What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-12-09 compared with 2020-09-04 · 168 added, 184 removed, 487 unchanged (42% of the section changed)

3 unchanged sentences

(unaudited and in thousands, except per share amounts)

Three months ended Six months ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Three months ended Nine months ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net sales $ 652,870 $ 933,826 $ 1,625,367 $ 2,663,067

19 unchanged sentences

(unaudited and in thousands)

Three months ended Six months ended

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Three months ended Nine months ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net income (loss) $ ( 40,643 ) $ 43,460 $ ( 354,715 ) $ 102,061

2 unchanged sentences

Unrealized net gain on debt securities — 37 195 475

Reclassification adjustment for net losses (gains) realized in net income (loss) — 23 ( 368 ) ( 65 )

Reclassification adjustment for net gains realized in net income (loss) — ( 24 ) ( 368 ) ( 89 )

Total other comprehensive income (loss), net of income taxes 161 249 ( 2,263 ) 369

4 unchanged sentences

(unaudited and in thousands)

August 1, 2020 February 1, 2020 August 3, 2019

October 31, 2020 February 1, 2020 November 2, 2019

Cash and cash equivalents

13 unchanged sentences

93,655 113,644 113,644

Intangible assets

Intangible assets, net

15,652 22,846 23,297

10 unchanged sentences

171,261 194,264 190,897

Current maturities of long-term debt 62,500 — —

Current operating lease liabilities

2 unchanged sentences

831,566 680,031 641,830

Long-term debt

274,635 190,000 235,000

25 unchanged sentences

Class A common shares Class B common shares Treasury shares Common shares paid in capital Treasury shares Retained earnings (deficit) Accumulated other comprehensive loss Total

Three months ended August 1, 2020

Balance, May 2, 2020 64,302 7,733 22,169 $ 975,304 $ ( 515,065 ) $ 44,076 $ ( 6,209 ) $ 498,106

Three months ended October 31, 2020

Balance, August 1, 2020 64,578 7,733 22,169 $ 980,749 $ ( 515,065 ) $ ( 54,138 ) $ ( 4,919 ) $ 406,627

— — — — — ( 40,643 ) — ( 40,643 )

1 unchanged sentence

Other comprehensive income — — — — — — 161 161

Balance, October 31, 2020 64,646 7,733 22,169 $ 985,125 $ ( 515,065 ) $ ( 94,781 ) $ ( 4,758 ) $ 370,521

Three months ended November 2, 2019

Balance, August 3, 2019 64,911 7,733 21,169 $ 963,312 $ ( 498,436 ) $ 266,957 $ ( 2,586 ) $ 729,247

Three months ended August 3, 2019

Balance, May 4, 2019 67,434 7,733 18,501 $ 957,100 $ ( 448,436 ) $ 257,453 $ ( 3,266 ) $ 762,851

Net income — — — — — 43,460 — 43,460

4 unchanged sentences

Other comprehensive income — — — — — — 249 249

Balance, August 3, 2019 64,911 7,733 21,169 $ 963,312 $ ( 498,436 ) $ 266,957 $ ( 2,586 ) $ 729,247

Six months ended August 1, 2020

Balance, November 2, 2019 64,016 7,733 22,169 $ 968,093 $ ( 515,065 ) $ 292,490 $ ( 2,337 ) $ 743,181

Nine months ended October 31, 2020

Balance, February 1, 2020 64,033 7,733 22,169 $ 971,380 $ ( 515,065 ) $ 267,094 $ ( 2,495 ) $ 720,914

4 unchanged sentences

Other comprehensive loss — — — — — — ( 2,263 ) ( 2,263 )

Balance, August 1, 2020 64,578 7,733 22,169 $ 980,749 $ ( 515,065 ) $ ( 54,138 ) $ ( 4,919 ) $ 406,627

Six months ended August 3, 2019

Balance, October 31, 2020 64,646 7,733 22,169 $ 985,125 $ ( 515,065 ) $ ( 94,781 ) $ ( 4,758 ) $ 370,521

Nine months ended November 2, 2019

Balance, February 2, 2019 70,672 7,733 15,091 $ 953,801 $ ( 373,436 ) $ 254,718 $ ( 2,706 ) $ 832,377

6 unchanged sentences

Other comprehensive income — — — — — — 369 369

Balance, August 3, 2019 64,911 7,733 21,169 $ 963,312 $ ( 498,436 ) $ 266,957 $ ( 2,586 ) $ 729,247

Balance, November 2, 2019 64,016 7,733 22,169 $ 968,093 $ ( 515,065 ) $ 292,490 $ ( 2,337 ) $ 743,181

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

2 unchanged sentences

(unaudited and in thousands)

Six months ended

August 1, 2020 August 3, 2019

Nine months ended

October 31, 2020 November 2, 2019

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization 66,139 64,226

44,075 42,485

Stock-based compensation expense 15,176 13,748

Deferred income taxes ( 179,098 ) ( 11,411 )

( 152,988 ) 1,043

Income from equity investment ( 6,325 ) ( 7,354 )

( 4,423 ) ( 4,692 )

Distributions received from equity investment 6,106 10,515

1 unchanged sentence

Gain on settlement ( 8,990 ) —

Other 43 1,519

Change in operating assets and liabilities, net of acquired amounts:

Accounts receivable 7,519 ( 17,484 )

30,699 ( 14,800 )

186,965 ( 61,748 )

Inventories 86,229 ( 35,394 )

Prepaid expenses and other current assets 13,785 4,403

( 847 ) ( 2,972 )

Accounts payable 79,642 8,853

( 67,282 ) 30,683

Accrued expenses 4,629 ( 7,838 )

26,693 ( 24,677 )

Operating lease assets and liabilities, net 14,164 ( 12,595 )

