Academy Sports & Outdoors, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report, the design and operation of the Company's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Management's Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company's internal control over financial reporting includes: • maintaining records that in reasonable detail accurately and fairly reflect our transactions; • providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; • providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and • providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Also projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of change in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control—Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of the end of the period covered by this Annual Report. Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting which is set forth herein. Changes in Internal Control over Financial Reporting No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Academy Sports and Outdoors, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Academy Sports and Outdoors, Inc. and subsidiaries (the “Company”) as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 28, 2023, of the Company and our report dated March 16, 2023 expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Houston, Texas March 16, 2023 61 Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. PART III Item 10. Directors, Executive Officers and Corporate Governance The information concerning our executive officers is set forth under the heading “Information about our Executive Officers” in Part I of this report. Further information required by this item will be included in our definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 11. Executive Compensation The information required by this item will be included in our definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table gives information about the Company's common stock that may be issued upon the exercise of options, warrants and rights under all of the Company's equity compensation plans as of January 28, 2023. The table includes the 2011 Unit Incentive Plan, the 2020 Omnibus Incentive Plan and the 2020 Employee Stock Purchase Plan. Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Service-Based Stock Options 3,570,694 $ 24.27 (1) Performance-Based Stock Options 218,477 16.59 (1) Service-Based Restricted Stock Units 437,108 N/A (1) Performance-Based Restricted Stock Units 298,929 N/A (1) 2020 Employee Stock Purchase Plan — N/A (1) Total 4,525,208 $ 23.83 (2) (1) Of the plans listed above, only 2020 Omnibus Incentive Plan and the 2020 Employee Stock Purchase Plan allows for future grants of securities. The maximum number of shares that may be granted under the 2020 Omnibus Incentive Plan (inclusive of unissued shares that were carried over from the 2011 Unit Incentive Plan) is approximately 4,456,456. Stock options and restricted stock units are counted on a one-for-one basis. Total shares available for future issuance under the 2020 Omnibus Incentive Plan is 2,430,900. The total shares available for issuance under the 2020 Employee Stock Purchase Plan is 1,717,411. (2) Weighted average exercise price of outstanding options only. Additional information required by this item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. 62 Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included in our definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item will be included in our definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference. 63 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. The consolidated Financial Statements required to be filed hereunder are listed in the Index to Consolidated Financial Statements on page 65 of this Annual Report on Form 10-K. (2) Financial Statement Schedule. The consolidated financial statement schedule to be filed hereunder is included on page 108 of this Annual Report on Form 10-K. Other schedules have not been included because they are not applicable or because the information is included elsewhere in this report. (3) Exhibits. The Exhibits listed in the Index to Exhibits, which appears on pages 102 to 106 and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K. Certain Exhibits are incorporated by reference from documents previously filed by the Company with the SEC pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. 64 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 66 Consolidated Balance Sheets as of January 28, 2023 and January 29, 2022 68 Consolidated Statements of Income for the fiscal years ended January 28, 2023, January 29, 2022 and January 30, 2021 69 Consolidated Statements of Comprehensive Income for the fiscal years ended January 28, 2023, January 29, 2022 and January 30, 2021 70 Consolidated Statements of Stockholders'/Partners' Equity for the fiscal years ended January 28, 2023, January 29, 2022 and January 30, 2021 71 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 2023, January 29, 2022 and January 30, 2021 72 Notes to the Consolidated Financial Statements 73 65 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Academy Sports and Outdoors, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Academy Sports and Outdoors, Inc. and subsidiaries (the "Company") as of January 28, 2023 and January 29, 2022, the related consolidated statements of income, comprehensive income, stockholders'/partners’ equity, and cash flows, for each of the three years in the period ended January 28, 2023, and the related notes and schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Critical Audit Matter Description At January 28, 2023, the Company’s merchandise inventories balance was $1.3 billion. Merchandise inventories are valued at the lower of weighted average cost or last-in first-out ("LIFO") method. Merchandise inventories include the direct cost of merchandise and capitalized costs related to procurement, warehousing and distribution and are reflected net of shrinkage, vendor allowances and other valuation accounts. We identified merchandise inventories as a critical audit matter because of the high volume of transactions and because the Company has multiple systems to process and record inventory movements which are highly automated. This required an increased extent of effort, including the need for us to involve professionals with expertise in information technology (IT), to identify, test and evaluate the Company’s systems, software applications and automated controls. 66 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s systems to process merchandise inventory transactions included the following, among others: • Identified the significant systems used to process inventory transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls. • Performed testing of system interface controls and automated controls, as well as the controls designed to ensure the accuracy and completeness of inventory. • Obtained an understanding, completed risk assessment procedures and evaluated the design and tested the operating effectiveness of business process controls over the Company’s significant inventory processes. • Agreed weighted average cost calculations to source information including third party vendor invoices. • Performed store and distribution center physical inventory counts. • We tested whether the underlying data used as key inputs in the Company’s LIFO calculation were consistent with gross inventory. This included reconciling the inventory used for the LIFO calculation to the inventory subledger. /s/ Deloitte & Touche LLP Houston, Texas March 16, 2023 We have served as the Company's auditor since 1996. 67 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands, except per share data) January 28, 2023 January 29, 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 337,145 $ 485,998 Accounts receivable - less allowance for doubtful accounts of $ 2,004 and $ 732 , respectively 16,503 19,718 Merchandise inventories, net 1,283,517 1,171,808 Prepaid expenses and other current assets 47,747 36,460 Assets held for sale 1,763 1,763 Total current assets 1,686,675 1,715,747 PROPERTY AND EQUIPMENT, NET 351,424 345,836 RIGHT-OF-USE ASSETS 1,100,085 1,079,546 TRADE NAME 577,716 577,215 GOODWILL 861,920 861,920 OTHER NONCURRENT ASSETS 17,619 4,676 Total assets $ 4,595,439 $ 4,584,940 LIABILITIES AND STOCKHOLDERS' / PARTNERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 686,472 $ 737,826 Accrued expenses and other current liabilities 240,169 303,207 Current lease liabilities 109,075 83,077 Current maturities of long-term debt 3,000 3,000 Total current liabilities 1,038,716 1,127,110 LONG-TERM DEBT, NET 584,456 683,585 LONG-TERM LEASE LIABILITIES 1,072,192 1,077,667 DEFERRED TAX LIABILITIES, NET 259,043 217,212 OTHER LONG-TERM LIABILITIES 12,726 12,420 Total liabilities 2,967,133 3,117,994 COMMITMENTS AND CONTINGENCIES (NOTE 14) STOCKHOLDERS' / PARTNERS' EQUITY: Preferred stock, $ 0.01 par value, authorized 50,000,000 shares; none issued and outstanding — — Common stock, $ 0.01 par value, authorized 300,000,000 shares; 76,711,720 and 87,079,394 issued and outstanding as of January 28, 2023 and January 29, 2022, respectively 767 870 Additional paid-in capital 216,209 198,016 Retained earnings 1,411,330 1,268,060 Stockholders' / partners' equity 1,628,306 1,466,946 Total liabilities and stockholders' / partners' equity $ 4,595,439 $ 4,584,940 See Notes to Consolidated Financial Statements 68 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data) Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 NET SALES $ 6,395,073 $ 6,773,128 $ 5,689,233 COST OF GOODS SOLD 4,182,571 4,422,033 3,955,188 GROSS MARGIN 2,212,502 2,351,095 1,734,045 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,365,953 1,443,148 1,313,647 OPERATING INCOME 846,549 907,947 420,398 INTEREST EXPENSE, NET 46,441 48,989 86,514 (GAIN) LOSS ON EARLY RETIREMENT OF DEBT, NET 1,963 2,239 ( 3,582 ) OTHER (INCOME), NET ( 20,175 ) ( 2,821 ) ( 1,654 ) INCOME BEFORE INCOME TAXES 818,320 859,540 339,120 INCOME TAX EXPENSE 190,319 188,159 30,356 NET INCOME $ 628,001 $ 671,381 $ 308,764 EARNINGS PER COMMON SHARE: BASIC (1) $ 7.70 $ 7.38 $ 3.96 DILUTED (1) $ 7.49 $ 7.12 $ 3.79 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC (1) 81,590 90,956 77,994 DILUTED (1) 83,895 94,284 81,431 (1) See Retrospective Presentation of Ownership Exchange in Note 2. See Notes to Consolidated Financial Statements 69 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 COMPREHENSIVE INCOME: Net income $ 628,001 $ 671,381 $ 308,764 Unrealized loss on interest rate swaps — — ( 6,653 ) Recognized interest expense on interest rate swaps — 2,344 11,045 Loss on swaps from debt refinancing — — 1,330 Tax benefit (expense) — 980 ( 980 ) Total comprehensive income $ 628,001 $ 674,705 $ 313,506 See Notes to Consolidated Financial Statements 70 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' / PARTNERS’ EQUITY (Amounts in thousands) Redeemable Membership Units Stockholders' / Partners' Equity Total Membership Units / Common Stock Partners' Equity Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' / Partners' Equity Units (1) Amount Units (1) Amount Shares (1) Amount Amount Amount Amount Amount Units / Shares (1) Balances as of February 1, 2020 162 $ 2,818 72,306 $ 996,285 — $ — $ — $ — $ ( 8,066 ) $ 988,219 72,468 Net income — — — 157,656 — — — 151,108 — 308,764 — Equity compensation — — — 3,690 — — 27,927 — — 31,617 — Adjustment to Redeemable Membership Units for settlement of vested Restricted Units 12 200 — ( 200 ) — — — — — ( 200 ) 12 Adjustment to Redeemable Membership Units for repurchase of units from Managers ( 2 ) ( 41 ) 2 41 — — — — — 41 — Repurchase of Redeemable Membership Units — — ( 2 ) ( 37 ) — — — — — ( 37 ) ( 2 ) Distributions to holders of Membership Units — — — ( 257,000 ) — — — — — ( 257,000 ) — Effect of the Reorganization Transactions ( 172 ) ( 2,977 ) ( 72,306 ) ( 900,435 ) 72,478 725 66,627 836,060 — 2,977 — Issuance of common stock in IPO and Over-Allotment, net of Offering Costs — — — — 17,432 174 206,796 — — 206,970 17,432 Cumulative tax effect resulting from Reorganization Transactions — — — — — — ( 141,909 ) — — ( 141,909 ) — Share-Based Award Payments — — — — — — ( 32,819 ) — — ( 32,819 ) — Share-Based Award Payments adjustment for forfeitures — — — — — — 596 — — 596 — Settlement of vested Restricted Stock Units — — — — 802 8 ( 8 ) — — — 802 Stock option exercises — — — — 402 4 18 — — 22 402 Unrealized loss on interest rate swaps (net of tax impact of $ 350 ) — — — — — — — — ( 6,303 ) ( 6,303 ) — Loss on swaps from debt refinancing (net of tax impact of $ 330 ) — — — — — — — — 1,000 1,000 — Recognized interest expense on interest rate swaps (net of tax expense of $ 1,000 ) — — — — — — — — 10,045 10,045 — Balances as of January 30, 2021 — $ — — $ — 91,114 $ 911 $ 127,228 $ 987,168 $ ( 3,324 ) $ 1,111,983 91,114 Net income — — — — — — — 671,381 — 671,381 — Equity compensation — — — — — — 39,264 — — 39,264 — Repurchase of common stock for retirement — — — — ( 10,567 ) ( 106 ) ( 20,814 ) ( 390,489 ) — ( 411,409 ) ( 10,567 ) Settlement of vested Restricted Stock Units — — — — 923 9 ( 9 ) — — — 923 Share-Based Award Payments adjustment for forfeitures — — — — — — 39 — — 39 — Issuance of common stock under employee stock purchase plan — — — — 114 1 3,776 — — 3,777 114 Stock option exercises — — — — 5,495 55 48,532 — — 48,587 5,495 Recognized interest expense on interest rate swaps (net of tax benefit of $ 980 ) — — — — — — — — 3,324 3,324 — Balances as of January 29, 2022 — $ — — $ — 87,079 $ 870 $ 198,016 $ 1,268,060 $ — $ 1,466,946 87,079 Net income — — — — — — — 628,001 — 628,001 — Equity compensation — — — — — — 21,175 — — 21,175 — Repurchase of common stock for retirement — — — — ( 11,904 ) ( 119 ) ( 29,258 ) ( 460,098 ) — ( 489,475 ) ( 11,904 ) Settlement of vested Restricted Stock Units — — — — 100 1 ( 1 ) — — — 100 Issuance of common stock under employee stock purchase plan — — — — 168 2 5,041 — — 5,043 168 Stock option exercises — — — — 1,269 13 21,236 — — 21,249 1,269 Cash dividends declared, $ 0.075 per share — — — — — — — ( 24,633 ) — ( 24,633 ) — Balances as of January 28, 2023 — $ — — $ — 76,712 $ 767 $ 216,209 $ 1,411,330 $ — $ 1,628,306 76,712 (1) See Retrospective Presentation of Ownership Exchange in Note 2. See Notes to Consolidated Financial Statements 71 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 628,001 $ 671,381 $ 308,764 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 106,762 105,274 105,481 Non-cash lease expense ( 16 ) ( 5,528 ) 13,880 Equity compensation 21,175 39,264 31,617 Amortization of deferred loan, terminated interest rate swaps and other costs 3,054 5,524 5,516 Loss on swaps from debt refinancing — — 1,330 Deferred income taxes 41,831 79,490 701 Non-cash (gain) loss on early retirement of debt, net 1,963 2,239 ( 3,582 ) Casualty loss — — 194 Changes in assets and liabilities: Accounts receivable, net 3,215 ( 2,412 ) ( 2,981 ) Merchandise inventories, net ( 111,709 ) ( 181,774 ) 109,520 Prepaid expenses and other current assets ( 11,287 ) ( 8,147 ) ( 3,765 ) Other noncurrent assets ( 14,088 ) 2,759 ( 2,496 ) Accounts payable ( 55,400 ) ( 50,627 ) 361,518 Accrued expenses and other current liabilities ( 58,395 ) 31,935 57,376 Income taxes payable ( 3,407 ) ( 14,129 ) 14,124 Other long-term liabilities 306 ( 1,984 ) 14,400 Net cash provided by operating activities 552,005 673,265 1,011,597 