs of $10 million for the Term Loan Facility and $6 million for the ABL Facility, to partially fund the approximately $976 million cash payment to the Former Parent in connection with the Separation.

Foreign Facilities

Certain of the Company's China subsidiaries previously utilized revolving and term loan bank facilities to support their operations ("Foreign Facilities"). During the second quarter of 2021, with no borrowings outstanding, the Company terminated the Foreign Facilities.

Long-term Debt due to Former Parent

11. Fair Value of Financial Instruments

Cash and Cash Equivalents include cash on hand, deposits with financial institutions and highly liquid investments with original maturities of less than 90 days. The Company's Cash and Cash Equivalents are considered Level 1 fair value measurements as they are valued using unadjusted quoted prices in active markets for identical assets.

The following table provides a summary of the principal value and estimated fair value of outstanding publicly traded debt as of October 30, 2021, January 30, 2021 and October 31, 2020:


	October 30, 2021		January 30, 2021		October 31, 2020
	(in millions)
Principal Value	$	1,000	$	—	$	—
Fair Value, Estimated (a)	1,003		—		—

________________

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

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

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