44,777 ( 8,935 )

Net cash provided by (used in) operating activities ( 106,333 ) 118,073

( 79,619 ) 34,192

Cash flows from investing activities:

5 unchanged sentences

Cash flows from financing activities:

Borrowing on revolving line of credit

251,000 320,700

Payments on revolving line of credit

( 48,000 ) ( 245,700 )

Borrowing on revolving line under Credit Facility 251,000 375,200

Payments on revolving line under Credit Facility ( 441,000 ) ( 300,200 )

Borrowing under ABL Revolver 150,000 —

Payments on borrowings under ABL Revolver ( 50,000 ) —

Proceeds from issuance of Term Loan 250,000 —

Payments on borrowings under Term Loan ( 3,125 ) —

Payments of debt issuance costs ( 21,063 ) —

Cash paid for treasury shares — ( 141,629 )

— ( 125,000 )

Dividends paid ( 7,160 ) ( 54,733 )

( 7,160 ) ( 36,806 )

( 2,646 ) ( 397 )

Other ( 1,502 ) 733

Net cash provided by (used in) financing activities 127,150 ( 120,629 )

193,194 ( 87,203 )

Effect of exchange rate changes on cash balances 330 91

( 199 ) ( 286 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 27,967 ( 12,730 )

120,156 ( 48,806 )

Cash, cash equivalents, and restricted cash, beginning of period 86,564 100,568

86,564 100,568

Cash and cash equivalents, end of period $ 114,531 $ 87,838

$ 206,720 $ 51,762

Supplemental disclosures of cash flow information:

Cash paid (received) for income taxes $ ( 12,979 ) $ 31,523

$ 165 $ 21,796

Cash paid for interest on debt $ 12,581 $ 6,577

$ 5,606 $ 4,052

Cash paid for operating lease liabilities $ 128,683 $ 178,225

$ 62,262 $ 118,563

Non-cash investing and financing activities:

Property and equipment purchases not yet paid $ 1,341 $ 7,442

$ 1,981 $ 8,648

Operating lease liabilities arising from lease asset additions $ 9,407 $ 17,729

$ 9,408 $ 9,184

Increase to operating lease assets and lease liabilities for modifications $ 18,660 $ 60,736

$ 23,195 $ 48,029

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

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We also own licensing rights for the Jessica Simpson footwear business and footwear and handbag licenses for Lucky Brand and Max Studio.

In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40 % stake in ABG-Camuto, LLC ("ABG-Camuto"), a joint venture that acquired several intellectual property rights, including Vince Camuto, Louise et Cie, Sole Society, CC Corso Como, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands.

We have a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands owned by ABG-Camuto.

Our Affiliated Business Group ("ABG") partners with other retailers to help build and optimize their in-store and online footwear businesses by leveraging our sourcing network to produce a merchandise assortment that meets their needs.

In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we have a 40 % stake in ABG-Camuto, LLC ("ABG-Camuto"), a joint venture that acquired several intellectual property rights, including Vince Camuto, Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands.

We have a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands owned by ABG-Camuto, subject to guaranteed minimums.

We present three reportable segments:

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under the DSW banner and its related e-commerce site.

The Canada Retail segment includes stores operated in Canada under The Shoe Company, Shoe Warehouse, DSW banners and related e-commerce sites.

The Brand Portfolio segment includes the sale of wholesale products to retailers, commissions for serving retailers as the design and buying agent for products under private labels ("First Cost"), and the sale of branded products on direct-to-consumer e-commerce sites.

The Canada Retail segment includes stores operated in Canada under The Shoe Company, Shoe Warehouse, and DSW banners and related e-commerce sites.

Other operating segments are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.

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In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions.

However, as this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, liquidity management, and reductions to our expense and capital expenditure plans.

With the easing of stay-at-home orders and other state-imposed restrictions on non-essential businesses, during the second quarter and into the third quarter of fiscal 2020, we have re-opened the majority of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions.

In July 2020, we implemented an internal reorganization and reduction of our workforce, resulting in the elimination of over 1,000 associate positions, including approximately 220 vacant positions that will not be filled.

As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as reductions to our expense and capital expenditure plans.

Following the earlier easing of stay-at-home orders and other state-imposed restrictions on non-essential businesses during the second quarter and into the third quarter of fiscal 2020, we re-opened all of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions.

In July 2020, we initiated an internal reorganization and reduction of our workforce, resulting in the elimination of approximately 1,000 associate positions, including over 200 vacant positions that will not be filled.

The charges recorded as a result of this reorganization are included in our integration and restructuring costs discussed below.

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( unaudited )

Although all of our stores were open at the end of the third quarter of fiscal 2020, we experienced during the quarter, and have continued to experience, significantly reduced customer traffic and net sales.

Our retail customers in the Brand Portfolio Segment are having similar experiences.

Given the continuation of overall depressed consumer sentiment, customer behavior has been and may continue to be slow to return to pre-COVID-19 patterns and levels, if at all.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures resulted in a sharp decline in our net sales and cash flows during the first half of fiscal 2020.

Although the majority of our stores are now open, we are experiencing, and may continue to experience, significantly reduced customer traffic and net sales.

Our retailer customers in the Brand Portfolio Segment are having similar experiences.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures primarily during the first half of fiscal 2020 and continuing reduced customer traffic, resulted in a sharp decline in our net sales and cash flows.

As a result of the material reduction in net sales and cash flows during fiscal 2020, we updated our impairment analysis for our U.S.

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In addition, we evaluated other long-lived assets based on our intent to use such assets going forward.

During the three months ended August 1, 2020, we recorded an impairment charge of $ 6.7 million for the U.S.

During the three months ended October 31, 2020, we recorded an impairment charge of $ 30.1 million for the U.S.