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 108,304 ) ( 75,802 ) ( 41,269 ) Purchases of intangible assets ( 502 ) ( 215 ) — Note receivable from member — — 8,125 Net cash used in investing activities ( 108,806 ) ( 76,017 ) ( 33,144 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from ABL Facility — — 500,000 Repayment of ABL Facility — — ( 500,000 ) Proceeds from Term Loan, net of discount — — 396,000 Repayment of Term Loan ( 103,000 ) ( 102,250 ) ( 1,461,072 ) Proceeds from Notes — — 400,000 Debt issuance fees — ( 927 ) ( 14,147 ) Share-Based Award Payments — ( 11,214 ) ( 20,970 ) Distribution — — ( 257,000 ) Proceeds from exercise of stock options 21,249 48,587 22 Proceeds from issuance of common stock, net of Offering Costs — — 206,970 Proceeds from issuance of common stock under employee stock purchase program 5,043 3,777 — Taxes paid related to net share settlement of equity awards ( 1,236 ) ( 15,418 ) — Repurchase of common stock for retirement ( 489,475 ) ( 411,409 ) — Repurchase of Redeemable Membership Units — — ( 37 ) Dividends paid ( 24,633 ) — — Net cash used in financing activities ( 592,052 ) ( 488,854 ) ( 750,234 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 148,853 ) 108,394 228,219 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 485,998 377,604 149,385 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 337,145 $ 485,998 $ 377,604 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 43,250 $ 44,710 $ 87,163 Cash paid for income taxes $ 168,180 $ 125,040 $ 15,527 NON-CASH INVESTING AND FINANCING ACTIVITIES: Non-cash issuance of common stock $ 34 $ 501 $ 2,646 Change in capital expenditures in accounts payable and accrued liabilities $ 4,046 $ 2,951 $ 1,065 See Notes to Consolidated Financial Statements 72 ACADEMY SPORTS AND OUTDOORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations The Company All references to "we", "us," "our" or the "Company" in the financial statements refer to, (1) prior to October 1, 2020, New Academy Holding Company, LLC, a Delaware limited liability company ("NAHC") and the prior parent holding company for our operations, and its consolidated subsidiaries; and (2) on and after October 1, 2020, Academy Sports and Outdoors, Inc., a Delaware corporation ("ASO, Inc.") and the current parent holding company of our operations, and its consolidated subsidiaries. We conduct our operations primarily through our parent holding company's indirect subsidiary, Academy, Ltd., a Texas limited partnership doing business as "Academy Sports + Outdoors", or Academy, Ltd. All of the Company’s sales and business operations occur at Academy, Ltd., and Academy, Ltd. is also the borrower and/or issuer of the Company’s long-term debt and lessee of facilities. On August 3, 2011, an investment entity owned by investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co. L.P. (collectively, "KKR"), acquired a majority interest in the Company. Upon completion of the September 2021 Secondary Offering (as defined below), KKR no longer holds an ownership interest in the Company. The Company is a leading full-line sporting goods and outdoor recreational products retailers in the United States in terms of net sales. As of January 28, 2023, we operated 268 "Academy Sports + Outdoors" retail locations in 18 states and three distribution centers located in Katy, Texas, Twiggs County, Georgia and Cookeville, Tennessee. Our distribution centers receive, store and ship merchandise to our stores and customers. We also sell merchandise to customers across most of the United States via our academy.com website. Fiscal Year The Company’s fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31 each year. References herein to 2022, 2021 and 2020 relate to the 52-week fiscal years ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively. Initial Public Offering and Reorganization Transactions On October 6, 2020, ASO, Inc. completed an initial public offering (the "IPO") in which we issued and sold 15,625,000 shares of common stock, $ 0.01 par value for cash consideration of $ 12.22 per share (representing an initial public offering price of $ 13.00 per share, net of underwriting discounts) to a syndicate of underwriters led by Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives, resulting in net proceeds of approximately $ 184.9 million after deducting underwriting discounts, which included approximately $ 2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $ 6.1 million in costs directly associated with the IPO ("Offering Costs"), such as legal and accounting fees. The shares sold in the offering were registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to our registration statement on Form S-1 (File No. 333-248683) (the "Registration Statement"), which was declared effective by the Securities and Exchange Commission (the "SEC") on October 1, 2020. In connection with our IPO, we completed a series of reorganization transactions (the "Reorganization Transactions") that resulted in: • NAHC, the previous parent holding company for the Company, being contributed to ASO, Inc. by its members and becoming a wholly-owned subsidiary of ASO, Inc., which thereupon became our parent holding company; and • one share of common stock of ASO, Inc. issued to then-existing members of NAHC for every 3.15 membership units of NAHC contributed to ASO, Inc. 73 IPO Over-Allotment Exercise On November 3, 2020, ASO, Inc. issued and sold an additional 1,807,495 shares of the Company's common stock, par value $ 0.01 per share, for cash consideration of $ 12.22 per share (representing an initial public offering price of $ 13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $ 22.1 million in proceeds net of underwriting discounts, which included $ 0.3 million paid to KCM for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with the IPO (the "IPO Over-Allotment Exercise"). The option expired with respect to the remaining shares. Secondary Offering On January 27, 2021, ASO, Inc. entered into an Underwriting Agreement (the “Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P., KKR 2006 Allstar Blocker L.P., MSI 2011 LLC, MG Family Limited Partnership and the former management selling stockholder named therein (collectively, the “Selling Stockholders”), and Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (the “Underwriters”), relating to an underwritten offering of 12,000,000 shares of common stock (the “Secondary Offering”), pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-252390), filed on January 25, 2021. The Selling Stockholders granted the Underwriters the option to purchase, within 30 days from the date of the Underwriting Agreement, an additional 1,800,000 shares of common stock. On January 29, 2021, the Underwriters exercised in full their option to purchase the additional shares. The Secondary Offering was completed on February 1, 2021. Pursuant to the Underwriting Agreement, the Underwriters purchased the shares from the Selling Stockholders at a price of approximately $ 20.69 per share. The Company did no t receive any proceeds from the Secondary Offering. May 2021 Secondary Offering and Stock Repurchase On May 5, 2021, ASO, Inc. entered into an underwriting agreement (the “May 2021 Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P., KKR 2006 Allstar Blocker L.P., MSI 2011 LLC and MG Family Limited Partnership (collectively, the “May 2021 Selling Stockholders”), and Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (the “May 2021 Underwriters”), relating to an underwritten offering of 14,000,000 shares of common stock at $ 30.96 per share (the “May 2021 Secondary Offering”), pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-255720), filed on May 3, 2021. The May 2021 Selling Stockholders granted the May 2021 Underwriters the option to purchase, within 30 days from the date of the May 2021 Underwriting Agreement, an additional 2,100,000 shares of common stock. On May 6, 2021, the May 2021 Underwriters exercised in full their option to purchase the additional shares. The May 2021 Secondary Offering also included the Company's repurchase and simultaneous retirement of 3,229,974 shares out of the 14,000,000 shares at $ 30.96 per share, the same price granted to the May 2021 Underwriters, which was at a discount to the prevailing market price at the time of repurchase (see "Share Repurchases" in Note 2). The May 2021 Secondary Offering was completed on May 10, 2021. The Company did no t receive any proceeds from the May 2021 Secondary Offering. The May 2021 Secondary Offering reduced the KKR ownership interest in the Company, resulting in a vesting event (the "2021 Vesting Event") for awards granted under the 2011 Unit Incentive Plan, whereby unvested time awards and performance-based awards which had previously met their performance targets vested and unvested performance-based awards which had not previously met their performance targets were forfeited. As a result, we incurred approximately $ 24.9 million in non-cash expenses related to equity-based compensation and approximately $ 15.4 million of cash expenses related to taxes on equity-based compensation. Additionally, approximately $ 8.2 million of Share-Based Award Payments (see Note 9) for equity-based compensation distributions were accelerated during the 2021 second quarter. 74 September 2021 Secondary Offering and Stock Repurchase On September 14, 2021, ASO, Inc. entered into an underwriting agreement (the “September 2021 Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P. and KKR 2006 Allstar Blocker L.P. (collectively, the “September 2021 Selling Stockholders”), and Credit Suisse Securities (USA) LLC, as representative of the several underwriters named therein (the “September 2021 Underwriters”), relating to an underwritten offering (the “September 2021 Secondary Offering”) of 18,645,602 shares of common stock at approximately $ 43.52 per share, pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-259477), filed on September 13, 2021. The September 2021 Secondary Offering also included the Company’s repurchase and simultaneous retirement of 4,500,000 shares out of the 18,645,602 shares of common stock at approximately $ 43.52 , the same price granted to the September 2021 Underwriters, which was at a discount to the prevailing market price at the time of repurchase (see "Share Repurchases" in Note 2). The September 2021 Secondary Offering was completed on September 17, 2021. The Company did no t receive any proceeds from the September 2021 Secondary Offering. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation These consolidated financial statements include the accounts of ASO, Inc. and its subsidiaries, NAHC, Academy Managing Co., LLC, Associated Investors, LLC, Academy, Ltd., the Company's operating company, and Academy International Limited. NAHC, Academy Managing Co., LLC, and Associated Investors, LLC are intermediate holding companies. All intercompany balances and transactions have been eliminated in consolidation. ASO Co-Invest Blocker Sub, L.P. and ASO Blocker Sub, L.P. were dissolved effective January 31, 2021. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Our management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results could differ significantly from those estimates. Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management including the valuation of merchandise inventories, and performing goodwill, intangible and long-lived asset impairment analyses. Retrospective Presentation of Ownership Exchange Prior to the IPO, ASO, Inc. was a wholly-owned subsidiary of NAHC. On the IPO pricing date (October 1, 2020), the then-existing members of NAHC contributed all of their membership units of NAHC to ASO, Inc. and, in exchange, received one share of common stock of ASO, Inc. for every 3.15 membership units of NAHC contributed to ASO, Inc. (such 3.15 :1 contribution and exchange ratio, the "Contribution Ratio"). As a result of such contributions and exchanges, upon the IPO, NAHC became a wholly-owned subsidiary of ASO, Inc., which became our parent holding company. The par value and authorized shares of the common stock of ASO, Inc. of $ 0.01 and 300,000,000 , respectively, remain unchanged as a result of such contributions and exchanges. All membership units and redeemable membership units in the financial statements and notes have been retrospectively adjusted to give effect to the Contribution Ratio, as if such contributions and exchanges occurred as of all pre-IPO periods presented, including the periods presented on the Statements of Income, Statements of Stockholders’ / Partners’ Equity, Note 9. Share-Based Compensation, and Note 10. Earnings per Common Share. 75 Redeemable Membership Units Prior to October 1, 2020, Allstar Managers LLC, a Delaware limited liability company ("Managers"), owned membership units in NAHC (each, a "NAHC Membership Unit"). Managers was dissolved and its assets were distributed to its members on December 23, 2020. Managers was 100% owned by certain current and former executives and directors of the Company and was formed to facilitate the purchase of indirect contingently redeemable ownership interests in NAHC. Prior to October 1, 2020, certain executives and directors could acquire contingently redeemable membership units in Managers (the "Redeemable Membership Units"), either by (1) purchasing the Redeemable Membership Units with cash consideration, which was subsequently contributed to NAHC by Managers in exchange for a number of NAHC Membership Units equal to the number of Redeemable Membership Units purchased, or (2) by receiving the Redeemable Membership Units in settlement of vested restricted units awarded to the executive or director under the Company's 2011 Unit Incentive Plan (see Note 9). Each outstanding Redeemable Membership Unit in Managers corresponded to an outstanding NAHC Membership Unit, on a unit-for-unit basis. On October 1, 2020, Managers received one share of ASO, Inc. common stock in exchange for every 3.15 membership units in NAHC that Managers contributed to ASO, Inc., and the Redeemable Membership Units in Managers that were held by its owners were reduced proportionately by the Contribution Ratio, so that the outstanding number of Redeemable Membership Units in Managers equaled the number of shares of ASO, Inc. common stock held by Managers on a 1:1 basis. NAHC was the sole managing member of Managers with a controlling voting interest, but no economic interest, in Managers. As the sole managing member of Managers, NAHC operated and controlled all business affairs of Managers. Cash and Cash Equivalents We consider credit and debit card transactions, which typically settle within three business days, demand deposits with banks, and all other highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Financial Instruments Financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, certain accrued liabilities and debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of those instruments. We have also historically entered into derivative interest rate swaps to reduce the risk that our earnings and cash flows will be affected by changes in interest rates on our debt. The fair value of debt is influenced by fluctuations in market conditions for interest rates (see Note 6). Accounts Receivable Accounts receivable consists primarily of amounts due from vendors for vendor allowances and other accounts receivable. We provide an allowance for doubtful accounts based on both historical experience and a specific identification basis. Concentration of Risk Financial instruments which subject us to potential credit risk consist of cash and cash equivalents. We have established guidelines to limit our exposure to credit risk on cash and cash equivalents by placing investments with high credit quality financial institutions. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand. We believe that the financial risks associated with these financial instruments are minimal. We purchase merchandise inventories from approximately 1,400 vendors. In 2022, 2021 and 2020, purchases from our largest vendor represented approximately 11 %, 11 % and 12 % of our total inventory purchases, respectively. No other vendor in any of the aforementioned years exceeded 10% of our purchases. We typically do not enter into long-term inventory purchase commitments, and we did not have any such commitments as of January 28, 2023 or January 29, 2022. 76 A significant portion of our inventory purchases are manufactured outside of the United States, primarily in Asia. While we are not dependent on any single manufacturer outside of the United States, we could be adversely affected by political, health (including pandemic), safety, security, economic, tariff, climate or other disruptions affecting the business or operations of third-party manufacturers located outside of the United States. The Company’s geographic concentration in the southeastern United States subjects us to certain regional risks, such as the state of local economies, including downturns in the housing market, increased unemployment and gas prices. Other regional risks include severe weather conditions or man-made disasters (such as an oil spill closing large areas of hunting or fishing), fires, heat waves, freezes, hurricanes, tornadoes, large storms and floods and other natural disasters specific to the states in which the Company operates. Merchandise Inventories, net Merchandise inventories are valued at the lower of weighted average cost or last-in first-out ("LIFO") method. Merchandise inventories include the direct cost of merchandise and capitalized costs related to procurement, warehousing and distribution and are reflected net of shrinkage, vendor allowances and other valuation accounts. We record an inventory reserve for the estimated shrinkage between physical inventories on a by location basis. We generally perform a full physical inventory count for each store at least once a year, throughout the year, after which our shrinkage accrual rate for each store is updated based on historical results. For vendor allowances based on contractual provisions, we develop accrual rates as determined by the agreements, which are typically linked to purchase volumes. Other non-contractual vendor allowances received are applied upon receipt. We regularly review inventories and record a valuation adjustment when necessary such as for inventory that has a carrying value in excess of the net realizable value or for slow moving or obsolete inventory. The application of the LIFO inventory method did not result in any LIFO charges or credits affecting cost of sales in 2022, 2021 or 2020. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Cost includes interest capitalized on borrowings used to finance the construction of stores and other significant capital projects while under construction. Depreciation and amortization is computed using the straight-line method over the asset’s useful life, which is generally determined by asset category as follows: Leasehold improvements Lesser of asset useful life or lease term Software and computer equipment 2 – 5 years Other equipment 5 – 10 years Furniture and fixtures 7 – 10 years When assets are retired or sold, the cost and accumulated depreciation are removed from our accounts, and the resulting gain or loss is reflected in the consolidated statements of income. Repair and maintenance costs are charged to expense as incurred and significant improvements that substantially enhance the useful life or enhance the functionality of an asset are capitalized and amortized. Capitalized Computer Software Costs We capitalize certain costs incurred in connection with developing or obtaining computer software for internal use. Capitalized computer software costs are included in property and equipment on the consolidated balance sheets and amortized on a straight-line basis when placed into service over the estimated useful lives of the software. The amounts capitalized were $ 33.3 million, $ 36.7 million and $ 14.5 million in 2022, 2021 and 2020, respectively. Implementation costs for cloud-based information technology systems are capitalized in other non-current assets. Amortization of cloud-based software implementation costs is recognized in selling, general and administrative expenses and amortized over the contract terms. The amounts capitalized were $ 12.3 million, $ 3.7 million and $ 1.8 million in 2022, 2021 and 2020, respectively. 77 Capitalized Interest We capitalized interest primarily related to construction of new stores, store renovations, distribution centers and IT projects in the amount of $ 0.6 million, $ 0.4 million and $ 0.6 million in 2022, 2021 and 2020, respectively. Interest expense, net on the consolidated statement of income is shown net of capitalized interest. Impairment of Long-Lived Assets We review the carrying value of long-lived assets, including store assets, for indicators of impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated by the use of the assets, which is generally projected based on historical results. If such assets are considered to be impaired, the impairment loss recognized is the amount by which the carrying amount of the assets exceeds its estimated fair value, which is calculated using discounted expected future cash flows. As a result of our assessment, we did no t record an impairment of long-lived assets in 2022, 2021 and 2020. Goodwill Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually or more frequently if events or circumstances indicate that the carrying value of goodwill may not be recoverable. We test for goodwill at the reporting unit level, which is the operating segment level. We operate in one operating segment with one reporting unit. The annual goodwill impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required. In 2022, 2021 and 2020, we performed a qualitative assessment and determined a quantitative assessment was not necessary. Our quantitative assessment for determining the fair value of our reporting unit includes using an estimated discounted cash flow model (income approach) and market value approach. The output of this assessment is an estimated fair value for our reporting unit that is compared to its carrying value to determine whether an impairment charge is necessary. The income approach uses a discounted cash flow analysis of our projected long-term future company income, and the market value approach is based on earnings multiples for a comparable set of public companies. No impairment of goodwill existed for 2022, 2021 or 2020. Intangible Assets Intangible assets primarily consists of the trade name "Academy Sports + Outdoors" (the "Trade Name"). The Trade Name is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-lived asset not subject to amortization. The Trade Name is tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the Trade Name may not be recoverable. The annual Trade Name impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment for the Trade Name. However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required. In 2022, 2021 and 2020, we performed a qualitative assessment and determined a quantitative assessment was not necessary. 78 Impairment is calculated as the excess of the Trade Name’s carrying value over its fair value. The fair value of the Trade Name is determined using the relief-from-royalty method, a variation of the income approach. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. Once a supportable royalty rate is determined, the rate is then applied to the projected long-term sales over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including projections of long-term sales, royalty rates, discount rates and other variables. No impairment of intangible assets existed for 2022, 2021 or 2020. Deferred Loan Costs Costs incurred to issue debt are deferred and recorded in the consolidated balance sheets. Those costs related to the issuance of our term loan and senior notes are recorded in long-term debt, net of current maturities and amortized as a component of interest expense over the terms of the related debt agreement using the effective interest method. The costs related to the issuance of our revolving credit facility is recorded in other noncurrent assets on the consolidated balance sheets and amortized as a component of interest expense over the terms of the related debt agreements using the straight-line method. Derivative Instruments We are exposed to interest rate risk, primarily related to changes in interest rates on our Term Loan (see Note 4) and have historically used interest rate swap agreements, which we have designated as "cash flow" hedges, to hedge against market risks relating to possible adverse changes in interest rates. We assess, both at the inception of the hedge and on an ongoing basis, whether derivatives used as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, we discontinue hedge accounting prospectively. Derivative financial instruments are recognized at fair value in the consolidated balance sheets (see Note 5). The changes in the fair value of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income ("AOCI"), net of tax effects, and are subsequently reclassified to earnings when the hedged transaction affects earnings. On January 19, 2021, we settled our three remaining outstanding interest rate swaps, which were scheduled to expire on various dates during 2021, for $ 4.1 million. As of January 28, 2023, we do not have any derivative financial instruments outstanding. Self-Insurance We maintain deductibles or self-insurance retentions for workers' compensation, general liability and employee health benefits. Additionally, we use the services of an independent actuary to assist in determining losses associated with workers' compensation, general liability and employee health benefits. Liabilities associated with these losses are actuarially derived and estimated in part by considering historical claims experience, industry factors, severity factors, claim development, as well as other actuarial assumptions. If actual trends, including the severity or frequency of claims, medical cost inflation or fluctuations in premiums, differ from our estimates, it could have a material adverse impact on our results of operations. Changes in legal claims, claim development, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all adversely affect our ultimate expected losses. We believe the actuarial valuation provides the best estimate of the ultimate expected losses, and we have recorded the present value of the actuarially determined ultimate losses for the insurance related liabilities mentioned above. Leases We account for our leases in accordance with Accounting Standards Codification ("ASC") 842 which requires that lessees recognize assets and liabilities arising from operating leases on the balance sheet and disclose key information about leasing arrangements. All of our stores, corporate office facilities, and warehouse and distribution centers are leased. We may receive reimbursement from a landlord for some or all of the cost of a construction project, which may be structured as a tenant improvement allowance, construction allowance or landlord reimbursement. Cash received from a landlord for tenant improvement allowances in store lease transactions not considered a sale-leaseback transaction are a reduction to the right-of-use assets on the balance sheet, which are amortized ratably over the remaining terms of the corresponding leases. 79 We account for each lease and non-lease components for our building leases as a single lease component which allows certain costs such as common area maintenance associated with these leases to be included as rent expense. We exclude leases with contract terms of 12 months or less from ASC 842 accounting treatment, which results in straight-line recognition of the cost over the lease term with no associated balance sheet lease liability or right-of-use asset. Net Sales We sell merchandise under implicit contracts whereby the transaction price is the listed sales price less any discounts or coupons applied. Our typical coupons offer a discount, which is applied immediately at the time of purchase. However, under certain circumstances we may issue a coupon, or similar incentive, which contains a material future right. In such instances, a portion of the revenue is deferred and subsequently recognized when earned. Revenue from merchandise sales is recognized, net of sales tax, when the Company’s performance obligation to the customer is met, which is when the Company transfers control of the merchandise to the customer. Store merchandise sales are recognized at the point of sale. For e-commerce sales, significant judgment is applied in determining when the transfer of control occurs, which we believe occurs upon customer receipt, and accordingly online merchandise sales are recognized upon delivery of the merchandise to the customer. The Company does not extend a material amount of credit. The sales return allowance, which is our provision for anticipated merchandise returns, is provided through a reduction of sales and cost of goods sold on a gross basis in the period that the related sales are recorded. The sales return allowance and related liability are included in merchandise inventories and in accrued expenses and other liabilities, respectively, in our consolidated balance sheets. Merchandise returns are estimated based on historical experience. Cost of Goods Sold Cost of goods sold includes the direct cost of merchandise and costs related to procurement, warehousing and distribution. These costs consist primarily of payroll and benefits, occupancy costs and freight. Shipping and Handling Costs Shipping and handling costs billed to customers are included in net sales. Shipping and handling costs that we incur associated with shipping products to customers are included in cost of goods sold. Vendor Allowances Vendor allowances include volume purchase rebates, promotional and advertising allowances, cooperative advertising funds and support for new store openings. These allowances are generally determined for each fiscal year with the majority of allowances based on quantitative contract terms. Allowances related to the purchase of merchandise inventories are recorded as a reduction of cost of goods sold as the related merchandise is sold. Allowances for cooperative advertising and promotion programs and other expenses are recorded in selling, general and administrative expenses as a reduction of the related costs as the related expense is incurred. Any such allowance in excess of actual costs incurred that are included in selling, general and administrative expenses, or that do not require proof of performance, are recorded as a reduction of cost of sales. For volume purchase rebates, we record an estimate of vendor allowances earned based on the latest projected purchase volumes. Selling, General and Administrative Expenses Selling, general and administrative expenses include store and corporate administrative payroll and payroll benefits, store and corporate headquarters occupancy costs, depreciation, advertising, credit card processing, information technology, pre-opening costs and other store and administrative expenses. Advertising Expenses Advertising costs are expensed as incurred. Advertising expenses, net of specific vendor allowances, were $ 144.5 million, $ 151.2 million and $ 122.8 million in 2022, 2021 and 2020, respectively. 