Retail segment.

During the six months ended August 1, 2020, we recorded impairment charges of $ 92.8 million ($ 73.1 million and $ 19.7 million for the U.S.

During the nine months ended October 31, 2020, we recorded impairment charges of $ 122.9 million ($ 103.2 million and $ 19.7 million for the U.S.

Retail and Canada Retail segments, respectively).

Also during the six months ended August 1, 2020, we recorded an impairment charge of $ 6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

Also during the nine months ended October 31, 2020, we recorded an impairment charge of $ 6.5 million for the Brand Portfolio segment customer relationship intangible resulting in a full impairment due to the lack of projected cash flows over the remaining useful life (categorized as Level 3 under the fair value hierarchy).

We evaluate goodwill and other indefinite lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

2 unchanged sentences

Our analysis concluded that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value.

Accordingly, during the six months ended August 1, 2020, we recorded an impairment charge of $ 20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

Accordingly, during the nine months ended October 31, 2020, we recorded an impairment charge of $ 20.0 million for the First Cost reporting unit in the Brand Portfolio segment, resulting in a full impairment.

For goodwill within the U.S.

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As a result, earnings are negatively impacted as the merchandise is marked down prior to sale.

Inventories for the Canada Retail and Brand Portfolio segments are accounted for using weighted average cost method and are stated at the lower of cost or net realizable value.

Inventories for the Canada Retail and Brand Portfolio segments are accounted for using the weighted average cost method and are stated at the lower of cost or net realizable value.

For all inventories, we also monitored excess and obsolete inventories in light of the temporary closure of stores during our peak spring selling season and reduced traffic experienced since re-opening stores.

During the six months ended August 1, 2020, we recorded approximately $ 64.0 million of additional inventory reserves over the same period last year.

A s of October 31, 2020, we had approximately $ 18.0 million of additional inventory reserves over the same period last year.

On March 27, 2020, the U.S.

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Similar credits and deferrals were also available in Canada.

During the three and six months ended August 1, 2020, the qualified payroll tax credits reduced our operating expenses by $ 3.5 million and $ 7.9 million, respectively, on our condensed consolidated statement of operations.

We expect to record additional payroll tax credits from government agencies in the third quarter of fiscal 2020 to offset qualified wages paid to our employees and we intend to defer qualified payroll and other tax payments where permitted.

During the three and nine months ended October 31, 2020, the qualified payroll tax credits reduced our operating expenses by $ 1.4 million and $ 9.3 million, respectively, on our condensed consolidated statement of operations.

A s of October 31, 2020, we had $ 7.8 million of deferred qualified payroll and other tax obligations included in other non-current liabilities on the condensed consolidated balance sheets, 50% of which we expect to pay at the end of fiscal 2021 and the remaining to be paid at the end of fiscal 2022.

We recorded our income tax expense, deferred tax assets and related liabilities based on management’s best estimates.

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federal statutory tax rate was 35%, as opposed to the current rate of 21%.

As of August 1, 2020, we did not significantly adjust the valuation allowance on deferred tax assets based on available evidence.

However, we will continue to monitor the realizability of our deferred tax assets, particularly in certain jurisdictions where the outbreak has created significant net operating losses.

Our ability to recover these deferred tax assets depends on several factors, including the amount

As of October 31, 2020, we did not significantly adjust the valuation allowance on deferred tax assets based on available evidence.

However, we will continue to monitor the realizability of our deferred tax assets, particularly as we continue to recognize net operating losses.

DESIGNER BRANDS INC.

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( unaudited )

of net operating losses we can carry back and our ability to project future taxable income.

Total deferred tax assets as of August 1, 2020 were $ 182.9 million, which are all related to jurisdictions where we expect to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across the jurisdictions.

Our effective tax rate changed from 27.9 % for the six months ended August 3, 2019 to 32.5 % for the six months ended August 1, 2020.

ability to recover these deferred tax assets depends on several factors, including the amount of net operating losses we can carry back and our ability to project future taxable income.

Total deferred tax assets as of October 31, 2020 were $ 209.0 million, which are all related to jurisdictions where we expect to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across the jurisdictions.

Our effective tax rate changed from 24.6 % for the nine months ended November 2, 2019 to 33.4 % for the nine months ended October 31, 2020.

The increase in the effective tax rate was primarily driven by the ability to carry back current year losses to a tax year where the U.S.

federal statutory tax rate was 35%.

In addition, during the three and six months ended August 1, 2020, we incurred $ 6.4 million and $ 8.1 million, respectively, of incremental costs directly related to COVID-19, including termination fees, pre-open cleaning services, signs used to encourage customers in social distancing, plexiglass shields used at store registers, and supplies of thermometers, masks, gloves, cleaning agents, and other items.

We expect to record additional similar costs during the remainder of fiscal 2020 as we strive to protect our associates and serve our customers in the safest way possible and in compliance with applicable government mandates.

The COVID-19 pandemic remains challenging.

The continuation of the outbreak or a new surge in cases may cause new and prolonged periods of store closures, further adjustments to store operations, and changes in customer behaviors and preferences, which may necessitate further shifts in our business model, and potential reductions in consumer spending.

In addition, during the nine months ended October 31, 2020, we incurred $ 8.5 million of incremental costs directly related to COVID-19, including termination fees, pre-open cleaning services, signs used to encourage customers in social distancing, plexiglass shields used at store registers, and supplies of thermometers, masks, gloves, cleaning agents, and other items.

The COVID-19 pandemic remains challenging, and with the resurgence of the COVID-19 outbreak and related restrictions imposed by state and local government authorities designed to slow the virus's spread, we may be required to close stores in certain locations that we only recently re-opened.

The ongoing and prolonged nature of the outbreak has continued to adversely impact our business and may lead to further adjustments to store operations, as well as continue to drive changes in customer behaviors and preferences during our peak fall season, including reductions in consumer spending, which may necessitate further shifts in our business model.

As such, the ultimate impacts of the COVID-19 outbreak to our businesses remain highly uncertain and we may have additional write-downs of inventories, accounts receivables, long-lived assets, intangibles, and goodwill and an inability to realize deferred tax assets.

Integration and Restructuring Costs- During the three months ended August 1, 2020 and August 3, 2019, we incurred integration and restructuring costs, which consisted primarily of severance of $ 7.3 million and $ 2.4 million, respectively, and professional fees and other integration costs of $ 1.2 million and $ 7.2 million, respectively.

During the six months ended August 1, 2020 and August 3, 2019, we incurred integration and restructuring costs, which consisted primarily of severance of $ 9.0 million and $ 3.6 million, respectively, and professional fees and other integration costs of $ 1.2 million and $ 8.5 million, respectively.

Integration and Restructuring Costs- During the nine months ended October 31, 2020 and November 2, 2019, we incurred integration and restructuring costs, which consisted primarily of severance of $ 10.0 million and $ 3.8 million, respectively, and professional fees, termination fees and other integration costs of $ 1.0 million and $ 9.8 million, respectively.

These costs are included in operating expenses in the condensed consolidated statements of operations.

As of August 1, 2020 and August 3, 2019, we had accrued severance of $ 8.4 million and $ 4.6 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

As of October 31, 2020 and November 2, 2019, we had accrued severance of $ 3.8 million and $ 3.0 million, respectively, included in accrued expenses on the condensed consolidated balance sheets.

Lease Modifications- In response to the COVID-19 outbreak, we negotiated deferrals of lease payments to be repaid over various time periods, with no substantive changes to the total consideration.

For these deferrals, we have elected to treat the changes as modifications to our leases, which resulted in remeasuring the related lease assets and liabilities and including non-lease components per our policy.

Gain on Settlement- During the three months ended August 1, 2020, we recognized a gain of $ 9.0 million, recorded to operating expenses in the condensed consolidated statements of operations, due to a settlement with a vendor for costs incurred on internal-use software that was capitalized and impaired in a previous fiscal year.

During the three months ended August 1, 2020, we collected $ 4.2 million, net of legal costs incurred, and recorded a $ 4.8 million receivable included in accounts receivable on the condensed consolidated balance sheets, which has been subsequently received.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands and its subsidiaries, including variable interest entities.

Gain on Settlement- During the nine months ended October 31, 2020, we collected $ 9.0 million, net of legal costs incurred, and recorded a gain to operating expenses in the condensed consolidated statements of operations, which was due to a settlement with a vendor related to costs incurred on an internal-use software project that was capitalized and then impaired in a previous fiscal year.

Principles of Consolidation- The condensed consolidated financial statements include the accounts of Designer Brands Inc.

and its subsidiaries, including variable interest entities.

All intercompany accounts and transactions have been eliminated in consolidation.

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The carrying value of cash and cash equivalents, accounts receivables and accounts payables approximated their fair values due to their short-term nature.

The carrying value of borrowing under our senior unsecured revolving credit agreement (the "Credit Facility") approximates its fair value based on its term and variable interest rate.

The fair value of borrowings under our senior secured asset-based revolving credit facility ("ABL Revolver") and our previous senior revolving credit agreement ("Credit Facility") approximated the carrying value.

As of October 31, 2020, the fair value of borrowings under our senior secured term loan ("Term Loan") was $ 250.3 million compared to the carrying value of $ 246.9 million.

The fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2).

Prior Period Reclassifications- Certain prior period reclassifications were made to conform to the current period presentation, consistent with the changes made during the fourth quarter of fiscal 2019.

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Disaggregation of Net Sales- The following table presents net sales disaggregated by product and service category for each segment:

Three months ended Six months ended

(in thousands) August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Retail segment:

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The following table presents the changes and total balances for gift cards and our loyalty programs:

Three months ended Six months ended

(in thousands) August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Beginning of period $ 29,919 $ 28,277 $ 35,461 $ 34,998

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Schottenstein Affiliates

As of August 1, 2020, the Schottenstein Affiliates consisted of entities owned or controlled by Jay L.

As of October 31, 2020, the Schottenstein Affiliates consisted of entities owned or controlled by Jay L.

Schottenstein, the executive chairman of our Board of Directors, and members of his family.

As of August 1, 2020, the Schottenstein Affiliates beneficially owned approximately 16 % of the Company's outstanding common shares, representing approximately 52 % of the combined voting power, consisting of, in the aggregate, 3.7 million Class A common shares and 7.7 million Class B common shares.

As of October 31, 2020, the Schottenstein Affiliates beneficially owned approximately 16 % of the Company's outstanding common shares, representing approximately 52 % of the combined voting power, consisting of, in the aggregate, 3.7 million Class A common shares and 7.7 million Class B common shares.

The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods:

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See Note 13, Leases , for rent expense and future minimum lease payment requirements associated with the Schottenstein Affiliates.

Other Purchases and Services- During the three months ended August 1, 2020 and August 3, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.2 million and $ 1.5 million, respectively.

During the six months ended August 1, 2020 and August 3, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 2.5 million and $ 3.4 million, respectively.

Due to Related Parties- As of August 1, 2020, February 1, 2020 and August 3, 2019, we had amounts due to the Schottenstein Affiliates of $ 0.4 million, $ 0.9 million and $ 0.5 million, respectively, included in accounts payable on the condensed consolidated balance sheets.

Other Purchases and Services- During the three months ended October 31, 2020 and November 2, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 1.7 million and $ 1.2 million, respectively.