80 Pre-Opening Expenses Non-capital expenditures associated with opening new stores and distribution centers prior to sales generation or start of operations, which consist primarily of occupancy costs, marketing, payroll and recruiting costs, are expensed as incurred. Pre-opening expenses for our new stores were $ 5.5 million and $ 0.2 million in 2022 and 2021, respectively. There were no pre-opening expenses in 2020. Equity Compensation We account for equity compensation in accordance with ASC 718, which requires the measurement and recognition of compensation expense for all equity awards made to employees based on estimated fair values on the grant date. Option equity award fair values are estimated on the date of grant using an option-pricing model and restricted unit fair values are based on the estimated unit price on the date of the grant. For awards with service-based vesting requirements only, the fair value of the award is recognized as expense over the requisite service period, and for awards with performance-based vesting requirements, the fair value of the award ultimately expected to meet the performance target is recognized as expense over the service period. We recognize forfeitures as they occur. Share Repurchases On September 2, 2021, the Board of Directors of the Company authorized a share repurchase program (the "2021 Share Repurchase Program") under which the Company may purchase up to $ 500 million of its outstanding shares during the three-year period ending September 2, 2024. On June 2, 2022, the Board of Directors of the Company authorized a new share repurchase program (the "2022 Share Repurchase Program") under which the Company may purchase up to $ 600 million of its outstanding shares during the three-year period ending June 2, 2025. The 2022 Share Repurchase Program and the 2021 Share Repurchase Program are collectively referred to as the "Share Repurchase Programs". Under the Share Repurchase Programs, repurchases can be made using a variety of methods, which may include open market purchases, block trades, privately negotiated transactions, accelerated share repurchase programs and/or a non-discretionary trading plan, all in compliance with the rules of the SEC and other applicable legal requirements. The timing, manner, price and amount of any common share repurchases will be determined by the Company in its discretion and will depend on a variety of factors, including legal requirements, price and economic and market conditions. The Share Repurchase Programs do not obligate the Company to acquire any particular number of common shares, and the programs may be suspended, extended, modified or discontinued at any time. In 2022 and 2021, we repurchased and concurrently retired 11,903,636 and 10,566,796 shares of ASO, Inc. common stock for an aggregate amount of $ 489.5 million and $ 411.4 million, respectively, which includes purchases that were made pursuant to the Share Repurchase Programs and those that were made prior to our Share Repurchase Programs. As of January 28, 2023, we no longer had availability under the 2021 Share Repurchase Program, and we had $ 299.4 million available for share repurchases pursuant to the 2022 Share Repurchase Program. The Company allocates the excess of the repurchase price over the par value of shares acquired to Retained Earnings and Additional Paid-in Capital. The portion allocated to Additional Paid-in Capital is determined by dividing the number of shares to be retired by the number of shares issued multiplied by the balance of Additional Paid-in Capital as of the retirement date. Income Taxes The Company is subject to U.S. federal, state and foreign income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 81 We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including recent results of operations, future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more-likely-than-not that all or a portion of the asset will not be realized. The Company recognizes tax benefits from uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized from such positions are measured based on the largest benefit having a greater than 50% likelihood of being ultimately sustained. Interest and penalties from income tax matters are recognized in income tax expense. Insurance Proceeds During the fiscal year ended January 28, 2023, the Company received and recognized approximately $ 7.2 million in business interruption proceeds due to the suspension of normal operations at some of our Texas store locations, as well as our e-commerce platform, for several days in February of 2021 as a result of a winter storm which had a significant impact on the energy infrastructure in the state of Texas. These proceeds are included in Other (income), net on the Consolidated Statements of Income. Comprehensive Income Comprehensive income represents the net income for the period plus the results of certain changes to stockholders' equity (other comprehensive income) that are not reflected in the consolidated statements of income. Other comprehensive income consists of adjustments, net of tax, related to the Company’s historical ownership of interest rate swaps. Operating Segment Given the similar business activities, economic characteristics, products sold, customer base and methods of procurement, as well as the similar marketing and promotional activities of our stores and our academy.com website, we report our financial results as one reportable segment. Substantially all of the Company’s identifiable assets are located in the United States. Recent Accounting Pronouncements Reference Rate Reform In March 2020, the FASB issued ASU 2020-04: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. In December 2022, the FASB issued ASU 2022-06 which extended the effectiveness of this guidance to December 31, 2024. The Company intends to utilize certain expedients provided by this amendment upon our transition from LIBOR. Supplier Finance Programs In September 2022, the FASB issued ASU 2022-04: Liabilities - Supplier Finance Programs Disclosure of Supplier Finance Program Obligations. This pronouncement requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period and potential magnitude. The adoption of these amendments is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this accounting standard will have on its financial disclosures. 82 3. Net Sales The following table sets forth the approximate amount of sales (all of which are based in the U.S.) by merchandise divisions for the periods presented (amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Merchandise division sales Outdoors $ 1,940,811 $ 2,174,650 $ 1,968,514 Sports and recreation 1,366,785 1,463,172 1,256,357 Apparel 1,759,005 1,810,345 1,390,519 Footwear 1,291,224 1,290,197 1,044,502 Total merchandise sales (1) 6,357,825 6,738,364 5,659,892 Other sales (2) 37,248 34,764 29,341 Net sales $ 6,395,073 $ 6,773,128 $ 5,689,233 (1) E-commerce sales consisted of 10.7 %, 9.3 % and 10.4 % of merchandise sales for 2022, 2021 and 2020, respectively. (2) Other sales consists primarily of the gift card breakage income, credit card bounties and royalties, shipping income, net hunting and fishing license income, sales return allowance and other items. We sell gift cards in stores, online and in third-party retail locations. The gift cards we sell have no expiration dates. A liability for gift cards, which is recorded in accrued expenses and other liabilities on our consolidated balance sheets, is established at the time of sale and revenues are recognized as the gift cards are redeemed in stores or on our website. Based on historical gift card redemption patterns, we believe we can reasonably estimate the amount of gift cards that have a remote likelihood of redemption. These identified amounts are recorded as net sales and recognized in proportion to historical redemption trends, which is referred to as "breakage". The following is a reconciliation of the gift card liability (amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Gift card liability, beginning balance $ 86,568 $ 74,253 $ 67,993 Issued 134,091 136,553 111,160 Redeemed ( 124,463 ) ( 119,103 ) ( 100,678 ) Recognized as breakage income ( 5,546 ) ( 5,135 ) ( 4,222 ) Gift card liability, ending balance $ 90,650 $ 86,568 $ 74,253 4. Long-Term Debt Our debt consisted of the following (amounts in thousands) as of: January 28, 2023 January 29, 2022 ABL Facility, due November 2025 $ — $ — Term Loan, due November 2027 194,750 297,750 Notes, due November 2027 400,000 400,000 Total debt 594,750 697,750 Less current maturities ( 3,000 ) ( 3,000 ) Less unamortized discount on Term Loan ( 1,340 ) ( 2,463 ) Less deferred loan costs (1) ( 5,954 ) ( 8,702 ) Long-term debt, net $ 584,456 $ 683,585 (1) Deferred loan costs are related to the Term Loan and Notes. 83 As of January 28, 2023 and January 29, 2022, the balance in deferred loan costs related to the ABL Facility (as defined below) was approximately $ 3.2 million and $ 4.3 million, respectively, and was included in other noncurrent assets on our consolidated balance sheets. Total amortization of deferred loan costs was $ 2.6 million, $ 2.7 million and $ 2.6 million in 2022, 2021 and 2020, respectively. Total expenses related to accretion of original issuance discount were $ 0.4 million, $ 0.5 million and $ 1.0 million in 2022, 2021 and 2020, respectively. On November 6, 2020, the Company issued the Notes (as defined below), entered into the 2020 Term Loan (as defined below), and entered into the 2020 ABL Facility (the "Refinancing Transactions"). The Company used the net proceeds from the Notes and the net proceeds from the 2020 Term Loan, together with cash on hand, to repay in full outstanding borrowings under its then-existing term loan, in the amount of $ 1,431.4 million. On May 25, 2021, the Company refinanced its 2020 Term Loan and paid down approximately $ 99.0 million of the 2020 Term Loan. On December 15, 2022, the Company utilized cash on hand to voluntarily prepay $ 100.0 million of outstanding borrowings of the Term Loan. Term Loan We refer to the 2015 Term Loan, the 2020 Term Loan and the Amendment collectively as the "Term Loan". On July 2, 2015, Academy, Ltd. entered into a seven-year $ 1.8 billion senior secured term loan (the "2015 Term Loan") with Morgan Stanley Senior Funding, Inc., as the administrative and collateral agent, and other lenders, and a five-year $ 650 million secured asset-based revolving credit facility (the "2015 ABL Facility") with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders. Academy, Ltd. received proceeds from the 2015 Term Loan of $ 1.8 billion, which was net of discount of $ 9.1 million. The 2015 Term Loan bore interest at our election, at either (1) LIBOR rate with a floor of 1.00 %, plus a margin of 4.00 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) Morgan Stanley Senior Funding, Inc.'s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 3.00 %. Quarterly principal payments of approximately $ 4.6 million were required through June 30, 2022, with the balance due in full on the maturity date of July 2, 2022. Prior to the Refinancing Transactions, we repurchased $ 23.9 million of principal on our Term Loan for $ 16.0 million, resulting in a net gain of $ 7.8 million. In connection to the Refinancing Transactions, the Company also recognized an offsetting non-cash loss on early retirement of debt of $ 4.2 million from the write-off of deferred loan costs associated with the early retirement of the 2015 Term Loan. The net result of these transactions resulted in a $ 3.6 million gain on early retirement of debt in 2020. On November 6, 2020, as a part of the Refinancing Transactions, Academy, Ltd. entered into a seven-year $ 400.0 million senior secured term loan (the "2020 Term Loan") with Credit Suisse AG, Cayman Island Branch ("Credit Suisse"), as the administrative agent and collateral agent and the several other lenders and parties. The 2020 Term Loan will mature on November 6, 2027. The 2020 Term Loan bore interest, at Academy, Ltd.’s election, at either (1) LIBOR rate with a floor of 0.75 %, plus a margin of 5.00 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) Credit Suisse’s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 4.00 %. Quarterly principal payments of approximately $ 1.0 million were required through September 30, 2027, with the balance due in full on the maturity date of November 6, 2027. On May 25, 2021, Academy, Ltd. entered into Amendment No. 4 (the “Amendment”) to the Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent, the several lenders party thereto and the several other parties named therein (as previously amended, the “Existing Credit Agreement” and as amended by the Amendment, the “Amended Credit Agreement”). Pursuant to the terms of the Amendment, Academy, Ltd. (i) reduced the applicable margin on LIBOR borrowings under the Existing Credit Agreement from 5.00 % to 3.75 % and (ii) utilized cash on hand to repay $ 99.0 million of outstanding borrowings under the Existing Credit Agreement, leaving an outstanding principal balance of $ 300.0 million under the Amended Credit Agreement. Quarterly principal payments of $ 750.0 thousand are required through September 30, 2027 and borrowings under the Amended Credit Agreement will continue to mature on November 6, 2027. All other material terms and provisions of the 2020 Term Loan remain substantially the same as the terms and provisions in place immediately prior to the effectiveness of the Amendment. As of January 28, 2023, the weighted average interest rate was 8.12 %, with interest payable monthly. The terms and conditions of the Amendment also require that the outstanding balance under the Term Loan is prepaid under certain circumstances. In connection with the 2020 Term Loan and the Amendment, the Company capitalized related professional fees of $ 5.8 million as deferred loan costs. 