During the nine months ended October 31, 2020 and November 2, 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 4.2 million and $ 4.6 million, respectively.

Due to Related Parties- As of October 31, 2020, February 1, 2020 and November 2, 2019, we had amounts due to the Schottenstein Affiliates of $ 1.1 million, $ 0.9 million and $ 0.6 million, respectively, included in accounts payable on the condensed consolidated balance sheets.

We have a 40 % interest in our equity investment in ABG-Camuto.

We entered into a licensing agreement with ABG-Camuto, pursuant to which we pay royalties on the net sales of the brands owned by ABG-Camuto.

During the three months ended August 1, 2020 and August 3, 2019, we recorded $ 4.6 million and $ 3.6 million of royalty expense payable to ABG-Camuto, respectively.

During the six months ended August 1, 2020 and August 3, 2019, we recorded $ 9.0 million and $ 9.3 million of royalty expense payable to ABG-Camuto, respectively.

As of August 1, 2020 and February 1, 2020, we had $ 0.1 million and $ 0.3 million payable to ABG-Camuto, respectively, included in accrued expenses on the condensed consolidated balance sheets.

During the three months ended October 31, 2020 and November 2, 2019, we recorded $ 4.6 million and $ 4.4 million of royalty expense payable to ABG-Camuto, respectively.

During the nine months ended October 31, 2020 and November 2, 2019, we recorded $ 13.6 million and $ 13.7 million of royalty expense payable to ABG-Camuto, respectively.

Amounts payable to ABG-Camuto for all periods presented were immaterial.

EARNINGS (LOSS) PER SHARE

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The following is a reconciliation between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share:

Three months ended Six months ended

Three months ended Nine months ended

(in thousands)

August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Weighted average basic shares outstanding

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Dilutive effect of stock-based compensation awards

— 787 — 1,014

Weighted average diluted shares outstanding

72,344 72,947 72,134 75,149

For the three months ended August 1, 2020 and August 3, 2019, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 5.9 million and 4.6 million, respectively.

For the six months ended August 1, 2020 and August 3, 2019, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 5.5 million and 2.9 million, respectively.

For the three months ended October 31, 2020 and November 2, 2019, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 5.4 million and 4.9 million, respectively.

For the nine months ended October 31, 2020 and November 2, 2019, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 5.9 million and 3.2 million, respectively.

DESIGNER BRANDS INC.

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Stock-based compensation expense consisted of the following:

Three months ended Six months ended

(in thousands) August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Stock options $ 338 $ 428 $ 1,208 $ 1,814

1 unchanged sentence

$ 4,580 $ 4,017 $ 15,176 $ 13,748

The following table summarizes the stock-based compensation award activity for the six months ended August 1, 2020:

The following table summarizes the stock-based compensation award activity for the nine months ended October 31, 2020:

Number of shares

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The following table provides additional information for our common shares:

August 1, 2020 February 1, 2020 August 3, 2019

October 31, 2020 February 1, 2020 November 2, 2019

(in thousands) Class A Class B Class A Class B Class A Class B

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We have authorized 100 million shares of no par value preferred shares, with no shares issued for any of the periods presented.

Share Repurchases- During the six months ended August 1, 2020, we did not repurchase any Class A common shares.

During the six months ended August 3, 2019, we repurchased 6.1 million Class A common shares at a cost of $ 125.0 million.

Share Repurchases- During the nine months ended October 31, 2020, we did not repurchase any Class A common shares.

During the nine months ended November 2, 2019, we repurchased 7.1 million Class A common shares at a cost of $ 141.6 million.

DESIGNER BRANDS INC.

3 unchanged sentences

Three months ended

August 1, 2020 August 3, 2019

October 31, 2020 November 2, 2019

(in thousands) Foreign Currency Translation Available-for-Sale Securities Total Foreign Currency Translation Available-for-Sale Securities Total

1 unchanged sentence

Other comprehensive income before reclassifications 161 — 161 236 37 273

Amounts reclassified to non-operating expenses, net — — — — 23 23

Amounts reclassified to non-operating expense, net — — — — ( 24 ) ( 24 )

Other comprehensive income 161 — 161 236 13 249

Accumulated other comprehensive loss - end of period $ ( 4,919 ) $ — $ ( 4,919 ) $ ( 2,581 ) $ ( 5 ) $ ( 2,586 )

Six months ended

August 1, 2020 August 3, 2019

Accumulated other comprehensive income (loss) - end of period $ ( 4,758 ) $ — $ ( 4,758 ) $ ( 2,345 ) $ 8 $ ( 2,337 )

Nine months ended

October 31, 2020 November 2, 2019

(in thousands) Foreign Currency Translation Available-for-Sale Securities Total Foreign Currency Translation Available-for-Sale Securities Total

Accumulated other comprehensive gain (loss) - beginning of period $ ( 2,668 ) $ 173 $ ( 2,495 ) $ ( 2,328 ) $ ( 378 ) $ ( 2,706 )

Accumulated other comprehensive income (loss) - beginning of period $ ( 2,668 ) $ 173 $ ( 2,495 ) $ ( 2,328 ) $ ( 378 ) $ ( 2,706 )

Other comprehensive income (loss) before reclassifications ( 2,090 ) 195 ( 1,895 ) ( 17 ) 475 458

Amounts reclassified to non-operating expenses, net — ( 368 ) ( 368 ) — ( 65 ) ( 65 )

Amounts reclassified to non-operating expense, net — ( 368 ) ( 368 ) — ( 89 ) ( 89 )

Other comprehensive income (loss) ( 2,090 ) ( 173 ) ( 2,263 ) ( 17 ) 386 369

Accumulated other comprehensive loss - end of period $ ( 4,919 ) $ — $ ( 4,919 ) $ ( 2,581 ) $ ( 5 ) $ ( 2,586 )

Accumulated other comprehensive income (loss) - end of period $ ( 4,758 ) $ — $ ( 4,758 ) $ ( 2,345 ) $ 8 $ ( 2,337 )

ACCOUNTS RECEIVABLE

Accounts receivable, net, consisted of the following:

(in thousands) August 1, 2020 February 1, 2020 August 3, 2019

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Customer accounts receivables:

5 unchanged sentences

Allowance for doubtful accounts ( 1,265 ) ( 1,219 ) ( 2,635 )

Accounts receivable, net $ 49,240 $ 89,151 $ 85,162

$ 61,840 $ 89,151 $ 87,313

DESIGNER BRANDS INC.

3 unchanged sentences

(in thousands)

August 1, 2020 February 1, 2020 August 3, 2019

October 31, 2020 February 1, 2020 November 2, 2019

Carrying value of investments

5 unchanged sentences

Property and equipment, net, consisted of the following:

(in thousands) August 1, 2020 February 1, 2020 August 3, 2019

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Land $ 1,110 $ 1,110 $ 1,110

6 unchanged sentences

Accumulated depreciation and amortization ( 821,368 ) ( 773,053 ) ( 751,745 )

Property and equipment, net $ 332,730 $ 395,009 $ 402,779

$ 313,102 $ 395,009 $ 394,695

DESIGNER BRANDS INC.

3 unchanged sentences

Goodwill- Activity related to our goodwill was as follows:

Six months ended

August 1, 2020 August 3, 2019

Nine months ended

October 31, 2020 November 2, 2019

(in thousands) Goodwill Accumulated Impairments Net Goodwill Accumulated Impairments Net

5 unchanged sentences

Activity by segment:

Allocation of goodwill from Brand Portfolio — — — 67,756 — 67,756

Canada Retail -

3 unchanged sentences

Purchase price and allocation adjustments — — — 24,131 — 24,131

Allocation of goodwill to U.S.

Retail — — — ( 67,756 ) — ( 67,756 )

( 264 ) ( 19,725 ) ( 19,989 ) 23,936 195 24,131

6 unchanged sentences

(in thousands) Cost Accumulated Amortization Net

August 1, 2020

October 31, 2020

Definite-lived customer relationships $ 2,851 $ ( 2,626 ) $ 225

5 unchanged sentences

$ 24,890 $ ( 2,044 ) $ 22,846

August 3, 2019

November 2, 2019

Definite-lived customer relationships $ 9,369 $ ( 1,684 ) $ 7,685

6 unchanged sentences

Accrued expenses consisted of the following:

(in thousands) August 1, 2020 February 1, 2020 August 3, 2019

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

Gift cards and merchandise credits $ 28,299 $ 35,461 $ 26,098

6 unchanged sentences

$ 171,261 $ 194,264 $ 190,897

During the six months ended August 1, 2020, our Credit Facility provided a revolving line of credit with sub-limits for the issuance of up to $ 50 million in letters of credit, swing loan advances of up to $ 15 million, and the issuance of up to $ 75 million in foreign currency revolving loans and letters of credit.

On April 30, 2020, the Credit Facility was amended, which resulted in various changes, including:

• Provided for a lien on all of the Company's assets;

• Redefined the components for calculating the leverage ratio and fixed charge coverage ratio to adjust for certain temporary impacts due to COVID-19;

• Changed the maximum leverage ratio covenant to 4.00 :1 as of August 1, 2020;

• Changed the minimum fixed charge coverage ratio to 1.05 :1 as of August 1, 2020;

• Restricted the Company from paying dividends and making share repurchases.

Loans issued under the revolving line of credit bore interest, at our option, at a base rate or an alternate base rate as defined in the Credit Facility plus a margin based on our leverage ratio, with an interest rate of 3.8 % as of August 1, 2020.

Interest on letters of credit issued under the Credit Facility was variable based on our leverage ratio and the type of letters of credit, with an interest rate of 2.8 % as of August 1, 2020.

Commitment fees were based on the average unused portion of the Credit Facility at a variable rate based on our leverage ratio.

As of August 1, 2020, the Credit Facility provided a revolving line of credit up to $ 400 million and we had $ 393.0 million outstanding under the Credit Facility and $ 5.0 million in letters of credit issued, resulting in $ 2.0 million available for borrowings.

Interest expense related to the Credit Facility includes interest on borrowings and letters of credit, commitment fees and the amortization and write-off of debt issuance costs.

Debt consisted of the following:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019

ABL Revolver $ 100,000 $ — $ —

Term Loan 246,875 — —

Credit Facility — 190,000 235,000

Total debt 346,875 190,000 235,000

Less unamortized Term Loan debt issuance costs ( 9,740 ) — —

Less current maturities of long-term debt ( 62,500 ) — —

Long-term debt $ 274,635 $ 190,000 $ 235,000

As of October 31, 2020, future maturities of debt are as follows:

(in thousands)

Remainder of fiscal 2020 $ 3,125

Fiscal 2021 62,500

Fiscal 2022 12,500

Fiscal 2023 12,500

Fiscal 2024 12,500

Future fiscal years thereafter 243,750

Total $ 346,875

ABL Revolver- On August 7, 2020, we replaced our Credit Facility with the ABL Revolver, which provides a revolving line of credit of up to $ 400.0 million, including a Canadian sub-limit of up to $ 20.0 million, a $ 50.0 million sub-limit for the issuance of letters of credit, a $ 40.0 million sub-limit for swing loan advances for U.S.

borrowings, and a $ 2.0 million sub-limit for swing loan advances for Canadian borrowings.

Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the Term Loan.