84 In connection with the principal payment in the Amendment, the Company recognized a non-cash loss on early retirement of debt of $ 2.2 million in 2021 from the write-off of deferred loan costs and expense related to the original issuance discount associated with our 2020 Term Loan. On December 15, 2022, the Company utilized cash on hand to voluntarily prepay $ 100.0 million of outstanding borrowings under the Term Loan. In connection with this principal payment, the Company recognized a non-cash loss on early retirement of debt of $ 2.0 million from the write-off of deferred loan costs related to the original issuance discount associated with the Term Loan. The Amended Credit Agreement contains customary events of default such as failure to pay principal or interest, breaches of representations and warranties, violations of affirmative or negative covenants, cross-defaults to other material indebtedness, a bankruptcy or similar proceeding, rendering of certain monetary judgments, invalidity of collateral documents and changes of control. As of January 28, 2023, no prepayment was due under the terms and conditions of the Term Loan. Notes On November 6, 2020, as a part of the Refinancing Transactions, Academy, Ltd. issued $ 400.0 million of 6.00 % senior secured notes which are due November 15, 2027 (the "Notes"), pursuant to an indenture, dated as of November 6, 2020 (the "Indenture"), with Academy, Ltd. the Guarantors (as defined below) and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (in such capacity, the "Notes Collateral Agent"). The Notes pay interest semi-annually in arrears in cash on May 15 and November 15 of each year at a rate of 6.00 % per year, commencing on May 15, 2021. In connection with issuance of the Notes, the Company capitalized related professional fees of $ 5.2 million as deferred loan costs. The Notes are fully and unconditionally guaranteed on a senior secured basis by each of NAHC, Associated Investors L.L.C. and Academy Managing Co., L.L.C., each a direct or indirect, wholly-owned subsidiary of the Company (collectively, the "Guarantors"), and each of Academy, Ltd.’s future wholly-owned domestic restricted subsidiaries, to the extent such subsidiary guarantees Academy, Ltd.’s senior secured credit facilities or certain capital markets debt. On or after November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem all or a part of the Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. At any time prior to November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem all or part of the Notes at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, plus a "make-whole" premium as described in the Indenture. In addition, at any time prior to November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem up to 40 % of the aggregate principal amount of the Notes at a redemption price equal to 106 % of the aggregate principal amount thereof, with an amount equal to or less than the net cash proceeds from one or more equity offerings to the extent such net cash proceeds are received by or contributed to Academy, Ltd., plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Upon the occurrence of certain events constituting a Change of Control (as defined in the Indenture), Academy, Ltd. will be required to make an offer to repurchase all of the Notes at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The Indenture provides for events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest, breach of other agreements in respect of the Notes, acceleration of certain other indebtedness, failure to pay certain final judgments, failure of certain guarantees to be enforceable, failure to perfect certain collateral securing the Notes and certain events of bankruptcy or insolvency, which events of default, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Notes to be due and payable immediately. 85 ABL Facility We refer to the 2015 ABL Facility and the 2020 ABL Facility collectively as the "ABL Facility". On July 2, 2015, Academy, Ltd. entered into a five-year $ 650 million secured asset-based revolving credit facility (the "2015 ABL Facility"). On May 22, 2018, the Company amended the agreement governing the 2015 ABL Facility, to increase the commitment on the facility from $ 650 million to $ 1 billion. In connection with the amendment to the 2015 ABL Facility, the Company capitalized related professional fees of $ 2.8 million as deferred loan costs and wrote off $ 0.1 million in previously capitalized deferred loan costs. The 2015 ABL Facility was scheduled to mature on May 22, 2023. On November 6, 2020, as a part of the Refinancing Transactions, Academy, Ltd., as borrower, and the Guarantors, as guarantors, amended the 2015 ABL Facility by entering into an amendment to the First Amended and Restated ABL Credit Agreement, dated as of July 2, 2015, with JPMorgan Chase Bank, N.A. as the administrative agent and collateral agent, letter of credit issuer and swingline lender (the "ABL Agent") and the several lenders party thereto, which ABL amendment (the "2020 ABL Facility"), among other things, extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025. In connection with the 2020 ABL Facility, the Company capitalized related professional fees of $ 3.1 million as deferred loan costs. The ABL Facility is used to provide financing for working capital and other general corporate purposes, as well as to support certain letters of credit requirements, and availability is subject to customary borrowing base and availability provisions. During the normal course of business, we periodically utilize letters of credit primarily for the purchase of import goods and in support of insurance contracts. As of January 28, 2023, we had outstanding letters of credit of approximately $ 13.9 million, all of which were issued under the ABL Facility, and we had no borrowings outstanding under the ABL Facility, leaving the available borrowing capacity under the ABL Facility of $ 947.8 million. Borrowings under the ABL Facility bear interest, at our election, at either of (1) LIBOR plus a margin of 1.25 % to 1.75 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) JPMorgan Chase Bank, N.A.'s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 0.25 % to 0.75 %. The ABL Facility also provides a fee applicable to the unused commitments of 0.25 %. The terms and conditions of the ABL Facility also require that we prepay outstanding loans under the ABL Facility under certain circumstances. As of January 28, 2023, no future prepayments of outstanding loans have been triggered under the terms and conditions of the ABL Facility. Liens and guarantees. The ABL Facility has a first priority lien on all Academy, Ltd.'s cash, accounts receivable, inventory, deposit and securities accounts and proceeds therefrom (the "ABL Collateral"). Additionally, the ABL Facility has a second priority lien on all other collateral of the Term Loan. All obligations under the Term Loan and the guarantees of those obligations are secured by: • a second-priority security interest in the ABL Collateral; • a first-priority security interest in, and mortgages on, substantially all present and after acquired tangible and intangible assets of Academy, Ltd and the Guarantors; and • a first-priority pledge of 100 % of the capital stock of Academy, Ltd. and its domestic subsidiaries and 66 % of the voting capital stock of each of Academy, Ltd.'s foreign subsidiaries, if any, that are directly owned by Academy, Ltd. or a future U.S. guarantor, if any. 86 The Term Loan is guaranteed by the Guarantors on a senior secured basis. All obligations under the Term Loan and the guarantees of those obligations will be secured by: • a second-priority security interest in the ABL Priority Collateral; • a first-priority security interest in, and mortgages on, substantially all present and after acquired tangible and intangible assets of Academy and the Guarantors; and • a first-priority pledge of 100 % of the capital stock of Academy and its domestic subsidiaries and 66 % of the voting capital stock of each of Academy’s foreign subsidiaries, if any, that are directly owned by Academy or a future U.S. guarantor, if any. In order to secure the Notes and the guarantees, Academy, Ltd. and the Guarantors entered into certain security documents with the Notes Collateral Agent, including a security agreement and a pledge agreement, each dated as of November 6, 2020. The Notes and the guarantees are secured by: • a first-priority lien on all of Academy, Ltd.’s and the Guarantors’ personal property that secure the Term Loan on a first-priority basis; and • a second-priority lien on Academy, Ltd.’s and the Guarantors’ personal property consisting of accounts and all other rights to payment, inventory, tax refunds, cash, deposit accounts, securities and commodities accounts, and documents and supporting obligations, securing the ABL Facility on a first-priority basis and the Term Loan on a second-priority basis (the "ABL Priority Collateral"). Covenants. The ABL Facility, Term Loan and Notes agreements contain covenants, including, among other things, covenants that may restrict Academy, Ltd.'s ability to incur certain additional indebtedness, create or permit liens on assets, engage in mergers or consolidations, pay dividends, make other restricted payments, make loans or advances, engage in transactions with affiliates or amend material documents. Additionally, at certain times, the ABL Facility is subject to a minimum adjusted fixed charge coverage ratio. These covenants are subject to certain qualifications and limitations. We were in compliance with these covenants as of January 28, 2023. As of January 28, 2023, scheduled principal payments on our debt are as follows (amounts in thousands): Fiscal Year 2023 $ 3,000 2024 3,000 2025 3,000 2026 3,000 2027 582,750 Total $ 594,750 5. Derivative Financial Instruments We have historically used interest rate swap agreements to hedge market risk relating to possible adverse changes in interest rates. All interest rate swaps had been designated as cash flow hedges of variable rate interest payments on borrowings under the Term Loan. On October 28, 2020, we determined that a portion of the underlying cash flows related to $ 100.0 million of swap notional principal amount was no longer probable of occurring over the remaining term of the interest rate swaps as a result of the Company's Refinancing Transactions. As a result, we reclassified approximately $ 1.3 million of losses from accumulated other comprehensive loss ("AOCI") to other (income) expense, net in the third quarter of 2020 related to the portion of the forecasted transaction no longer considered probable of occurring. On January 19, 2021, we settled our three remaining outstanding interest rate swaps in full, which were scheduled to expire on various dates during 2021, for $ 4.1 million. As of January 28, 2023, we do not have any derivative financial instruments outstanding. For derivatives previously designated as hedging instruments, amounts included in AOCI were reclassified to interest expense in the same period during which the hedged transaction affected earnings, which is as interest expense was recorded on the underlying Term Loan. 87 The impact of gains and losses related to interest rate swaps that were deferred into AOCI and subsequently reclassified into expense is as follows (amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Accumulated Other Comprehensive Income (Loss), beginning $ — $ ( 3,324 ) $ ( 8,066 ) Loss deferred into AOCI (net of tax impact of $ 0 , $ 0 , and $ 350 for the years ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively) — — ( 6,303 ) Increase to interest expense (net of tax benefit (expense) of $ 0 , $ 980 and $( 1,000 ) for the years ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively) — 3,324 10,045 Loss on swaps from debt refinancing in other (income) expense, net (net of tax benefit of $ 0 , $ 0 , and $ 330 for the years ended January 28, 2023, January 29, 2022, and January 30, 2021, respectively) — — 1,000 Accumulated Other Comprehensive Loss, ending $ — $ — $ ( 3,324 ) 6. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of the assets and liabilities. The fair value measurements are classified as either: • Level 1 which represents valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; • Level 2 which represents valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and • Level 3 which represents valuations based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in which the fair value measurement is classified in its entirety, is based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers made into or out of the Level 1, 2 or 3 categories during any period presented. Other Financial Instruments Periodically we make cash investments in money market funds comprised of U.S. Government treasury bills and securities, which are classified as cash and redeemable on demand. We held investments in money market funds of $ 95.6 million and $ 401.0 million as of January 28, 2023 and January 29, 2022, respectively. The fair value of the Term Loan and Notes is estimated using a discounted cash flow analysis based on quoted market prices for the instrument in an inactive market and is therefore classified as Level 2 within the fair value hierarchy. As of January 28, 2023 and January 29, 2022, the estimated fair value of the Term Loan and Notes was $ 0.6 billion and $ 0.7 billion, respectively. As borrowings on the ABL Facility are generally repaid in less than 12 months, we believe that fair value approximates the carrying value. 88 7. Property and Equipment Property and equipment consists of the following (amounts in thousands) as of: January 28, 2023 January 29, 2022 Leasehold improvements $ 484,930 $ 456,918 Equipment and software 641,387 602,289 Furniture and fixtures 360,099 336,679 Construction in progress 23,159 11,147 Land 3,698 3,698 Total property and equipment 1,513,273 1,410,731 Accumulated depreciation and amortization ( 1,161,849 ) ( 1,064,895 ) Property and equipment, net $ 351,424 $ 345,836 Depreciation expense was $ 106.8 million, $ 105.3 million and $ 105.5 million in 2022, 2021 and 2020, respectively. 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (amounts in thousands) as of: January 28, 2023 January 29, 2022 Accrued interest $ 7,015 $ 6,583 Accrued personnel costs 57,504 115,073 Accrued professional fees 3,943 4,534 Accrued sales and use tax 9,302 13,054 Accrued self-insurance 20,941 15,824 Deferred revenue - gift cards and other 92,603 88,713 Income taxes payable 6,195 9,602 Property taxes 15,921 17,747 Sales return allowance 6,100 6,200 Other 20,645 25,877 Accrued expenses and other current liabilities $ 240,169 $ 303,207 9. Share-Based Compensation On September 29, 2020, the ASO, Inc. Board of Directors adopted the 2020 Omnibus Incentive Plan (the "2020 Omnibus Incentive Plan"), which became effective on October 1, 2020. The plan reserved a total of 5,150,000 shares of common stock for issuance. Concurrent with the adoption of the 2020 Omnibus Incentive Plan, the NAHC 2011 Unit Incentive Plan (the "2011 Unit Incentive Plan") was frozen and no further issuances will be permitted as part of the 2011 Unit Incentive Plan. As of January 28, 2023, there were 2,430,900 shares that were authorized and available for grant under the 2020 Omnibus Incentive Plan. On September 29, 2020, the ASO, Inc. Board of Directors adopted the 2020 Employee Stock Purchase Plan (the "ESPP"), which became effective on October 1, 2020. We have reserved a total of 2,000,000 shares and as of January 28, 2023, there were 1,717,411 shares authorized and available for future issuance under the ESPP. 89 The following table provides total stock-based compensation recognized in the consolidated statements of income (amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Equity compensation expense (1) $ 21,175 $ 39,264 (2) $ 31,617 (3) Total related tax benefit $ 4,494 $ 9,075 $ 7,738 (1) These costs are included within selling, general and administrative expenses in the consolidated statements of income. (2) These costs include approximately $ 24.9 million in non-cash expenses related to the 2021 Vesting Event, which occurred during the 2021 second quarter. (3) These costs include approximately $ 19.9 million of equity compensation expense associated with the expensing of certain outstanding restricted stock units as a result of the liquidity condition being achieved upon completion of our IPO. As of January 28, 2023, unrecognized compensation cost related to Unit Options and Restricted Units of $ 28.6 million is expected to be recognized over a weighted average life of 2.4 years. The grant date fair value of Restricted Units vested was $ 3.9 million, $ 24.4 million and $ 14.4 million for 2022, 2021 and 2020, respectively. 