The amount of credit available is limited to a borrowing base based on, among other things, a percentage of the book value of eligible inventory and credit card receivables, as reduced by certain reserves.

As of October 31, 2020, the ABL Revolver had a borrowing base of $ 400.0 million, with $ 100.0 million outstanding and $ 5.0 million in letters of credit issued, resulting in $ 295.0 million available for borrowings.

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

Borrowings and letters of credit issued under the ABL Revolver accrue interest, at our option, at a rate equal to:

(A) a base rate per annum equal to the greatest of (i) the prime rate, (ii) the overnight bank funding rate plus 0.5 %, and (iii) the adjusted one-month London Interbank Offered Rate ("LIBOR") plus 1.0 %;

or (B) an adjusted LIBOR per annum (subject to a floor of 0.75 %), plus, in each instance, an applicable rate to be determined based on average availability, with an interest rate of 3.25 % as of October 31, 2020.

Commitment fees are based on the unused portion of the ABL Revolver.

Interest expense related to the ABL Revolver includes interest on borrowings and letters of credit, commitment fees and the amortization of debt issuance costs.

Term Loan- On August 7, 2020, we also entered into a $ 250.0 million Term Loan.

The Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025.

The Term Loan has limited prepayment requirements under certain conditions.

The Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory, that constitute first priority collateral for the ABL Revolver.

Borrowings under the Term Loan accrue interest, at our option, at a rate equal to:

(A) a base rate per annum equal to the greater of (i) 3.25 %, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5 %, and (iv) the adjusted one-month LIBOR plus 1.0 %, plus, in each instance, 7.5 %;

or (B) an adjusted LIBOR per annum (subject to a floor of 1.25 %), plus 8.5 %, with an interest rate of 9.75 % as of October 31, 2020.

Debt Covenants- The ABL Revolver contains a minimum availability covenant where an event of default shall occur if availability is less than the greater of $ 30.0 million or 10.0 % of the maximum credit amount.

The Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $ 150.0 million.

In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.

There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.

We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply.

Both the ABL Revolver and the Term Loan contain customary events of default with cross-default provisions.

Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

We lease our stores, fulfillment center and other facilities under operating lease arrangements with unrelated parties and related parties owned by the Schottenstein Affiliates.

2 unchanged sentences

We also lease equipment under operating leases.

We receive operating sublease lease income from unrelated third parties for leasing portions or all of certain properties.

We receive operating sublease income from unrelated third parties for leasing portions or all of certain properties.

Operating sublease income and operating expenses for these properties are included in operating expenses in our condensed consolidated statements of operations.

2 unchanged sentences

( unaudited )

Lease income and lease expense consisted of the following for the three and six months ended August 1, 2020 and August 3, 2019:

Three months ended Six months ended

(in thousands) August 1, 2020 August 3, 2019 August 1, 2020 August 3, 2019

Operating lease income $ 3,034 $ 2,236 $ 6,197 $ 4,448

Lease income and lease expense consisted of the following for the three and nine months ended October 31, 2020 and November 2, 2019:

Three months ended Nine months ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Operating sublease income $ 2,930 $ 2,462 $ 9,127 $ 6,910

Operating lease expense:

4 unchanged sentences

Total operating lease expense $ 66,042 $ 69,925 $ 207,411 $ 207,352

As of August 1, 2020, our future fixed minimum lease payments are as follows:

As of October 31, 2020, our future fixed minimum lease payments are as follows:

(in thousands) Unrelated Parties Related Parties Total

16 unchanged sentences

We had previously developed an estimate of the range of outcomes related to these obligations and recorded the low-end of the range.

During the three months ended August 1, 2020, we reduced our contingent liability by $ 5.5 million for payments made to taxing authorities and by $ 12.3 million for changes in estimates due to additional information as a result of negotiations with taxing authorities and we reduced the indemnification asset by $ 15.2 million.

As of August 1, 2020, we have a contingent liability of $ 10.7 million for the remaining estimated obligations, with $ 5.8 million included in accrued expenses and $ 4.9 million included in other non-current liabilities on the condensed consolidated balance sheets, and an indemnification asset of $ 9.6 million, with $ 5.8 million included in accounts receivable and $ 3.8 million included in other assets on the condensed consolidated balance sheets, representing the estimated amount as of the acquisition date, which we expect to collect under the terms of the securities purchase agreement with the sellers of Camuto Group (the "Sellers").

During the nine months ended October 31, 2020, we reduced our contingent liability by $ 11.2 million for payments made to taxing authorities and by $ 12.3 million for changes in estimates due to additional information as a result of negotiations with taxing authorities and we reduced the indemnification asset by $ 21.0 million.

As of October 31, 2020, we had a contingent liability of $ 4.9 million for the remaining estimated obligations included in other non-current liabilities on the condensed consolidated balance sheets, and an indemnification asset of $ 3.8 million included in other assets on the condensed consolidated balance sheets, which we expect to collect under the terms of the securities purchase agreement with the sellers of Camuto Group (the "Sellers").

We are continuing to assess the exposure, which may result in material changes to these estimates, and we may identify additional contingent liabilities.

We believe that the Sellers are obligated to indemnify us for any payments to foreign taxing authorities for the periods up to the acquisition date.

Although a portion of the purchase price is held in escrow and another portion is held

Although a portion of the purchase price is held in escrow and another portion is held in a restricted bank account, there can be no assurance that we will successfully collect all amounts that we may be obligated to settle with the foreign taxing authorities.

DESIGNER BRANDS INC.

1 unchanged sentence

( unaudited )

in a restricted bank account, there can be no assurance that we will successfully collect all amounts that we may be obligated to settle with the foreign taxing authorities.

Guarantee- As a result of a previous merger, we provided a guarantee for a lease commitment that is scheduled to expire in fiscal 2023 for a location that has been leased to a third party.