2011 Unit Incentive Plan The 2011 Unit Incentive Plan provides for the grant of certain equity incentive awards (each, an "Award"), such as options to purchase ASO, Inc. common stock (each, a "Unit Option") and restricted units that may settle in ASO, Inc. common stock (each, a "Restricted Unit") to our directors, executives, and eligible employees of the Company. Unit Options granted under the 2011 Unit Incentive Plan consist of Unit Options that vest upon the satisfaction of time-based requirements (each, a "Service Unit Option") and Unit Options that vest upon the satisfaction of both time-based requirements and Company performance-based requirements (each, a "Performance Unit Option"). Restricted Units granted under the 2011 Unit Incentive Plan consist of Restricted Units that vest upon the satisfaction of time-based requirements (each, a "Service Restricted Unit") and Restricted Units that vest upon the satisfaction of a liquidity event-based requirement together with a time-based requirement and/or a performance-based requirement (each, a "Liquidity Event Restricted Unit"). In each case, vesting of the Company’s outstanding and unvested Unit Options and Restricted Units is contingent upon the holder’s continued service through the date of each applicable vesting event. Concurrent with the adoption of the 2020 Omnibus Incentive Plan on October 1, 2020, no further Awards are authorized to be granted under the 2011 Unit Incentive Plan. 2020 Omnibus Incentive Plan The 2020 Omnibus Incentive plan provides for the grant of Awards such as options to purchase ASO, Inc. common stock (each, a "Stock Option") and restricted stock units which may settle in ASO, Inc. common stock (each, a "Restricted Stock Unit") to our directors, executives, and eligible employees of the Company. Stock Options granted under the 2020 Omnibus Incentive Plan consist of Stock Options that vest upon the satisfaction of time-based requirements (each, a "Service Stock Option" and Service Unit Options and Service Stock Options together are "Service Options"). Restricted Stock Units granted under the 2020 Omnibus Incentive Plan consist of Restricted Stock Units that vest upon the satisfaction of time-based requirements (each, a "Service Restricted Stock Unit") and Restricted Stock Units that vest upon the satisfaction of a time-based requirement and performance-based and/or market-based requirements (each, a "Performance Restricted Stock Unit"). In each case, vesting of the Company’s outstanding and unvested Stock Options and Restricted Stock Units is contingent upon the holder’s continued service through the date of each applicable vesting event. ESPP Our ESPP allows eligible employees to contribute up to 15 % of their eligible earnings toward the semi-annual purchase of the Company's shares of common stock at a discount of 15 % of the closing stock price on the first or last day of the six-month offering period, whichever is lower. 90 The number of shares reserved for issuance under the ESPP will be increased automatically on the first day of each fiscal year, beginning in fiscal year 2021, by a number equal to the lesser of (1) 1,000,000 shares of common stock, (2) 2.0 % of the total number of all classes of the company's common stock outstanding on the last day of the immediately preceding fiscal year, or (3) a lower number of shares determined by the ASO, Inc. Board of Directors. Distribution On August 28, 2020, NAHC paid a $ 257.0 million, or $ 1.1257 per unit (or $ 3.5460 as converted using the Contribution Ratio), distribution to its members of record as of August 25, 2020. Cash on hand was used to fund $ 248.0 million of the distribution, with the remainder distributed through an offset of outstanding loans receivable from one member and state income tax withholding made on behalf of NAHC's members. Holders of the outstanding granted equity Awards were entitled to receive value equal to $ 1.1257 per Award (or $ 3.5460 as converted using the Contribution Ratio), which was made in the form of cash payments, additional Restricted Unit grants or Unit Option exercise price adjustments. Cash payments due for unvested Awards were paid upon vesting of such Awards. In accordance with the terms of the 2011 Unit Incentive Plan, the Company made the following adjustments to each outstanding Award (per unit components, shares and exercise prices shown above and below are converted using the Contribution Ratio as described in the Retrospective Presentation of Ownership Exchange in Note 2): • Exercise price reductions of $ 0.28 for 9,788,000 Unit Options (or $ 0.89 for 3,107,301 Stock Options, as converted); • Exercise price reductions of $ 1.12 for 1,746,594 Unit Options (or $ 3.53 for 554,474 Stock Options, as converted); • Additional Restricted Unit grants of 159,362 units (or 50,590 Liquidity Event Restricted Units, as converted); and • Cash payments for vested Unit Options and vested Restricted Units ("Share-Based Award Payments") of $ 32.2 million were paid in-full as of July 31, 2021. No further Share-Based Award Payments relative to the distribution are payable as of January 29, 2022. These exercise price adjustments did not increase the value of the Unit Options and no related additional equity compensation expense was incurred. Service Option Fair Value Assumptions The fair value for Service Options granted was estimated using a Black-Scholes option-pricing model. The expected lives of the Service Options granted were based on the "SEC simplified" method. Expected price volatility was determined based on the implied volatilities of comparable companies over a historical period that matches the expected life of the Unit Options. The risk-free interest rate was based on the expected U.S. Treasury rate over the expected life. In 2022, the dividend yield was based on the most recent annualized quarterly dividend and the valuation date closing stock price. In 2021 and 2020, the dividend yield was based on the expectation that no dividends will be paid. The assumptions used to calculate the fair value of Unit Options granted are evaluated and modified, as necessary, to reflect current market conditions and experience. The following table presents the assumptions and grant date fair values for Service Options granted in 2022, 2021 and 2020: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 (1) Expected life in years 6.2 6.2 6.2 Expected volatility 43 % to 45 % 42 % to 44 % 53 % to 55 % Weighted-average volatility 43.0 % 43.7 % 53.1 % Risk-free interest rate 2.4 % to 4.1 % 1.0 % to 1.3 % 0.4 % to 0.8 % Dividend yield 0.8 % — — Weighted-average grant date fair value - Service Options $ 16.36 $ 11.92 $ 8.49 (1) See Retrospective Presentation of Ownership Exchange in Note 2. 91 Option Activity The Company’s outstanding and unvested Service Options typically vest ratably over a four-year period, on each anniversary of their grant date. In the event of certain Company change of control transactions, the Company’s then-outstanding and unvested Service Options will become fully vested and exercisable. There have been no Performance Options granted under the 2020 Omnibus Incentive Plan to date. Prior to the 2021 Vesting Event, the Company’s outstanding Performance Options typically vested ratably over a four-year period, after the conclusion of each fiscal year and upon our board of managers’ determination that the Company had achieved certain pre-determined annual earnings before interest, taxes, depreciation and amortization ("EBITDA") targets for such fiscal year. Option activity is as follows: Service Options (1) Options (2) Weighted Average Exercise Price (2) Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of February 1, 2020 5,790,308 $ 12.76 5.5 $ 28,855 Granted or modified 1,449,900 16.87 Canceled or modified ( 205,894 ) 14.23 Forfeited ( 327,836 ) 16.82 Exercised ( 423,696 ) 5.03 $ 6,066 Outstanding as of January 30, 2021 6,282,782 $ 13.53 5.5 $ 50,055 Granted or modified 915,017 27.41 Canceled or modified ( 1,499 ) 16.84 Forfeited ( 39,757 ) 23.19 Exercised ( 3,258,329 ) 10.62 $ 81,782 Outstanding as of January 29, 2022 3,898,214 $ 19.12 7.4 $ 72,345 Granted or modified 817,618 39.22 Canceled or modified ( 3,378 ) 17.06 Forfeited ( 51,027 ) 30.32 Exercised ( 1,090,733 ) 16.83 $ 34,611 Outstanding as of January 28, 2023 (3) 3,570,694 $ 24.27 7.3 $ 112,050 Exercisable as of January 28, 2023 2,161,345 $ 18.68 6.4 $ 79,914 (1) The fair value of a membership unit (2) / share price as of each period end was $ 17.61 , $ 21.50 , $ 37.66 and $ 55.65 for the fiscal years 2019, 2020, 2021 and 2022, respectively. (2) See Retrospective Presentation of Ownership Exchange in Note 2. (3) The Company has elected to recognize forfeitures as they occur. Therefore, the number of awards vested and expected to vest is equal to the awards outstanding. 92 Performance Unit Options (1) Unit Options (2) Weighted Average Exercise Price (2) Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of February 1, 2020 3,246,849 $ 9.51 3.6 $ 26,838 Granted or modified — — Canceled or modified ( 97,480 ) 10.92 Forfeited ( 85,564 ) 16.45 Exercised ( 115,184 ) 4.65 $ 1,928 Outstanding as of January 30, 2021 2,948,621 $ 8.81 2.5 $ 37,422 Granted or modified — — Canceled or modified — — Forfeited ( 295,932 ) 16.72 Exercised ( 2,255,780 ) 6.42 $ 55,865 Outstanding as of January 29, 2022 396,909 $ 16.48 5.8 $ 8,406 Granted or modified — — Canceled or modified — — Forfeited — — Exercised ( 178,432 ) 16.35 $ 5,570 Outstanding as of January 28, 2023 (3) 218,477 $ 16.59 5.5 $ 8,534 Exercisable as of January 28, 2023 218,477 $ 16.59 5.5 $ 8,534 (1) The fair value of a membership unit (2) / share price as of each period end was $ 17.61 , $ 21.50 , $ 37.66 and $ 55.65 for the fiscal years 2019, 2020, 2021 and 2022, respectively. (2) See Retrospective Presentation of Ownership Exchange in Note 2. (3) The Company has elected to recognize forfeitures as they occur. Therefore, the number of awards vested and expected to vest is equal to the awards outstanding. The total income tax benefit recognized from the exercise of stock options was $ 4.2 million, $ 18.5 million and $ 0.5 million for the fiscal years ended January 28, 2023, January 29, 2022 and January 30, 2021, respectively. Restricted Unit Activity Restricted Unit activity is as follows: Service Restricted Units Liquidity Event Restricted Units Performance Restricted Units Units (1) Weighted Average Grant Date Fair Value (1) Units (1) Weighted Average Grant Date Fair Value (1) Units (1) Weighted Average Grant Date Fair Value (1) Non-vested as of February 1, 2020 12,071 $ 16.57 1,044,813 $ 17.36 — $ — Granted 32,049 17.01 1,185,474 17.99 16,328 13.87 Vested ( 12,071 ) 16.58 ( 802,498 ) 17.64 — — Forfeited — — ( 88,459 ) 17.37 — — Non-vested as of January 30, 2021 32,049 $ 17.01 1,339,330 $ 17.74 16,328 $ 13.87 Granted 358,960 36.64 — — 196,056 27.41 Vested ( 33,389 ) 17.34 ( 1,339,330 ) 17.74 ( 4,079 ) 13.87 Forfeited ( 18,741 ) 27.62 — — ( 4,387 ) 30.07 Non-vested as of January 29, 2022 338,879 $ 37.18 — $ — 203,918 $ 26.54 Granted 198,346 39.40 — — 170,250 37.36 Vested ( 66,980 ) 32.46 — — ( 65,979 ) 26.44 Forfeited ( 33,137 ) 34.63 — — ( 9,260 ) 32.20 Non-vested as of January 28, 2023 437,108 $ 39.11 — $ — 298,929 $ 32.55 (1) See Retrospective Presentation of Ownership Exchange in Note 2. 93 The Company’s outstanding and unvested Service Restricted Units typically vest either (i) 100 % on the first anniversary of the grant date, or, if earlier, the business day immediately preceding the following annual meeting of stockholders, or (ii) over a four-year period at rates of 25 %, 25 %, 25 % and 25 % on the anniversary of their grant date. In the event of certain Company change of control transactions, the Company’s then-outstanding and unvested Service Restricted Units will become fully vested. The Company’s outstanding and unvested Liquidity Event Restricted Units began being expensed on October 6, 2020, concurrent with the completion of the IPO and the performance objective was met in accordance with ASC 718. Additionally, in connection with the completion of the IPO, the Company issued performance restricted units to key team members which will vest 25 % on the first anniversary of the grant date and 75 % on the second anniversary of the grant date. The Company’s outstanding and unvested Performance Restricted Units typically vest either (i) over a four-year period at rates of 25 %, 25 %, 25 % and 25 % per anniversary of the Performance Restricted Unit holder’s vesting commencement date, so long as the Company achieves (a) the performance metric for the grant year, (b) achieves a stated target share price, or (c) a change of control occurring during the grant year, or (ii) immediately at a rate of 100 %, upon the completion of certain Company change of control transactions, so long as during the twenty-four month period following such change of control the unit holder's service is terminated without cause or they submit their resignation for good reason, as defined in the award agreement. 10. Earnings per Common Share Basic earnings per common share is calculated based on net income divided by the basic weighted average common shares outstanding during the period, and diluted earnings per common share is calculated based on net income divided by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding is based on the basic weighted average common shares outstanding plus any potential dilutive effect of stock-based awards outstanding during the period using the treasury stock method, which assumes the potential proceeds received from the dilutive stock options are used to purchase treasury stock. Anti-dilutive stock-based awards do not include awards which have a performance or liquidity event target which has yet to be achieved. Basic and dilutive weighted average common shares outstanding and basic and diluted earnings per common share are calculated as follows (amounts in thousands except per share amounts): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Net income $ 628,001 $ 671,381 $ 308,764 Weighted average common shares outstanding - basic (1) 81,590 90,956 77,994 Dilutive effect of Service Restricted Units and Service Restricted Stock Units (1) 165 70 7 Dilutive effect of Performance Restricted Stock Units and Liquidity Event Restricted Units (1) 207 313 1,224 Dilutive effect of Service Options (1) 1,678 2,300 773 Dilutive effect of Performance Unit Options (1) 202 637 1,433 Dilutive effect of ESPP Shares 53 8 — Weighted average common shares outstanding - diluted (1) 83,895 94,284 81,431 Earnings per common share - basic $ 7.70 $ 7.38 $ 3.96 Earnings per common share - diluted $ 7.49 $ 7.12 $ 3.79 Anti-dilutive stock-based awards excluded from diluted calculation (1) 24 24 349 (1) See Retrospective Presentation of Ownership Exchange in Note 2 94 11. Income Taxes Prior to October 1, 2020, the Company, was treated as a flow through entity for U.S. federal income tax purposes and thus no federal income tax expense was recorded in our statements of income for periods prior to October 1, 2020. Our tax rate prior to October 1, 2020 was almost entirely the result of state income taxes. In connection with our IPO, as a result of the Reorganization Transactions completed on October 1, 2020, as described further in the Prospectus, on and after October 1, 2020, the Company is treated as a U.S. corporation for U.S. federal, state, and local income tax purposes and accordingly, a provision for income taxes has been recorded for the anticipated tax consequences of our reported results of operations for federal, state and local income taxes since October 1, 2020. As a result of the Reorganization Transactions, the Company recorded a net deferred tax liability position of $ 137.3 million, which consisted of the Company’s difference between the Company's financial statement carrying value and the outside tax basis in its NAHC membership units, immediately following the completion of the Reorganization Transactions, measured at the enacted federal and state income tax rates. Additionally, $ 4.6 million in current tax liability was assumed by the Company as part of the Reorganization Transactions. The combined entry was recorded as a cumulative adjustment to additional paid-in capital for 2020 equal to $ 141.9 million, as reflected in the statement of stockholders' equity. Effective January 31, 2021, NAHC discontinued partnership treatment for tax purposes. As a result, our deferred tax liability was no longer measured by reference to membership units in NAHC and instead was measured by reference to the underlying assets and liabilities of our operations. No change in the total reported deferred tax liability occurred as a result of the change in tax structure. The income tax provision consists of the following (amounts in thousands) as of: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Current expense: Federal $ 127,823 $ 93,373 $ 23,403 State 20,645 15,270 6,231 Foreign 20 26 21 Total current expense 148,488 108,669 29,655 Deferred expense (benefit): Federal 37,971 69,353 170 State 3,853 10,139 529 Foreign 7 ( 2 ) 2 Total deferred expense 41,831 79,490 701 Income tax expense $ 190,319 $ 188,159 $ 30,356 A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows: Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Federal income tax at the statutory rate 21.0 % 21.0 % 21.0 % State income tax, net of federal benefit 2.5 2.6 1.7 Effect of pre-IPO pass-through income allocated to our members — — ( 13.7 ) Nondeductible excess compensation 0.6 1.3 — Excess tax benefit for share-based compensation ( 0.7 ) ( 2.6 ) 0.0 Effect of other permanent items ( 0.1 ) ( 0.4 ) — Effective income tax rate 23.3 % 21.9 % 9.0 % 95 The effective tax rate for the period ending January 30, 2021, is less than the U.S. federal tax rate on corporations primarily as a result of the Company’s status as a flow-through entity prior to October 1, 2020. The fiscal year ended January 30, 2021 includes four months of activity subject to U.S. federal and state income tax in addition to the historically reported Texas franchise tax as a result of the Reorganization Transactions. For complete annual periods on and after October 1, 2020, no portion of the Company’s income remains flow-through to the prior members of NAHC. NAHC continued to operate as a tax partnership through January 30, 2021. Components of deferred tax assets and liabilities consist of the following (amounts in thousands) as of: January 28, 2023 January 29, 2022 Deferred tax assets: Accounts receivable $ 570 $ 274 Accrued liabilities and reserves 17,905 24,227 Equity compensation 7,947 8,848 Total deferred tax assets 26,422 33,349 Deferred tax liabilities: Inventory ( 49,995 ) ( 36,108 ) Prepaid items ( 5,143 ) ( 7,505 ) Property and equipment ( 15,496 ) ( 25,720 ) Intangible assets ( 214,292 ) ( 180,891 ) Other ( 539 ) ( 337 ) Total deferred tax liabilities ( 285,465 ) ( 250,561 ) Net deferred tax liability $ ( 259,043 ) $ ( 217,212 ) Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances annually. As of January 28, 2023, based on current facts and circumstances, management believes that it is more likely than not that the Company will realize benefit for its gross deferred tax assets. As of January 28, 2023, we had no unrecognized tax benefits and we do not anticipate that unrecognized tax benefits will significantly increase or decrease over the next twelve months. The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statute of limitations is open for federal and state tax audits for the tax fiscal years ending 2020 through 2022, and 2019 through 2022, respectively. 12. Leases We lease all of our retail stores, distribution centers and corporate offices. Our leases primarily relate to building leases, which generally include options to renew at our sole discretion for five years or more. We regularly extend options for our building leases, which constitutes a lease modification and such events require a re-measurement of the lease liability at current discount rates. The life of leasehold improvement assets are limited by the expected lease term. Additionally, we have certain agreements for equipment rentals, which are typically 12 months or less in duration. As of January 28, 2023, all of our leases are classified as operating leases. In addition, in certain situations, we may sublease real estate to third parties. Our sublease portfolio consists mainly of former store locations for which we are still under lease and existing store leases in which we have excess or unused space. 96 In April 2020, the Financial Accounting Standards Board issued Staff Q&A - Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic . This guidance provides entities with the option to elect to account for certain lease concessions as though the enforceable rights and obligations had existed in the original lease. As a result, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Accounting Standards Codification Topic 842, Leases , to those contracts. During the year ended January 30, 2021, the Company received $ 2.5 million in lease expense credit related to landlord abated rent as a result of the elections made under this guidance. Additionally, during the year ended January 30, 2021, the Company signed 46 lease extensions requiring lease modification accounting treatment. There were no lease expense credits or extensions requiring lease modification accounting treatment related to COVID-19 during the fiscal years ended January 28, 2023 and January 29, 2022, respectively. The components of lease expense and sublease income included in selling, general and administrative ("SG&A") expenses on our statement of income is as follows (amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Operating lease expense $ 201,398 $ 197,321 $ 196,794 Short-term lease expense — — — Variable lease expense 8,398 7,757 5,410 Sublease income ( 442 ) ( 486 ) ( 756 ) Net lease expense $ 209,354 $ 204,592 $ 201,448 Information about our operating leases is as follows (dollar amounts in thousands): Fiscal Year Ended January 28, 2023 January 29, 2022 January 30, 2021 Right-of-use assets obtained in exchange for new operating lease liabilities $ 116,652 $ 26,253 $ 86,782 Cash paid for amounts included in the measurement of operating lease liabilities $ 204,159 $ 203,554 $ 179,723 January 28, 2023 January 29, 2022 Weighted-average remaining lease term in years 9.8 10.2 Weighted-average incremental borrowing rate 9.0 % 9.0 % As most of our leases do not provide an implicit rate of interest, we use our incremental borrowing rate, which is based on the market lending rates for companies with comparable credit ratings, to determine the present value of lease payments on lease commencement or remeasurement. The remaining maturities of lease liabilities by fiscal year as of January 28, 2023 are as follows (amounts in thousands): 2023 $ 209,776 2024 203,187 2025 196,427 2026 188,495 2027 174,696 After 2027 859,669 Total lease payments (1) 1,832,250 Less: Interest ( 650,983 ) Present value of lease liabilities $ 1,181,267 (1) Minimum lease payments have not been reduced by sublease rentals of $ 0.5 million due in the future under non-cancelable subleases. 97 13. Related Party Transactions Monitoring Agreement On August 3, 2011 (the "Effective Date"), we entered into a monitoring agreement (the "Monitoring Agreement"), with Kohlberg Kravis Roberts & Co. L.P. (the "Adviser") pursuant to which the Adviser provided advisory, consulting and financial services to us. In accordance with the terms of the Monitoring Agreement, we paid an aggregate annual advisory fee which increased by 5.0 % annually on each anniversary of the Effective Date. The Adviser also charged us a customary fee for services rendered in connection with securing, structuring and negotiating equity and debt financings by us. Additionally, we were required to reimburse the Adviser for any out-of-pocket expenses in connection with these services. The Monitoring Agreement continued in effect from year-to-year, unless amended or terminated by the Adviser and us. Upon the completion of the IPO, in the third quarter of 2020 the Monitoring Agreement terminated, and we recognized the final termination fee of $ 12.3 million. The termination fee was equal to the net present value of the advisory fees that would have been paid from the termination date through the twelfth anniversary of the Effective Date of the Monitoring Agreement. We recognized advisory fees related to the Monitoring Agreement, including reimbursement of expenses, of approximately $ 14.8 million in 2020. These expenses are included in selling, general and administrative expenses in the consolidated statements of income. Transaction and Other Fee Arrangements On October 6, 2020, ASO, Inc. completed the IPO. The Company paid $ 2.7 million in fees to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO. On November 3, 2020, ASO, Inc. completed the IPO Over-Allotment Exercise. The Company paid $ 0.3 million in fees to KCM for underwriting services in connection with the IPO Over-Allotment Exercise. On November 6, 2020, the Company issued the Notes, entered into the 2020 Term Loan, and entered into the 2020 ABL Facility. The Company paid $ 2.5 million in fees to KCM in connection with the Refinancing Transactions. These fees are recorded as deferred loan costs, net of amortization, within the long-term debt on the consolidated balance sheets. Other Related Party Transactions On January 27, 2021, May 5, 2021, and September 14, 2021, in connection with the Secondary Offering, the May 2021 Secondary Offering, and the September 2021 Secondary Offering, respectively, the Company entered into Underwriting Agreements with affiliates of KKR (as selling stockholders), the several other selling stockholders named therein, and the several underwriters named therein, including KCM (as underwriter). The Secondary Offering, May 2021 Secondary Offering, and September 2021 Secondary Offering were completed on February 1, 2021, May 10, 2021, and September 17, 2021, respectively. The Company did not pay KCM any fees in connection with these secondary offerings. In connection with the May 2021 Secondary Offering, we repurchased from the underwriters 3,229,974 shares of ASO, Inc. common stock at $ 30.96 per share for approximately $ 100.0 million. In connection with the September 2021 Secondary Offering, we repurchased from the underwriters 4,500,000 shares of ASO, Inc. common stock at approximately $ 43.52 for approximately $ 195.8 million. The shares repurchased in both the May 2021 Secondary Offering and the September 2021 Secondary Offering were immediately retired by the Company (see Note 1 and Note 2). Additionally, KKR has ownership interest in a broad range of portfolio companies and we may have entered into commercial transactions for goods or services in the ordinary course of business with these companies. We do not believe such transactions are material to our business. Upon completion of the September 2021 Secondary Offering, KKR no longer holds an ownership interest in the Company. Investments in Managers During the year ended January 30, 2021, Managers repurchased at fair market value approximately $ 37.0 thousand of Redeemable Membership Units from a director of the Company for cash. NAHC concurrently repurchased from Managers for cash, at fair market value, a number of NAHC membership units equal to the number of Redeemable Membership Units repurchased from the director. Managers was dissolved and its assets were distributed to its members on December 23, 2020. 98 Note Receivable from Member and Distribution Prior to October 1, 2020, under NAHC's LLC agreement, certain members could require the Company to provide a tax loan on their behalf under certain circumstances. On April 10, 2019, the Company loaned $ 4.0 million with a note receivable issued to a member of NAHC. The note receivable bore semi-annual compounding interest at 2.5 % with outstanding principal and interest due on April 10, 2022. This note receivable was recorded in other non-current assets on the balance sheet. On April 5, 2018, the Company loaned $ 4.1 million with a note receivable issued to a member of NAHC. The note receivable bore semi-annual compounding interest at 2.1 %, with outstanding principal and interest due on April 5, 2021, and was recorded in prepaid expenses and other non-current assets on the balance sheet. On August 28, 2020, the Company made a distribution to its members of record as of August 25, 2020, of $ 257.0 million (see Note 9). Of the $ 257.0 million, $ 8.5 million was used to offset and satisfy the remaining balances of the notes receivable and related interest receivable from a member of NAHC. 14. Commitments and Contingencies Freight, Technology Related Commitments and Other As of January 28, 2023, we have obligations under freight, technology-related, construction and other contractual commitments in the amount of $ 117.4 million. Of such commitments, approximately $ 78.3 million is payable in the next 12 months. Financial Guarantees During the normal course of business, we enter into contracts that contain a variety of representations and warranties and provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we believe the risk of loss to be remote. Legal Proceedings We are a defendant or co-defendant in lawsuits, claims and demands brought by various parties relating to matters normally incident to our business. No individual case, or group of cases presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. The majority of these cases are alleging product, premises, employment and/or commercial liability. Reserves have been established that we believe to be adequate based on our current evaluations and experience in these types of claim situations. However, the ultimate outcome of these cases cannot be determined at this time. We believe, taking into consideration our indemnities, insurance and reserves, the ultimate resolution of these matters will not have a material impact on our financial position, results of operations or cash flows. Sponsorship Agreement and Intellectual Property Commitments We periodically enter into sponsorship agreements generally with professional sports teams, associations, events, networks or individual professional players and collegiate athletic programs in exchange for marketing and advertising promotions. We also enter into intellectual property agreements whereby the Company receives the right to use third-party owned trademarks typically in exchange for royalties on sales. These agreements typically contain a one to three-year term and contractual payment amounts required to be paid by the Company. As of January 28, 2023, we have $ 17.9 million in related commitments through 2027, of which $ 5.5 million is payable in next 12 months. 99 15. Employee Benefit Plans 401(k) Plan We sponsor a safe harbor defined contribution 401(k) profit sharing plan (the "401(k) Plan") for our eligible employees. The 401(k) Plan includes an eligible employee compensation deferral feature, Company matching contributions and a Company profit sharing component. Eligible employees are permitted to contribute up to 75 % of their eligible compensation on a pretax basis to the 401(k) Plan, subject to Internal Revenue Service limitations. We match 100 % of the money contributed by a plan participant to the 401(k) Plan each pay period, on a dollar-for-dollar basis, up to 6 % of a plan participant’s eligible compensation during such pay period. Annual Company profit sharing contributions are made at the discretion of our board of directors, subject to certain limitations. The 401(k) Plan may be amended or terminated at our discretion. Employer contributions related to the 401(k) Plan totaled $ 15.5 million, $ 15.6 million and $ 13.2 million in 2022, 2021 and 2020, respectively. 16. Selected Quarterly Financial Data (Unaudited) The summarized quarterly financial information for the fiscal years ended 2022 and 2021 are reflected in the table below (in thousands, except earnings per share data): 1st 2nd 3rd 4th (amounts in thousands) Quarter Quarter Quarter Quarter 2022: Net sales $ 1,467,730 $ 1,686,915 $ 1,493,925 $ 1,746,503 Gross margin 521,424 596,063 522,471 572,544 Operating income 205,493 256,734 179,522 204,800 Net income $ 149,806 $ 188,801 $ 131,741 $ 157,653 Earnings per common share: Basic $ 1.73 $ 2.28 $ 1.67 $ 2.03 Diluted $ 1.69 $ 2.22 $ 1.62 $ 1.97 Weighted average common shares outstanding: Basic 86,658 82,960 79,085 77,657 Diluted 88,614 84,906 81,379 80,074 2021: Net sales $ 1,580,333 $ 1,791,530 $ 1,592,795 $ 1,808,470 Gross margin 563,701 642,496 560,838 584,060 Operating income 239,074 254,558 216,113 198,202 Loss on early retirement of debt — 2,239 — — Net income $ 177,796 $ 190,510 $ 161,305 $ 141,770 Earnings per common share: Basic $ 1.93 $ 2.06 $ 1.77 $ 1.61 Diluted $ 1.84 $ 1.99 $ 1.72 $ 1.57 Weighted average common shares outstanding: Basic 92,088 92,627 91,140 87,970 Diluted 96,472 95,891 93,844 90,475 100 17. Subsequent Events Our management evaluated events or transactions that occurred after January 28, 2023 through March 16, 2023, the issuance date of the consolidated financial statements, and identified the following matter to report: On March 2, 2023, the Company's Board of Directors declared a quarterly cash dividend in the amount of $ 0.09 per share on the Company's common stock, payable on April 13, 2023 to stockholders of record as of the close of business on March 23, 2023. Item 16. Form 10–K Summary None. 101 Index to Exhibits Exhibit Number Description of Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on December 6, 2022). 4.1 Indenture, dated as of November 6, 2020, by and among Academy, Ltd., as issuer, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 4.2* Description of Securities Registered Under Section 12 of the Exchange Act. 10.1 Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C., as Texas Intermediate Holdcos, the several lenders from time to time party thereto, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent and the several other parties named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 10.2 Amendment No. 4, dated May 25, 2021, to the Second Amended and Restated Credit Agreement among Academy, Ltd., as Borrower, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent, the several lenders party thereto and the several other parties named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 25, 2021). 10.3 Amended and Restated Term Loan Security Agreement, dated as of July 2, 2015, among Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto, and Morgan Stanley Senior Funding, Inc., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.4 Amended and Restated Term Loan Pledge Agreement, dated as of July 2, 2015, among New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto and Morgan Stanley Senior Funding, Inc., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.5 ABL Intercreditor Agreement, dated July 2, 2015, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent for the Term Loan Secured Parties referred to therein, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, and each of the subsidiaries of the Borrower listed on the signature pages thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.6 Joinder to ABL Intercreditor Agreement, dated November 6, 2020, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, Credit Suisse AG, Cayman Islands Branch, as agent for the Term Loan Secured Parties referred to therein, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the Additional Debt Secured Parties referred to therein (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.7 Joinder to ABL Intercreditor Agreement, dated November 6, 2020, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, and Credit Suisse AG, Cayman Islands Branch, as agent for the Term Loan Secured Parties referred to therein (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.8 First Lien Intercreditor Agreement, dated November 6, 2020, among Credit Suisse AG, Cayman Islands Branch, as First Lien Collateral Agent and Authorized Representative for the Credit Agreement Secured Parties referred to therein, The Bank of New York Mellon Trust (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 102 Exhibit Number Description of Exhibit 10.9 First Amended and Restated ABL Credit Agreement, dated July 2, 2015, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, the lending institutions from time to time party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, the Collateral Agent, the Letter of Credit Issuer and the Swingline Lender (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.10 Amendment No. 1 to First Amended and Restated ABL Credit Agreement, dated as of May 22, 2018, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, each of the Guarantors party thereto, each of the lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, the Collateral Agent, the Letter of Credit Issuer and the Swingline Lender (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.11 Amendment No. 2 to First Amended and Restated ABL Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors, L.L.C. and Academy Managing Co., L.L.C., as Texas Intermediate Holdcos, the several lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as the letter of credit issuer, administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 10.12 Amended and Restated ABL Security Agreement, dated as of July 2, 2015, among Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto, and JPMorgan Chase Bank, N.A., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.13 Amended and Restated ABL Pledge Agreement, dated July 2, 2015, among New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto and JPMorgan Chase Bank, N.A., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.14 Notes Security Agreement, dated as of November 6, 2020, among Academy, Ltd., as Issuer, each of the guarantors listed on the signature pages thereto, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the benefit of the Secured Parties referred to therein (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.15 Notes Pledge Agreement, dated as of November 6, 2020, among Academy, Ltd., as Issuer, each of the guarantors listed on the signature pages thereto, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the benefit of the Secured Parties referred to therein (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.16 Amendment to the Registration Rights Agreement, dated as of October 6, 2020, by and among the Registrant, Allstar LLC and New Academy Holding Company, LLC (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 10.17† Form of 2022 Non-Employee Director Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on September 7, 2022). 10.18† Form of 2022 CEO Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2022). 10.19 † Form of 2022 CEO Time-Based Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2022). 10.20† Form of 2022 Executive Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2022). 10.21† Form of 2022 Executive Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2022). 10.22† Form of 2022 Executive Time-Based Option Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on June 7, 2022). 10.23† Form of 2021 RSU Executive Retention Award Agreement (incorporated by reference to Exhibit 10.01 to the Registrant's Quarterly Report on From 10-Q filed on December 10, 2021). 103 Exhibit Number Description of Exhibit 10.24† 2021 Form of Performance-Based Restricted Stock Unit Agreement under the 2020 Omnibus Incentive Plan. Plan (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K filed on April 7, 2021). 10.25† 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on December 10, 2020). 10.26† Form of Time-Based Option Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.27† Form of Non-Employee Director Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.28† 2020 Form of Performance-Based Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.29† 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.30† Form of 2020 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.31† Form of 2020 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.32† Form of 2019 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.33† Form of 2019 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.34† Form of 2018 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.35† Form of 2018 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.36† Form of 2018 Non Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed on April 7, 2021). 10.37† Form of 2017 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.38† Form of 2016 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.39† Form of August 2020 Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.40† Form of 2020 CEO Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.41† Form of 2020 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.42† Form of 2019 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.43† Form of 2018 CEO Restricted Unit Agreement under 2011 Unit Incentive Plan (as amended) (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 104 Exhibit Number Description of Exhibit 10.44† Form of Independent Non-Employee Director Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.45† Form of 2018 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.46† Ken C. Hicks Employment Agreement, dated August 2, 2018 (incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.47† Michael P. Mullican Employment Agreement, dated January 6, 2017 and amended on December 21, 2017 (incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.48† Steven (Steve) P. Lawrence Employment Agreement, dated January 29, 2019 (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.49† Samuel (Sam) J. Johnson Employment Agreement, dated April 17, 2017 (incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.50† Jamey Traywick Rutherford Employment Agreement, dated October 1, 2018 (incorporated by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K filed on April 7, 2021). 10.51† Manish Maini Employment Agreement, dated May 25, 2017 (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on September 7, 2022). 10.52† Form of 2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.34 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.53 Stockholders Agreement, dated as of October 6, 2020, by and among the Registrant, Allstar LLC, KKR 2006 Allstar Blocker L.P. and Allstar Co-Invest Blocker L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 10.54† Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.37 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.55† Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on September 7, 2022). 21.1* Subsidiaries of the Registrant. 23.1* Consent of Deloitte & Touche LLP (with respect to the financial statements of Academy Sports and Outdoors, Inc.). 31.1* Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Label Linkbase Document 101.PRE Inline XBRL Taxonomy Presentation Linkbase Document 104 The cover page for the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023 has been formatted in Inline XBRL. * Filed herewith 105 Exhibit Number Description of Exhibit ** This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. † Management contract or compensatory plan or arrangement The agreements and other documents filed as exhibits to this Annual Report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. 106 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on March 16, 2023 on its behalf by the undersigned, thereto duly authorized. ACADEMY SPORTS AND OUTDOORS, INC. By: /s/ HEATHER A. DAVIS Heather A. Davis Senior Vice President of Accounting, Treasury and Tax (principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ KEN C. HICKS Chairman, President and Chief Executive Officer March 16, 2023 Ken C. Hicks (principal executive officer) /s/ MICHAEL P. MULLICAN Executive Vice President and Chief Financial Officer March 16, 2023 Michael P. Mullican (principal financial officer) /s/ HEATHER A. DAVIS Senior Vice President of Accounting, Treasury and Tax March 16, 2023 Heather A. Davis (principal accounting officer) /s/ WENDY A. BECK Director March 16, 2023 Wendy A. Beck /s/ BRIAN T. MARLEY Director March 16, 2023 Brian T. Marley /s/ TOM M. NEALON Director March 16, 2023 Tom M. Nealon /s/ THERESA E. PALERMO Director March 16, 2023 Theresa E. Palermo /s/ BERYL B. RAFF Director March 16, 2023 Beryl B. Raff /s/ CHRIS L. TURNER Director March 16, 2023 Chris L. Turner /s/ SHAREN J. TURNEY Director March 16, 2023 Sharen J. Turney /s/ JEFF C. TWEEDY Director March 16, 2023 Jeff C. Tweedy 107 ACADEMY SPORTS AND OUTDOORS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance at beginning of period Charged to costs and expenses Deductions Balance at end of period January 28, 2023: Allowance for doubtful accounts $ 732 $ 1,426 $ ( 154 ) (1) $ 2,004 Sales return allowance 6,200 11,900 (2) ( 12,000 ) (2) 6,100 Inventory shrink adjustments 11,696 79,150 ( 85,886 ) (3) 4,960 Self-insurance reserves 24,509 74,292 ( 68,631 ) (4) 30,170 January 29, 2022: Allowance for doubtful accounts $ 1,172 $ 74 $ ( 514 ) (1) $ 732 Sales return allowance 5,800 13,200 (2) ( 12,800 ) (2) 6,200 Inventory shrink adjustments 8,504 74,441 ( 71,249 ) (3) 11,696 Self-insurance reserves 22,065 72,313 ( 69,869 ) (4) 24,509 January 30, 2021: Allowance for doubtful accounts $ 3,275 $ ( 205 ) (5) $ ( 1,898 ) (1) $ 1,172 Sales return allowance 5,500 11,300 (2) ( 11,000 ) (2) 5,800 Inventory shrink adjustments 12,891 76,990 ( 81,377 ) (3) 8,504 Self-insurance reserves 22,429 61,920 ( 62,284 ) (4) 22,065 (1) Represents write-offs to the reserve. (2) Represents the monthly increase (decrease) in the required reserve based on the Company's evaluation of anticipated merchandise returns. (3) Represents the actual inventory shrinkage experienced at the time of physical inventories. (4) Represents claim payments for self-insured claims. (5) The reduction represents net collections on previously written-off balances. 108