If the third party does not pay the rent or vacates the premise, we may be required to make full rent payments to the landlord.

As of August 1, 2020, the total future minimum lease payment requirements for this guarantee were approximately $ 11.7 million.

As of October 31, 2020, the total future minimum lease payment requirements for this guarantee were approximately $ 10.9 million.

SEGMENT REPORTING

2 unchanged sentences

Retail Canada Retail Brand Portfolio Other Corporate/Eliminations Total

Three months ended August 1, 2020

Three months ended October 31, 2020

External customer sales $ 501,901 $ 61,598 $ 62,351 $ 27,020 $ — $ 652,870

1 unchanged sentence

Total net sales $ 501,901 $ 61,598 $ 83,905 $ 27,020 $ ( 21,554 ) $ 652,870

Gross profit (loss) $ 40,097 $ 5,650 $ ( 11,440 ) $ 118 $ 2,617 $ 37,042

Gross profit $ 117,679 $ 18,905 $ 22,128 $ 6,272 $ 672 $ 165,656

Income from equity investment $ — $ — $ 1,902 $ — $ — $ 1,902

Three months ended August 3, 2019

Three months ended November 2, 2019

External customer sales $ 716,775 $ 76,299 $ 111,904 $ 28,848 $ — $ 933,826

3 unchanged sentences

Income from equity investment $ — $ — $ 2,662 $ — $ — $ 2,662

Six months ended August 1, 2020

Nine months ended October 31, 2020

External customer sales $ 1,272,951 $ 140,509 $ 148,998 $ 62,909 $ — $ 1,625,367

1 unchanged sentence

Total net sales $ 1,272,951 $ 140,509 $ 196,476 $ 62,909 $ ( 47,478 ) $ 1,625,367

Gross profit (loss) $ 7,127 $ 3,339 $ 2,464 $ ( 5,310 ) $ 2,962 $ 10,582

Gross profit $ 124,806 $ 22,244 $ 24,592 $ 962 $ 3,634 $ 176,238

Income from equity investment $ — $ — $ 6,325 $ — $ — $ 6,325

Six months ended August 3, 2019

Nine months ended November 2, 2019

External customer sales $ 2,086,535 $ 191,421 $ 291,176 $ 93,935 $ — $ 2,663,067

3 unchanged sentences

Income from equity investment $ — $ — $ 7,354 $ — $ — $ 7,354

DESIGNER BRANDS INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

( unaudited )

SUBSEQUENT EVENTS

Termination of Credit Facility- On August 7, 2020 , we replaced our Credit Facility with a five year $ 400.0 million, senior secured asset-based revolving credit facility ("ABL Revolver") and completed a five year , $ 250.0 million senior secured term loan ("Secured Term Loan").

Upon the closing of the transactions, we made an initial borrowing in the amount of $ 150.0 million under the ABL Revolver.

These proceeds, along with the proceeds from the Secured Term Loan, were used to repay in full the outstanding borrowings under the Credit Facility and we terminated the Credit Facility.

ABL Revolver- Our ABL Revolver matures in August 2025 and is secured by substantially all of our personal property assets, including a first priority lien on credit card receivables and inventory and a second priority lien on personal property assets that constitute first priority collateral for the Secured Term Loan.

The ABL Revolver provides a revolving line of credit of up to $ 400.0 million, including a Canadian sub-limit of up to $ 20.0 million, a $ 50.0 million sub-limit for the issuance of letters of credit, a $ 40.0 million sub-limit for swing loan advances for U.S.

borrowing, and a $ 2.0 million sub-limit for swing loan advances for Canadian borrowings.

At the closing of the ABL Revolver, the amount available for borrowing was limited to a borrowing base of $ 274.3 million with an initial borrowing of $ 150.0 million and issued letters of credit of $ 5.0 million resulting in $ 119.3 million available for additional borrowings.

Borrowings under the ABL Revolver accrue interest, at our option, at a rate equal to:

or (B) an adjusted LIBOR per annum (subject to a floor of 0.75 %), plus, in each instance, an applicable rate to be determined based on average availability.

Secured Term Loan- Our Secured Term Loan requires minimum quarterly principal payments with the remaining outstanding balance due in August 2025.

The Secured Term Loan has limited prepayment requirements under certain conditions.

The Secured Term Loan is collateralized by a first priority lien on substantially all of our personal and real property (subject to certain exceptions), including investment property and intellectual property, and by a second priority lien on certain other personal property, primarily credit card receivables and inventory.

Borrowings under the Secured Term Loan accrue interest, at our option, at a rate equal to:

(A) a base rate per annum equal to the greater of (i) 2.25 %, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5 %, and (iv) the adjusted one-month LIBOR plus 1.0 %, plus, in each instance, 7.5 %;

or (B) an adjusted LIBOR per annum (subject to a floor of 1.25 %), plus 8.5 %.

The Secured Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $ 150.0 million.

In addition, the ABL Revolver and the Secured Term Loan each contain customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.

There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.

Both the ABL Revolver and the Secured Term Loan contain customary events of default with cross-default provisions.

Stein Mart- On August 12, 2020 , Stein Mart, one of our ABG retail partners, filed for relief under Chapter 11 of the United States Bankruptcy Code and announced its plan to liquidate inventory .

The ultimate outcome of the filing and liquidation sale is subject to the oversight and approval of the bankruptcy court.

We are monitoring the status of the filing and are taking appropriate actions to maximize the recovery value of the inventory we own at Stein Mart locations.

As of August 1, 2020, inventory we owned at Stein Mart locations was $ 15.2 million at cost and we had a receivable balance due from Stein Marts of $ 2.1 million.

We do not expect to incur material losses as a result of Stein Mart's actions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements