What changed in this filing

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Item 9A. Controls and Procedures

2021-03-22 compared with 2020-05-01 · 550 added, 608 removed, 785 unchanged (60% of the section changed)

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Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America.

Management assessed the effectiveness of our internal control system as of February 1, 2020 .

Management assessed the effectiveness of our internal control system as of January 30, 2021.

In making its assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).

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Changes in Internal Control over Financial Reporting

During fiscal 2018, we acquired TSL and Camuto Group and integrated TSL and Camuto Group into our system of internal controls during fiscal 2019.

As a result, our internal control over financial reporting now includes controls and procedures with respect to transactions and account balances of TSL and Camuto Group.

Other than the changes with regard to TSL and Camuto Group, no change was made in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d -15(e), during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

No change was made in our internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d -15(e), during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

Fourth Amendment to Credit Agreement

The information set forth below is included herein for the purpose of providing disclosure under Item 1.01 (Entry into a Material Definitive Agreement) and Item 2.03 (Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant) of Form 8-K.

On April 30, 2020, the Company and certain of its subsidiaries entered into a Fourth Amendment to the Credit Agreement (the "Amendment"), which amends the Credit Facility, dated as of August 25, 2017 , as amended, among the Company as lead borrower, certain of the Company’s Canadian subsidiaries that may become borrowers thereunder, certain of the Company’s domestic subsidiaries as guarantors, the lenders party thereto, and PNC Bank, National Association as administrative agent (the "Agent") for the lenders.

The Amendment, among other matters, makes the following modifications to the Credit Facility:

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

Reduces the borrowing availability to $375.0 million on October 31, 2020, $350.0 million on January 30, 2021, $325.0 million on May 1, 2021, and $300.0 million on July 31, 2021;

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

Changes the maximum leverage ratio covenant to 3.50:1 as of May 2, 2020, 4.00:1 as of August 1, 2020, 3.75:1 as of October 31, 2020, and 3.50:1 as of January 30, 2021 and as of the end of each fiscal quarter thereafter;

Changes the minimum fixed charge coverage ratio to 1.25:1 as of May 2, 2020 and 1.05:1 as of August 1, 2020 and as of the end of each fiscal quarter thereafter;

Restricts the Company from paying dividends, making share repurchases, and making certain acquisitions.

The foregoing summary of the Amendment does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Amendment, which is filed as Exhibit 10.4.4 to this Annual Report on Form 10-K and incorporated herein by reference, and the Pledge and Security Agreement entered into as of April 30, 2020 by the Company and certain of its subsidiaries in favor of the Agent for the secured parties, which is filed as Exhibit 10.4.5 hereto and incorporated herein by reference.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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The information contained under the captions " COMPENSATION OF MANAGEMENT," "OTHER DIRECTOR INFORMATION, BOARD COMMITTEES, AND CORPORATE GOVERNANCE INFORMATION," " REPORT OF THE COMPENSATION COMMITTEE" and "COMPENSATION DISCUSSION AND ANALYSIS" in the Proxy Statement is incorporated herein by reference.

Notwithstanding the foregoing, the information contained in the Proxy Statement under the caption " REPORT OF THE COMPENSATION COMMITTEE" shall be deemed furnished, and not filed, in this Annual Report on Form 10-K and shall not be deemed incorporated by reference into any filing we make under the Securities Act of 1933, as amended, or the Exchange Act.

Notwithstanding the foregoing, the information contained in the Proxy Statement under the caption " REPORT OF THE COMPENSATION COMMITTEE" shall be deemed furnished, and not filed, in this Form 10-K and shall not be deemed incorporated by reference into any filing we make under the Securities Act of 1933, as amended, or the Exchange Act.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained under the caption " SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Proxy Statement is incorporated herein by reference.

Equity Compensation Plan Information

The following table sets forth additional information, as of February 1, 2020 , about our Class A common shares that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our shareholders and plans or arrangements not submitted to our shareholders for approval.

The information includes the number of shares covered by, and the weighted average exercise price of, outstanding options, warrants and other rights and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options, warrants and other rights.

Plan Category

(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)(2)(3)

(b) Weighted-average exercise price of outstanding options, warrants and rights (2)

(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3)

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

N/A - Not applicable

2005 Equity Incentive Plan.

Includes 3,760,688 shares issuable pursuant to the exercise of outstanding stock options, 1,686,981 shares issuable pursuant to restricted stock units, 767,537 shares issuable pursuant to performance-based restricted stock units and 452,612 shares issuable pursuant to director stock units.

Since the restricted stock units, performance-based restricted stock units and director stock units have no exercise price, they are not included in the weighted average exercise price calculation in column (b).

2014 Equity Incentive Plan.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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The documents listed below are filed as part of this Form 10-K:

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the years ended February 1, 2020, February 2, 2019 and February 3, 2018

Consolidated Statements of Comprehensive Income (Loss) for the years ended February 1, 2020, February 2, 2019 and February 3, 2018

Consolidated Balance Sheets as of February 1, 2020 and February 2, 2019

Consolidated Statements of Shareholders' Equity for the years ended February 1, 2020, February 2, 2019 and February 3, 2018

Consolidated Statements of Cash Flows for the years ended February 1, 2020, February 2, 2019 and February 3, 2018

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm F- 1

Consolidated Statements of Operations for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 F- 4

Consolidated Statements of Comprehensive Income (Loss) for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 F- 5

Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020 F- 6

Consolidated Statements of Shareholders' Equity for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 F- 7

Consolidated Statements of Cash Flows for the years ended January 30, 2021, February 1, 2020 and February 2, 2019 F- 8

Notes to Consolidated Financial Statements F- 9

(a)(2) Consolidated Financial Statement Schedules

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001-32545) filed June 4, 2019.

Description of Securities.

4.2 Description of Designer Brands Inc.’s Securities Registered Under Section 12 of the Securities Exchange Act of 1934.

Incorporated by reference to Exhibit 4.2 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.1 Corporate Services Agreement, dated June 12, 2002, between Retail Ventures and Schottenstein Stores Corporation.

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Form of Restricted Stock Units Award Agreement for Employees.

Incorporated by reference to Exhibit 10.3.2 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Form of Stock Units for Automatic Grants to Non-employee Directors.

Incorporated by reference to Exhibit 10.3.3 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Form of Nonqualified Stock Option Award Agreement for Employees.

Incorporated by reference to Exhibit 10.3.4 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Form of Performance-Based Restricted Stock Units Award Agreement for Employees.

Incorporated by reference to Exhibit 10.3.5 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Form of Restricted Stock Units Award Agreement for Canada Employees.

Credit Agreement, dated August 25, 2017, among DSW Inc., as the lead borrower, certain of its Canadian subsidiaries that may become borrowers thereunder, the Company's domestic subsidiaries as guarantors, the lenders party thereto, and PNC Bank, National Association, as administrative agent for the lenders.

Incorporated by reference to Exhibit 10.3.6 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.4 Credit Agreement, dated August 25, 2017, among DSW Inc., as the lead borrower, certain of its Canadian subsidiaries that may become borrowers thereunder, Designer Brand Inc.'s domestic subsidiaries as guarantors, the lenders party thereto, and PNC Bank, National Association, as administrative agent for the lenders.

Incorporated by reference to Exhibit 10.1 to Form 8-K (file no.

001-32545) filed August 31, 2017.

First Amendment to Credit Agreement, dated as of January 30, 2018, by and among DSW Inc., the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as administrative agent.

Incorporated by reference to Exhibit 10.4.1 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Second Amendment to Credit Agreement, dated as of October 10, 2018, by and among DSW Inc., the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as administrative agent.

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Third Amendment to Credit Agreement, dated as of March 16, 2020, by and among Designer Brands Inc., the lenders party thereto and PNC Bank, National Association, as administrative agent.

Incorporated by reference to Exhibit 10.4.3 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Fourth Amendment to Credit Agreement, dated as of April 30, 2020, by and among Designer Brands Inc., the guarantors party thereto, the lenders party thereto and PNC Bank, National Association, as administrative agent.

Incorporated by reference to Exhibit 10.4.4 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Pledge and Security Agreement, dated April 30, 2020, by and among each of the Grantors referred to therein, in favor of PNC Bank, National Association, in its capacity as administrative and collateral agent for the Secured Parties referred to therein.

Incorporated by reference to Exhibit 10.4.5 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.5 Cost Sharing Agreement, dated November 1, 2012, between 4300 East Fifth Avenue LLC and 810 AC LLC, a wholly owned subsidiary of DSW.

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and its officers and directors.

Incorporated by reference to Exhibit 10.7 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.8 Management Agreement, dated November 1, 2012, between Schottenstein Property Group, LLC and 810 AC LLC, a wholly owned subsidiary of DSW.

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001-32545) filed March 23, 2018.

10.10.7 Seventh Amendment to Amended and Restated Supply Agreement dated May 30, 2006, between Designer Brands Inc.

and Stein Mart Inc.

Entered into on May 13, 2020.

Incorporated by reference to Exhibit 10.5 to Form 10-Q (file no.

001-32545) filed June 19, 2020.

Nonqualified Deferred Compensation Plan.

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Standard Executive Severance Agreement, dated January 21, 2020, between Drew Domecq and Designer Brands Inc.

Incorporated by reference to Exhibit 10.19 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Standard Executive Severance Agreement, dated April 17, 2014, between Thomas Jessep and DSW Inc.

Incorporated by reference to Exhibit 10.20 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.20.1# First Amendment to Standard Executive Severance Agreement, dated March 9, 2016, between Thomas Jessep and DSW Inc.

Incorporated by reference to Exhibit 10.20.1 to Form 10-K (file no.

001-32545) filed May 1, 2020.

Standard Executive Severance Agreement, dated April 9, 2020, between Mary Turner and Designer Brands Inc.

Incorporated by reference to Exhibit 10.21 to Form 10-K (file no.

001-32545) filed May 1, 2020.

10.22 Term Loan Credit Agreement, dated August 7, 2020, among Designers Brands Inc., as the lead borrower, Designer Brands Canada Inc., as the Canadian Borrower, certain of its domestic and Canadian subsidiaries as guarantors, the lenders party thereto, and Sixth Street Specialty Lending, Inc.

as Administrative Agent and Lead Arranger.

Incorporated by reference to Exhibit 10.1 to Form 8-K (file no.

001-32545) filed August 7, 2020.

10.23 ABL Credit Agreement, dated August 7, 2020, among Designer Brands Inc., as the lead borrower, Designer Brands Canada Inc., as the Canadian Borrower, certain of its domestic and Canadian subsidiaries that may become borrowers thereunder, the Designer Brand Inc.'s domestic and Canadian subsidiaries as guarantors, the lenders party thereto, and PNC Bank, National Association as administrative agent of the lenders.

Incorporated by reference to Exhibit 10.2 to Form 8-K (file no.

001-32545) filed August 7, 2020.

10.24 Transition Services and General Release Agreement, dated September 19, 2020, between Designer Brands Inc.

and Simon Nankervis.

Incorporated by reference to Exhibit 10.3 to Form 10-Q (file no.

001-32545) filed December 9, 2020.

List of Subsidiaries.

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The following materials from the Designer Brands Inc.

Annual Report on Form 10-K for the year ended February 1, 2020, formatted in iXBRL (Inline eXtensible Business Reporting Language):

Annual Report on Form 10-K for the year ended January 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language):

(i) Consolidated Statements of Operations;

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* Filed herewith

** Furnished herewith

# Management contract or compensatory plan or arrangement

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FORM 10-K SUMMARY

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DESIGNER BRANDS INC.

/s/ Jared Poff

Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

/s/ Roger Rawlins

Chief Executive Officer and Director

Roger Rawlins

(Principal Executive Officer)

March 22, 2021 By:

/s/ Jared Poff

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

/s/ Mark Haley

Senior Vice President and Controller

(Principal Accounting Officer)

Executive Chairman of the Board and Director

Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated.

/s/ Roger Rawlins Chief Executive Officer and Director March 22, 2021

Roger Rawlins (Principal Executive Officer)

/s/ Jared Poff Executive Vice President and Chief Financial Officer March 22, 2021

Jared Poff (Principal Financial Officer)

/s/ Mark Haley Senior Vice President and Controller March 22, 2021

Mark Haley (Principal Accounting Officer)

* Executive Chairman of the Board and Director March 22, 2021

Schottenstein

* Director March 22, 2021

Schottenstein

* Director March 22, 2021

Ekta Singh-Bushell

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We have audited the accompanying consolidated balance sheets of Designer Brands Inc.

and subsidiaries (the "Company") as of February 1, 2020 and February 2, 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended February 1, 2020, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of February 1, 2020, 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 financial statements present fairly, in all material respects, the financial position of the Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2020, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

and subsidiaries (the "Company") as of January 30, 2021 and February 1, 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended January 30, 2021, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of January 30, 2021, 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 financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

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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.

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 our 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 Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our 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 matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Long-Lived Assets — Refer to Notes 1 and 10 to the financial statements

Critical Audit Matter Description

The Company periodically evaluates the carrying amount of long-lived assets when events and circumstances warrant such a review to ascertain if any assets have been impaired.

As a result of the material reduction in net sales and cash flows during fiscal 2020, the Company performed its impairment analysis for the U.S.

Retail and Canada Retail segments at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets.

The carrying amount of the store asset group, primarily made up of operating lease assets, leasehold improvements and fixtures, is considered impaired when the carrying value of the asset group exceeds the expected future cash flows from the asset group (categorized as Level 3 under the fair value hierarchy).

As of January 30, 2021, long-lived assets within store level asset group, aggregated to $695.1 million in the U.S.

and $78.9 million in Canada.

During fiscal year 2020, the Company recorded store level asset group impairment charges of $127.1 million ($104.2 million and $22.9 million for the U.S.

Retail and Canada Retail segments, respectively).

Inherent in the impairment analysis of long-lived assets are certain significant judgments and estimates related to forecasted cash flows, specifically forecasting sales.

Changes in these assumptions can significantly impact the valuation of operating lease assets and property and equipment, and the impairment charge that is recorded.

We identified long-lived asset impairment as a critical audit matter because of the significant estimates and assumptions management makes related to forecasted cash flows, specifically forecasting sales.

This required a high degree of auditor judgement and an increased extent of effort, when performing audit procedures to evaluate the reasonableness of management’s forecasted cash flows, specifically forecasting sales.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasted sales used in the long-lived asset impairment analysis included the following, among others:

• We tested the design and operating effectiveness of controls over management’s forecasts.

• We performed risk assessment procedures including reviewing sensitivity analyses over the assumptions used in the impairment analysis to assess their impact on the determination of fair value.

• We evaluated management’s ability to accurately forecast future sales by comparing actual results to management’s historical forecasts.

Compared sales forecasts used in the store level asset group impairment to forecasts obtained in testing other audit areas.

• We evaluated the reasonableness of management’s sales forecast by comparing the forecasts to (1) historical sales, (2) internal communications to management and the Board of Directors, (3) external communications made by management to analysts and investors, and (4) trends in the industry.

• We evaluated the methods and inputs used by management to determine the fair value of the asset group including assessing appropriateness of using projected discounted cash flows and the duration of cash flows used for each asset group.

Valuation of Inventories – Refer to Note 1 to the financial statements

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Our audit procedures related to the completeness of estimated inventory markdowns included the following, among others:

We tested the effectiveness of controls over the timing and completeness of estimated inventory markdowns, including those over the determination of estimated inventory markdowns and those over the lowering of the retail value of inventory through markdowns.

We evaluated management’s ability to accurately estimate inventory markdowns by comparing estimated inventory markdowns as of February 1, 2020 to subsequent sales of clearance inventory.

We tested the amount of estimated inventory markdowns recorded by developing an expectation for the amount based on the historical amounts recorded as a percentage of sales and compared our expectation to the amount recorded by management.

• We tested the design and effectiveness of controls over the timing and completeness of estimated inventory markdowns, including those over the determination of estimated inventory markdowns and those over the lowering of the retail value of inventory through markdowns.

• We evaluated management’s ability to accurately estimate inventory markdowns by comparing estimated inventory markdowns as of January 30, 2021 to subsequent sales of clearance inventory.

• We observed physical inventory counts throughout the fiscal year, including merchandise designated for clearance.

We assessed inventory aging and sell through as of March 2021.

• We tested the amount of estimated inventory markdowns by evaluating management's calculation.

• We developed an independent expectation for inventory markdowns based on historical inventory balances and compared our expectation to the amount recorded by management.

/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio

March 22, 2021

We have served as the Company's auditor since 1997.

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(in thousands, except per share amounts)

2020 2019 2018

Net sales $ 2,234,719 $ 3,492,687 $ 3,177,918

Cost of sales ( 1,923,478 ) ( 2,493,017 ) ( 2,239,229 )

Gross profit 311,241 999,670 938,689

Operating expenses ( 753,278 ) ( 874,749 ) ( 820,222 )

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Impairment charges ( 153,606 ) ( 7,771 ) ( 60,760 )

Change in fair value of contingent consideration liability

Operating profit

Operating profit (loss) ( 586,314 ) 127,299 59,005

Interest expense ( 24,032 ) ( 8,914 ) ( 2,433 )

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Interest income (expense), net ( 23,694 ) ( 7,355 ) 1,288

Non-operating expenses, net

Income before income taxes and income (loss) from equity investment in TSL

Income tax provision

Income (loss) from equity investment in TSL

Non-operating income (expenses), net 1,361 ( 170 ) ( 49,616 )

Income (loss) before income taxes and loss from equity investment in TSL ( 608,647 ) 119,774 10,677

Income tax benefit (provision) 119,928 ( 25,277 ) ( 29,833 )

Loss from equity investment in TSL — — ( 1,310 )

Net income (loss) $ ( 488,719 ) $ 94,497 $ ( 20,466 )

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Weighted average shares used in per share calculations:

Basic shares 72,198 73,602 80,026

Diluted shares 72,198 74,605 80,026

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(in thousands)

2020 2019 2018

Net income (loss) $ ( 488,719 ) $ 94,497 $ ( 20,466 )

Other comprehensive income, net of income taxes:

Foreign currency translation gain (loss)

Unrealized net gain (loss) on debt securities

Other comprehensive income (loss), net of income taxes:

Foreign currency translation loss ( 618 ) ( 340 ) ( 7,013 )

Unrealized net gain on debt securities 195 609 192

Reclassification adjustment for net losses (gains) realized in net income (loss) ( 368 ) ( 58 ) 14,189

Total other comprehensive income, net of income taxes

Total other comprehensive income (loss), net of income taxes ( 791 ) 211 7,368

Total comprehensive income (loss) $ ( 489,510 ) $ 94,708 $ ( 13,098 )

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(in thousands)

February 1, 2020

February 2, 2019

January 30, 2021 February 1, 2020

Cash and cash equivalents $ 59,581 $ 86,564

Accounts receivable, net

Investments — 24,974

Receivables, net 196,049 89,151

Inventories 473,183 632,587

Prepaid expenses and other current assets 51,772 67,534

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Operating lease assets 700,481 918,801

Intangible assets

Goodwill 93,655 113,644

Intangible assets, net 15,635 22,846

Deferred tax assets — 31,863

Equity investment in ABG-Camuto 58,598 57,760

Other assets 31,172 24,337

Total assets $ 1,976,595 $ 2,465,070

LIABILITIES AND SHAREHOLDERS' EQUITY

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Accrued expenses 200,326 194,264

Current maturities of long-term debt 62,500 —

Current operating lease liabilities 244,786 186,695

Total current liabilities 752,683 680,031

Long-term debt 272,319 190,000

Non-current operating lease liabilities 677,735 846,584

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Treasury shares, at cost ( 515,065 ) ( 515,065 )

Retained earnings

Retained earnings (deficit) ( 228,785 ) 267,094

Accumulated other comprehensive loss ( 3,286 ) ( 2,495 )

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(in thousands, except per share data)

Number of Shares

Treasury shares

Common shares paid in capital

Treasury shares

Accumulated other comprehensive loss

Balance, January 28, 2017

Stock-based compensation activity

Repurchase of Class A common shares

Dividends paid ($0.80 per share)

Other comprehensive income

Number of Shares Amounts

shares Class B

shares Treasury shares Common shares paid in capital Treasury shares Retained earnings (deficit) Accumulated other comprehensive loss

Balance, February 3, 2018 72,294 7,733 13,091 $ 936,252 $ ( 325,906 ) $ 354,979 $ ( 10,074 ) $ 955,251

Net loss — — — — — ( 20,466 ) — ( 20,466 )

Stock-based compensation activity 378 — — 17,549 — — — 17,549

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Dividends paid ($ 1.00 per share)

— — — — — ( 79,795 ) — ( 79,795 )

Other comprehensive income — — — — — — 7,368 7,368

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Cumulative effect of accounting change — — — — — ( 9,556 ) — ( 9,556 )

Net income — — — — — 94,497 — 94,497

Stock-based compensation activity 439 — — 17,579 — — — 17,579

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Dividends paid ($ 1.00 per share)

— — — — — ( 72,565 ) — ( 72,565 )

Other comprehensive income — — — — — — 211 211

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

Net loss — — — — — ( 488,719 ) — ( 488,719 )

Stock-based compensation activity 633 — — 18,773 — — — 18,773

Dividends paid ($ 0.10 per share)

— — — — — ( 7,160 ) — ( 7,160 )

Other comprehensive loss — — — — — — ( 791 ) ( 791 )

Balance, January 30, 2021 64,666 7,733 22,169 $ 990,153 $ ( 515,065 ) $ ( 228,785 ) $ ( 3,286 ) $ 243,017

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

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(in thousands)

2020 2019 2018

Cash flows from operating activities:

Net income (loss) $ ( 488,719 ) $ 94,497 $ ( 20,466 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 88,026 86,649 79,048

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Distributions received from equity investment 8,491 10,514 —

Loss on previously held equity investment in TSL and notes receivable from TSL

Loss on previously held equity investment in TSL and receivables from TSL — — 33,988

Impairment charges 153,606 7,771 60,760

Change in fair value of contingent consideration liability

Gain on settlement ( 8,990 ) — —

Loss on foreign currency reclassified from accumulated other comprehensive loss — — 13,963

Other 695 3,957 3,780

Change in operating assets and liabilities:

Accounts receivable

Accounts receivables 23,179 265 36,151

Income tax receivable ( 149,824 ) — —

Inventories 160,312 9,290 ( 4,162 )

Prepaid expenses and other current assets 17,166 ( 14,994 ) ( 12,310 )

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Operating lease assets and liabilities, net 13,743 ( 15,621 ) —

Net cash provided by operating activities

Net cash provided by (used in) operating activities ( 153,793 ) 196,707 175,334

Cash flows from investing activities:

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Equity investment in ABG-Camuto — — ( 56,827 )

Working capital proceeds received (cash paid) for business acquisitions, net of cash acquired

Net cash used in investing activities

Proceeds from settlements 8,990 4,965 —

Cash paid for business acquisitions, net of cash acquired — — ( 199,403 )

Net cash provided by (used in) investing activities 2,631 ( 27,439 ) ( 282,013 )

Cash flows from financing activities:

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Payments on revolving line of credit ( 466,000 ) ( 433,300 ) —

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 ( 6,263 ) — —

Payments of debt issuance costs ( 21,422 ) — —

Cash paid for treasury shares — ( 141,629 ) ( 47,530 )

Dividends paid ( 7,160 ) ( 72,565 ) ( 79,795 )

Other ( 2,201 ) 841 ( 2,711 )

Net cash provided by (used in) financing activities 122,954 ( 183,353 ) 29,964

Effect of exchange rate changes on cash balances 1,225 81 1,351

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net decrease in cash, cash equivalents, and restricted cash ( 26,983 ) ( 14,004 ) ( 75,364 )

Cash, cash equivalents, and restricted cash, beginning of period 86,564 100,568 175,932

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Supplemental disclosures of cash flow information:

Cash paid for income taxes

Cash paid (received) for income taxes $ ( 11,822 ) $ 39,450 $ 41,695

Cash paid for interest on debt $ 19,523 $ 8,323 $ 864

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Property and equipment purchases not yet paid $ 1,590 $ 12,164 $ 13,537

Operating lease liabilities arising from lease asset additions (excluding ASU 2016-02 transition adjustments)

Adjustment to operating lease assets and lease liabilities for modifications

Operating lease liabilities arising from lease asset additions $ 9,407 $ 24,137 $ —

Net increase to operating lease assets and lease liabilities for modifications $ 36,109 $ 71,945 $ —

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

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SIGNIFICANT ACCOUNTING POLICIES

Business Operations- Designer Brands Inc.

is a leading North American footwear and accessories designer, producer and retailer.

Business Operations- Designer Brands Inc., originally founded as DSW Inc., is one of North America's largest designers, producers and retailers of footwear and accessories.

We operate in three reportable segments:

Retail segment, the Canada Retail segment, and the Brand Portfolio segment.

Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its U.S.

stores and e-commerce site.

The Canada Retail segment operates The Shoe Company, Shoe Warehouse, and DSW banners through its Canada stores and e-commerce sites.

Together, the U.S.

Retail and Canada Retail segments are referred to as the "retail segments." The Brand Portfolio segment earns revenue from the sale of wholesale products to retailers, commission for serving retailers as the design and buying agent for products under private labels (which we refer to as "First Cost"), and the sale of branded products through the direct-to-consumer e-commerce site at www.vincecamuto.com.

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

On May 10, 2018, we acquired the remaining interest in Town Shoes Limited ("TSL") that we did not previously own.

Beginning with our second quarter of fiscal 2018, TSL ceased being accounted for under the equity method of accounting and was accounted for as a consolidated wholly owned subsidiary.

As a result of this acquisition, we operate a Canadian business that is a retailer of branded footwear under The Shoe Company, Shoe Warehouse, and DSW Designer Shoe Warehouse banners, as well as related e-commerce sites.

As a result of this acquisition, we operate a Canadian retailer of branded footwear and accessories.

Subsequent to the acquisition, and as a result of our strategic review, we exited the Town Shoes banner in Canada during fiscal 2018.

On November 5, 2018 , we completed the acquisition of Camuto LLC, doing business as Camuto Group ("Camuto Group"), a footwear design and brand development organization, from Camuto Group LLC (the "Sellers").

The Camuto Group acquisition provides us a global production, sourcing and design infrastructure, including operations in Brazil and China, a new state-of-the-art distribution center in New Jersey, footwear licenses of brands, including Jessica Simpson and Lucky Brand, and branded e-commerce sites.

Camuto Group earns revenue from 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.

On November 5, 2018, we completed the acquisition of Camuto LLC, doing business as "Camuto Group," a footwear design and brand development organization, from Camuto Group LLC (the "Sellers").

The Camuto Group acquisition provides us a global production, sourcing and design infrastructure, including operations in Brazil and China, footwear licenses of brands, including Jessica Simpson and Lucky Brand, and branded e-commerce sites as reported in the Brand Portfolio segment.

Also on November 5, 2018, in partnership with Authentic Brands Group LLC, a global brand management and marketing company, we formed ABG-Camuto LLC ("ABG-Camuto"), a joint venture in which we have a 40 % interest.

This joint venture acquired several intellectual property rights from the Sellers, including Vince Camuto, Louise et Cie, Sole Society, CC Corso Como, and others, and will focus on licensing and developing new category extensions to support the global growth of these brands.

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

On March 4, 2016 , we acquired Ebuys, an off-price footwear and accessories retailer operating in digital marketplaces.

Due to recurring operating losses incurred by Ebuys since its acquisition, as well as increased competitive pressures in the digital marketplace, we decided to exit the business and ended all operations in fiscal 2018.

We present three reportable segments:

Retail segment, the Canada Retail segment, and the Brand Portfolio segment.

Retail segment includes stores operated in the U.S.

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

The Canada Retail segment, which is the result of the TSL acquisition, includes stores operated in Canada under The Shoe Company, Shoe Warehouse, DSW Designer Shoe Warehouse banners and related e-commerce sites.

The Brand Portfolio segment, which is the result of the Camuto Group acquisition, includes sales from wholesale, First Cost, and direct-to-consumer branded e-commerce sites.

Our other operating segments, including our Affiliated Business Group ("ABG"), are below the quantitative and qualitative thresholds for reportable segments and are aggregated into Other for segment reporting purposes.

This joint venture acquired several intellectual property rights from the Sellers, including Vince Camuto, Louise et Cie, and others, and will focus on licensing and developing new category extensions to support the global growth of these brands.

We have entered into a licensing agreement with ABG-Camuto whereby we pay royalties to ABG-Camuto, with the royalty expense included in our cost of sales, based on the sales of footwear, handbags and jewelry, subject to guaranteed minimums.

ABG-Camuto also earns royalties on sales from third parties that license the brand names to produce non-footwear product categories.

Given our 40 % ownership interest in ABG-Camuto, we recognize earnings under the equity method, which is included within the Brand Portfolio segment as ABG-Camuto and considered an integral part of the Brand Portfolio segment business.

Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31.

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This reporting schedule is followed by many national retail companies and typically results in a 52-week fiscal year, but occasionally will contain an additional week resulting in a 53-week fiscal year.

The periods presented in these financial statements and selected financial data each consisted of 52 weeks, except for fiscal 2017, which consisted of 53 weeks.

Variable Interest Entities- We had three joint ventures as a result of the Camuto Group acquisition where each joint venture licensed brands and contracted with Camuto Group to provide design, buying and sourcing services.

Under these joint ventures, Camuto Group was responsible for managing all aspects of the brands and the joint ventures paid royalties, commissions, or consulting fees to the other parties.

We were responsible for providing all funding to support the joint ventures' working capital needs.

As a result, we were considered the primary beneficiary of the joint ventures and they were consolidated within our financial statements.

Assets and liabilities of the joint ventures in the aggregate were immaterial.

During fiscal 2019, we terminated the three joint ventures along with related licensing and design, buying and sourcing arrangements.

During the fourth quarter of fiscal 2019, we formed a joint venture with an entity affiliated with performing artist and celebrity Jennifer Lopez.

The periods presented in these consolidated financial statements each consisted of 52 weeks.

Variable Interest Entities- During fiscal 2019, we formed a joint venture with an entity affiliated with performing artist and celebrity Jennifer Lopez.

This partnership was formed in order to design, source and sell the JLO JENNIFER LOPEZ collection, a line of footwear and handbags.

Our Camuto Group business will be responsible for design and sourcing and DSW will be the initial exclusive retailer of the products.

Jennifer Lopez and her team will lead the creative for marketing and product design, with technical expertise and guidance from our operating units.

Jennifer Lopez also has the opportunity to earn the Company's Class A common shares beginning in fiscal 2021 based on the expansion of our VIP rewards programs from her fan base.

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certain terms within the joint venture operating agreement, we have determined that we have overall control of the joint venture.

Our Camuto Group business is responsible for design and sourcing, and DSW is the exclusive retailer of new products.

Jennifer Lopez and her team lead the creative directive for marketing and product design, with our technical expertise and guidance.

Jennifer Lopez earns fixed licensing fees and also has the opportunity to earn the Company's Class A common shares beginning in fiscal 2021 based on the expansion of our VIP rewards programs from her fan base.

Based on certain terms within the joint venture operating agreement, we have determined that we have overall control of the joint venture.

In addition, we provide a revolving line of credit to the joint venture and a guarantee for funding in excess of the joint venture's equity.

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Assets and liabilities of the joint venture are immaterial.

We will recognize all of the losses of the joint venture up to the amounts guaranteed and share any profits between the partners under the terms of the joint venture operating agreement.

Integration and Restructuring Costs- During fiscal 2019 , we incurred integration and restructuring costs related to our prior year acquisition activity, which consisted primarily of $ 3.9 million in severance, $ 7.2 million in fees for terminating joint ventures, and $ 6.6 million of professional fees and other integration costs.

We recognize all of the losses of the joint venture up to the amounts guaranteed and share any profits between the partners under the terms of the joint venture operating agreement.

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Impacts of COVID-19- In March 2020, the World Health Organization declared the coronavirus disease ("COVID-19") outbreak a pandemic.

On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, associates, and the communities we serve, we temporarily closed all of our stores in the U.S.

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.

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.

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.

Beginning in July 2020, we initiated an internal reorganization and reduction of our workforce with additional actions taken throughout fiscal 2020, 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.

Following the re-opening of stores, we experienced and have continued to experience significantly reduced customer traffic and net sales, which included subsequent store closures and reduced hours in certain areas, primarily in Canada, where government-imposed restrictions were mandated.

Our retail customers in the Brand Portfolio segment have had and 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 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 performed impairment analyses for our U.S.

Retail and Canada Retail segments at the store-level, which represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets.

The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy).

Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term.

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

During fiscal 2020, we recorded impairment charges of $ 127.1 million ($ 104.2 million and $ 22.9 million for the U.S.

Retail and Canada Retail segments, respectively), including impairment charges during the fourth quarter of fiscal 2020 of $ 4.2 million ($ 1.0 million and $ 3.2 million for the U.S.

Retail and Canada Retail segments, respectively).

Also during fiscal 2020, we recorded an impairment charge of $ 6.5 million for the Brand Portfolio segment customer relationship intangible asset 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).

As a result of the material reduction in net sales and cash flows due to the temporary closure of all of our stores, the decrease in net sales from our retailer customers and the decrease in the Company's market capitalization due to the impact of the COVID-19 outbreak on macroeconomic conditions, we performed our impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of fiscal 2020.

We calculated the fair value of the reporting units with goodwill primarily based on a discounted cash flow analysis (categorized as Level 3 under the fair value hierarchy).

Our analysis concluded that the fair value of the U.S.

Retail segment, which is also the reporting unit, and other indefinite-lived intangible assets were in excess of the carrying values, but that the fair value of the First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying value.

Accordingly, during fiscal 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.

We updated our impairment analysis for the goodwill within the U.S.

Retail segment and other indefinite-lived intangible assets during the fourth quarter of fiscal 2020 as part of our annual evaluation, which resulted in the fair values being in excess of the carrying values.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), which, among other things, provided employer payroll tax credits for wages paid to associates who were unable to work during the COVID-19 outbreak and options to defer payroll tax payments.

Based on our evaluation of the CARES Act, we qualify for certain employer payroll tax credits that were treated as government subsidies to offset related operating expenses, as well as the deferral of payroll and other tax payments in the future.

Similar credits and deferrals were also available in Canada.

During fiscal 2020, the qualified government credits reduced our operating expenses by $ 11.4 million on our consolidated statements of operations.

A s of January 30, 2021 , we had $ 10.0 million of deferred qualified payroll and other tax obligations, half of which is included in accrued expenses on the consolidated balance sheets that we expect to pay at the end of fiscal 2021, with the remaining incl uded in other non-current liabilities on the consolidated balance sheets that we expect to pay at the end of fiscal 2022.

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

Additionally, we assessed the likelihood of realizing the benefits of our deferred tax assets.

Our 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.

One of the provisions of the CARES Act allows net operating losses generated within tax years 2018 through 2020 to be carried back up to five years, including years in which the U.S.

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

In evaluating future taxable income, significant weight is given to positive and negative evidence that is objectively verifiable.

As a result of the losses incurred in fiscal 2020 due to COVID-19, we are in a three-year cumulative loss position as of January 30, 2021, which is significant objective negative evidence in considering whether deferred tax assets are realizable.

Such objective evidence limits the ability to consider other subjective evidence, such as the projection of future taxable income.

A valuation allowance has been recognized as a reserve on the total deferred tax asset balance due to the uncertainty of realization of our loss carry forwards and other deferred tax assets.

Our effective tax rate changed from 21.1 % for fiscal 2019 to 19.7 % for fiscal 2020.

The decrease in the effective tax rate was primarily driven by the recording of an additional valuation allowance of $ 87.6 million partially offset 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 fiscal 2020, we incurred $ 10.6 million of incremental costs directly related to COVID-19, including hazard pay for store associates, 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 unpredictable.

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, 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 will depend on future developments, including the widespread availability, use and effectiveness of vaccines, which are highly uncertain and cannot be predicted.

We may have additional write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Integration and Restructuring Costs- During fiscal 2020, we incurred restructuring costs, which consisted primarily of severance of $ 15.2 million ( $ 5.5 million , $ 0.8 million and $ 8.9 million for the U.S.

Retail, Canada Retail and Brand Portfolio segments, respectively), including severance charges during the fourth quarter of fiscal 2020 of $ 5.2 million (primarily related to the Brand Portfolio segment), and professional fees of $ 2.4 million.

During fiscal 2019, we incurred integration and restructuring costs related to our prior year acquisition activity, which consisted primarily of severance of $ 3.9 million, fees for terminating joint ventures of $ 7.2 million, and professional fees and other integration costs of $ 6.6 million.

During fiscal 2018, we incurred restructuring costs of $ 5.6 million in severance, primarily related to changes to our store staffing model.

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

As of February 1, 2020 and February 2, 2019 , we had $ 1.7 million and $ 2.8 million , respectively, of severance liability included in accrued expenses on the consolidated balance sheets.

As of January 30, 2021 and February 1, 2020, we had $ 6.5 million and $ 1.7 million, respectively, of severance liability included in accrued expenses on the consolidated balance sheets.

Gain on Settlement- During fiscal 2020, we collected $ 9.0 million , net of legal costs incurred, and recorded a gain to operating expenses in the consolidated statements of operations that 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 consolidated financial statements include the accounts of Designer Brands Inc.

and its subsidiaries, including the joint ventures.

and its subsidiaries, including variable interest entities.

All intercompany accounts and transactions have been eliminated in consolidation.

All amounts are in United States dollars ("USD"), unless otherwise noted.

Use of Estimates- The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of net sales and expenses during the reporting period.

Significant estimates are required as a part of sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, legal reserves, foreign tax contingent liabilities, income taxes, and self-insurance reserves.

Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, actual results could differ from these estimates.

Use of Estimates- The preparation of financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of net sales and expenses during the reporting period.

Certain estimates and assumptions use forecasted financial information using information reasonably available to us, along with the estimated, but uncertain, future impacts of the COVID-19 outbreak.

Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, gift card breakage income, deferred revenue associated with loyalty programs, valuation of inventories, depreciation and amortization, impairments of long-lived assets, intangibles and goodwill, lease accounting, legal and tax reserves, income taxes, and self-insurance reserves.

Although we believe these estimates and assumptions are reasonable, they are based on management's knowledge of current events and actions that we may undertake in the future.

Changes in facts and circumstances may result in revised estimates and assumptions, and actual results could differ from these estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition- Sales from the U.S.

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For products shipped directly to our customers, we recognize the sale upon the estimated customer receipt date based on historical delivery transit times.

Revenue from shipping and handling is recorded in net sales while the related costs are included in cost of sales.

For products shipped directly to our customers from our suppliers (referred to as "drop ship"), we record gross sales upon delivery based on the price paid by the customers as we have determined that we are the principal party responsible for the sale transaction.

Revenue from shipping and handling is recorded in net sales while the related costs are included in cost of sales in the consolidated statements of operations.

For products shipped directly to our customers from our suppliers (referred to as "drop ship"), we record gross sales upon customer receipt based on the price paid by the customers as we have determined that we are the principal party responsible for the sale transaction.

Sales from the Brand Portfolio segment are recognized upon transfer of control.

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Direct-to-consumer sales are also recognized upon shipment of merchandise, net of estimated returns and exclude sales tax.

Commission income for serving retailers as the design and buying agent for products under private labels (referred to as "First Cost") is recognized at the point in time when the customer's freight forwarder takes control of the related merchandise.

ABG supplies footwear to other retailers under supply arrangements.

We maintain ownership of the merchandise we supply under these arrangements, including risk of loss, returns, shrink up to a certain percentage and loss of inventory value, until customer receipt.

Furthermore, we are responsible for the footwear assortment, inventory fulfillment, and pricing at all locations and online.

As a result, sales are recognized upon receipt by the end customer, net of estimated returns and exclude sales tax.

The affiliated retailers provide the sales associates and retail space.

In return, we pay a percentage of net sales to the affiliated retailers, which is included in cost of sales.

First Cost commission income is recognized at the point in time when the customer's freight forwarder takes control of the related merchandise.

Gift Cards- Amounts received from the sale of gift cards are recorded as a liability and are recognized as sales when the cards are redeemed for merchandise.

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Upon reaching a specified point threshold, members receive reward certificates that may be redeemed for purchases made within the stated expiration date.

We record a reduction of net sales when points are awarded based on an allocation of the initial customer purchase and the stand-alone value

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of the points earned.

We record a reduction of net sales when points are awarded based on an allocation of the initial customer purchase and the stand-alone value of the points earned.

We maintain a deferred liability for the outstanding points and certificates based on historical conversion and redemption rates.

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Retail and Canada Retail segments is recognized net of estimated returns.

In addition to the cost of merchandise sold, which includes freight and the impact of markdowns, shrinkage and other inventory valuation adjustments, we include in cost of sales expenses associated with distribution and fulfillment and store occupancy.

Distribution and fulfillment expenses are comprised of labor costs, rent, depreciation, insurance, utilities, maintenance and other operating costs associated with the operations of the distribution and fulfillment centers.

Store occupancy expenses include rent, utilities, repairs, maintenance, insurance, janitorial costs, and occupancy-related taxes, but excludes depreciation.

In addition to the cost of merchandise sold, which includes freight and the impact of markdowns, shrink and other inventory valuation adjustments, we include in cost of sales expenses associated with distribution and fulfillment and store occupancy.

Distribution and fulfillment expenses comprise of labor costs, rent, depreciation, insurance, utilities, maintenance and other operating costs associated with the operations of the distribution and fulfillment centers.

Store occupancy expenses include rent, utilities, repairs, maintenance, insurance, janitorial costs, and occupancy-related taxes, but exclude depreciation.

Cost of sales from the Brand Portfolio segment is recognized net of estimated returns.

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Corporate expenses include expenses related to buying, information technology, depreciation and amortization expense for corporate assets, marketing, legal, finance, outside professional services, customer service center expenses, and payroll-related costs for associates.

Stock-Based Compensation- We recognize compensation expense for awards of stock options, restricted stock units ("RSUs"), and director stock units, based on the fair value on the grant date and on a straight-line basis over the requisite service period for the awards that vest.

Stock-based compensation is included in operating expenses in the consolidated statements of operations.

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During fiscal 2020, 2019 and 2018, marketing costs were $ 131.7 million, $ 123.9 million and $ 121.4 million, respectively.

Non-Operating Expenses, Net- Non-operating expenses, net, includes gains and losses from foreign currency revaluation, realized gains and losses related to our investment portfolio, and fair value adjustments of pre-existing assets as a result of the acquisition of the remaining interest in TSL.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-Operating Income (Expenses), Net- Non-operating income (expenses), net, includes gains and losses from foreign currency revaluation, realized gains and losses related to our investment portfolio, and fair value adjustments of pre-existing assets as a result of the acquisition of the remaining interest in TSL.

Income Taxes- We account for income taxes under the asset and liability method.

We determine the aggregate amount of income tax expense to accrue and the amount which will be currently payable based upon tax statutes of each jurisdiction in which we do business.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and respective tax bases and operating loss and tax credit carryforwards, as measured using enacted tax rates expected to be in effect in the periods where temporary differences are expected to be realized or settled.

We determine the aggregate amount of income tax expense to accrue and the amount that will be currently payable based upon tax statutes of each jurisdiction in which we do business.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and respective tax bases and operating loss and tax credit carryforwards, as measured using enacted tax rates expected to be in effect in the periods when temporary differences are expected to be realized or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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Restricted cash represented cash that is restricted as to withdrawal or usage and consisted of a mandatory cash deposit for certain outstanding letters of credit.

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The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:

(in thousands)

February 1, 2020

February 2, 2019

February 3, 2018

(in thousands) January 30, 2021 February 1, 2020 February 2, 2019

Cash and cash equivalents $ 59,581 $ 86,564 $ 99,369

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All income generated from these investments is recorded as interest income.

We hold investment securities in bonds and term notes that are classified as available-for-sale, which is based on our intention of the use of the investments.

The unrealized holding gains or losses for the available-for-sale securities are reported in other comprehensive income (loss).

For prior period investments, we held securities in bonds and term notes that were classified as available-for-sale, which was based on our intention of the use of the investments.

The unrealized holding gains or losses for the available-for-sale securities were reported in other comprehensive income (loss).

We account for our purchases and sales of investments on the trade date of the investment.

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We evaluate our investments for impairment and whether impairment is other-than-temporary at each balance sheet date.

Accounts Receivable - Accounts receivable are classified as current assets because the average collection period is generally shorter than one year.

We monitor our exposure for credit losses based upon specific accounts receivable balances and record related allowances for doubtful accounts where a risk of default has been identified.

Receivables, net - Receivables are classified as current assets because the average collection period is generally shorter than one year.

We monitor our exposure for credit losses based upon specific receivable balances and we record related allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

We utilize an unrelated third-party provider for credit and collection services for receivables from the sale of wholesale products to certain retailers.

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

The Canada Retail segment and the Brand Portfolio segment inventory is accounted for using the weighted average cost method and is stated at the lower of cost or net realizable value.

We monitor aged inventory for obsolete and slow-moving inventory that may need to be liquidated in the future at amounts below cost.

The Canada Retail segment and the Brand Portfolio segment inventory is accounted for using the moving average cost method and is stated at the lower of cost or net realizable value.

We monitor aged inventory for obsolete

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and slow-moving inventory that may need to be liquidated in the future at amounts below cost.

Reductions to inventory values establish a new cost basis.

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We perform physical inventory counts or cycle counts on all inventory on hand throughout the year and adjust the recorded balance to reflect the results.

We record estimated shrinkage between physical inventory counts based on historical experience and recent results.

Inherent in the calculation of inventories are certain significant judgments and estimates, including setting the original merchandise retail value, markdowns, shrinkage, and liquidation values.

We record estimated shrink between physical inventory counts, based on historical experience and recent results, less amounts realized.

Inherent in the calculation of inventories are certain significant judgments and estimates, including setting the original merchandise retail value, markdowns, shrink, and liquidation values.

The ultimate amount realized from the sale of inventory and write offs from counts could differ from management estimates.

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During fiscal 2020, three key third-party vendors together supplied approximately 22 % of our retail merchandise.

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Financial instruments, which principally subject us to concentration of credit risk, consist of cash and cash equivalents and investments.

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At times, such amounts invested through banks may be in excess of Federal Deposit Insurance Corporation insurance limits, and we mitigate the risk by utilizing multiple banks.

Fair Value- Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair Value- Fair value is defined as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Assets and liabilities recorded at fair value are categorized using defined hierarchical levels related to the subjectivity associated with the inputs to fair value measurements as follows:

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These investments are measured using a market-based approach using inputs such as prices of similar assets in active markets (categorized as Level 2).

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.

Property and Equipment- Property and equipment are stated at cost less accumulated depreciation determined by the straight-line method over the expected useful life of assets.

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

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

As of January 30, 2021, the fair value of borrowings under our senior secured term loan ("Term Loan") was $ 254.1 million compared to the carrying value of $ 243.8 million .

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

Property and Equipment, net- Property and equipment, net, are stated at cost less accumulated depreciation determined by the straight-line method over the expected useful life of assets.

The net book value of property or equipment sold or retired is removed from the asset and related accumulated depreciation accounts with any resulting net gain or loss included in results of operations.

The estimated useful lives by class of asset are as follows:

Building and leasehold improvements

3 to 20 years or the lease term if shorter

Furniture, fixtures and equipment

3 to 10 years

5 to 10 years

Buildings 39 years

Building and leasehold improvements 3 to 20 years or the lease term if shorter

Furniture, fixtures and equipment 3 to 10 years

Software 5 to 10 years

Internal Use Software Costs- Costs related to software developed or obtained for internal use are expensed as incurred until the application development stage has been reached.

Once the application development stage has been reached, certain qualifying costs are capitalized until the software is ready for its intended use.

If a cloud computing arrangement includes a software license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses.

If a cloud computing arrangement includes a software

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license, the software license element of the arrangement is accounted for in a manner consistent with the acquisition of other software licenses.

If the arrangement does not include a software license, the arrangement is accounted for as a service contract.

Leases- A lease liability for new leases is recorded based on the present value of future fixed lease commitments with a corresponding lease asset.

For leases classified as operating leases, we recognize a single lease cost on a straight-line basis based on the combined amortization of the lease liability and the lease asset.

Other leases will be accounted for as finance arrangements.

For real estate leases, we are generally required to pay base rent, real estate taxes, and insurance, which are considered lease components, and maintenance, which is a non-lease component.

We have elected to not separate non-lease payment components from the associated lease component for all new real estate leases.

We determine the discount rate for each lease by estimating the rate that we would be required to pay on a secured borrowing for an amount equal to the lease payments over the lease term.

The majority of our real estate leases provide for renewal options, which are typically not included in the lease term used for measuring the lease assets and lease liabilities as it is not reasonably certain we will exercise renewal options.

We monitor for events or changes in circumstances that may require a reassessment of our leases and determine if a remeasurement is required.

In response to the COVID-19 outbreak, we negotiated deferrals of lease payments to be repaid over various periods, with no substantive changes to the total consideration without a change in the terms.

We have elected to treat these changes as modifications to our leases, resulting in remeasuring the related lease assets and liabilities and including non-lease components per our policy.

Impairment of Long-Lived Assets- We periodically evaluate the carrying amount of our long-lived assets, primarily operating lease assets, property and equipment and definite-lived intangible assets, when events and circumstances warrant such a review to ascertain if any assets have been impaired.

The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group (categorized as Level 3 under the fair value hierarchy).

The reviews are conducted at the lowest identifiable level.

The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value.

The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value (categorized as Level 3 under the fair value hierarchy).

Fair value at the store level is typically based on projected discounted cash flows over the remaining lease term.

Refer to section above, Impacts of COVID-19 , regarding impairment charges of long-lived assets during fiscal 2020.

During fiscal 2019, we recorded impairment charges of $ 7.8 million, including $ 4.8 million for operating lease assets and other property and equipment in the Brand Portfolio segment related to the planned consolidation of certain locations as part of our integration efforts and $ 3.0 million primarily for operating lease assets related to under-performing stores ($ 2.3 million and $ 0.7 million for the U.S.

Retail and Canada Retail segments, respectively).

During fiscal 2018, we recorded impairment charges of $ 19.0 million , including $ 13.9 million for an abandoned corporate internal-use software that was under development and $ 5.1 million primarily for leasehold improvements related to under-performing stores ( $ 1.5 million and $ 3.6 million for the U.S.

Retail and Canada Retail segments, respectively).

As a result of recurring operating losses incurred by Ebuys since its acquisition, which led to our decision to exit the business, during fiscal 2017, we recorded impairment charges of $ 31.9 million for intangible assets and $ 3.8 million for property and equipment, which resulted in writing off all of Ebuys' long-lived assets.

During fiscal 2018, we recorded impairment charges of $ 13.9 million for an abandoned corporate internal-use software that was under development and $ 5.1 million primarily for leasehold improvements related to under-performing stores.

Goodwill and Other Indefinite Lived Intangible Assets- We evaluate goodwill and other indefinite lived intangible assets for impairment annually during our fourth quarter, or more frequently if an event occurs or circumstances change that would indicate that impairment may exist.

When evaluating for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that there is an impairment.

If we do not perform a qualitative assessment, or if we

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determine that it is more likely than not that the carrying value exceeds its fair value, we will calculate the estimated fair value.

If we do not perform a qualitative assessment, or if we determine that it is more likely than not that the carrying value exceeds its fair value, we will calculate the estimated fair value.

Fair value is typically calculated using a discounted cash flow analysis.

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Impairment charges are calculated as the amount by which the carrying amount exceeds its fair value, but not to exceed the carrying value for goodwill.

Refer to section above, Impacts of COVID-19 , regarding impairment charges of goodwill during fiscal 2020.

During fiscal 2018, we determined that the value of the acquired net assets of TSL exceeded its fair value based on the fair value of TSL using a discounted cash flow model (categorized as Level 3 under the fair value hierarchy).

As a result, we recorded a goodwill impairment charge of $ 41.8 million that resulted in impairing all of Canada Retail segment’s goodwill.

During fiscal 2017 , due to recurring operating losses incurred by Ebuys since its acquisition, which led to our decision to exit the business, we recorded a goodwill impairment charge of $ 53.8 million , which resulted in writing off all of Ebuys' goodwill.

Self-Insurance Reserves- We record estimates for certain health and welfare, workers' compensation and casualty insurance costs that are self-insured programs.

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We have purchased stop loss insurance to limit our exposure on a per person basis for health and welfare and on a per claim basis for workers' compensation and general liability, as well as on an aggregate annual basis.

Foreign Currency Translation and Transactions- Prior to our acquisition of the remaining interest in TSL, our equity investment in TSL and notes receivable from TSL, along with certain investments, were denominated in Canadian dollar ("CAD") and translated into USD at exchange rates in effect at the balance sheet date.

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Foreign Currency Translation and Transactions- Prior to our acquisition of the remaining interest in TSL, our equity investment in TSL and receivable from TSL, along with certain investments, were denominated in Canadian dollars ("CAD") and translated into USD at exchange rates in effect at the balance sheet date.

Each quarter, the income or loss from TSL was recorded in USD at the average exchange rate for the period.

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During fiscal 2018, as a result of the acquisition of TSL, we reclassified a net loss of $ 12.2 million of foreign currency translation related to the previously held balances from accumulated other comprehensive loss to non-operating expenses, net.

During fiscal 2018, TSL became a wholly owned subsidiary with CAD as their functional currency.

During fiscal 2018, TSL became a wholly owned subsidiary with CAD as its functional currency.

Assets and liabilities of the Canadian business are translated into USD at exchange rates in effect at the balance sheet date or historical rates as appropriate.

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Transaction gains and losses are included in the consolidated statements of operations.

Deferred Compensation Plans - We provide deferred compensation plans, including defined contribution plans to eligible employees and a non-qualified deferred compensation plan for certain executives and members of the Board of Directors.

Deferred Compensation Plans - We provide deferred compensation plans, including defined contribution plans to eligible associates and a non-qualified deferred compensation plan for certain executives and members of the Board of Directors.

Participants may elect to defer and contribute a portion of their eligible compensation to the plans up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws.

During fiscal 2020, 2019 and 2018, we recognized costs associated with matching contributions of $ 5.3 million, $ 5.9 million and $ 5.2 million, respectively.

Prior Period Reclassifications- Certain prior period reclassifications were made to conform to the current period presentation.

For fiscal 2018, commission income of $ 3.5 million previously presented in commission, franchise and other revenue was reclassified to net sales.

For fiscal 2018 and 2017, other revenue, which primarily included operating sublease income, of $ 5.8 million and $ 5.2 million , respectively, also previously presented in commission, franchise and other revenue was reclassified to operating expenses.

In addition, we reclassified $ 25.0 million of previously presented basis difference related to acquisition of commonly controlled entity to common shares paid in-capital within shareholders' equity for all periods presented.

The basis difference related to acquisition of commonly controlled entity related to a legal entity acquisition in fiscal 2012 from certain Schottenstein Affiliates.

The legal entity owned property that was previously leased by us.

As this was a transaction between entities under common control, the difference between the historical cost carrying amounts and the consideration transferred is reflected as an equity transaction within common shares paid in-capital.

Adoption of ASU 2016-02, Leases- During the first quarter of fiscal 2019, we adopted the new accounting standard for leases, Accounting Standards Update ("ASU") 2016-02 and the related amendments.

We elected to initially apply ASU 2016-02 as of February 3, 2019, with the recognition of $ 1.0 billion of lease assets and $ 1.1 billion of lease liabilities and a cumulative-effect adjustment that decreased retained earnings by $ 9.6 million for transition impairments related to previously impaired leased locations.

Adoption of ASU 2016-13 , Measurement of Credit Losses on Financial Instruments - During the first quarter of fiscal 2020, we adopted Accounting Standards Update ("ASU") 2016-13, which replaces the previous incurred loss method used for determining credit losses on financial assets, including trade receivables, with an expected credit loss method.

The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.

Adoption of ASU 2016-02, Leases- During the first quarter of fiscal 2019, we adopted the new accounting standard for leases, ASU 2016-02 and the related amendments.

We elected to initially apply ASU 2016-02 as of February 3, 2019, which resulted in a cumulative-effect adjustment that decreased retained earnings by $ 9.6 million for transition impairments related to previously impaired leased locations.

Periods prior to February 3, 2019 were not restated.

Upon transition to ASU 2016-02, we recognized lease liabilities based on the present value of the remaining future fixed lease commitments, net of outstanding tenant allowance receivables, with corresponding lease assets.

Amounts for prepaid expenses, deferred rent, deferred construction and tenant allowances, the

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accrual for lease obligations, and favorable and unfavorable leasehold interests were netted against the lease assets.

At transition, we elected the package of practical expedients, which allows us to carry forward the historical lease classification and not reassess whether any expired or existing contracts are leases or contain leases.

We did not elect the use of hindsight to determine the term of our leases at transition.

A lease liability for new leases is recorded based on the present value of future fixed lease commitments with a corresponding lease asset.

For leases classified as operating leases, we recognize a single lease cost on a straight-line basis based on the combined amortization of the lease liability and the lease asset.

Other leases will be accounted for as finance arrangements.

For real estate leases, we are generally required to pay base rent, real estate taxes, and insurance, which are considered lease components, and maintenance, which is a non-lease component.

As provided for under ASU 2016-02, we have elected to not separate non-lease payment components from the associated lease component for all new real estate leases.

We determine the discount rate for each lease by estimating the rate that we would be required to pay on a secured borrowing for an amount equal to the lease payments over the lease term.

Prior to the adoption of ASU 2016-02, we recognized rent expense on a straight-line basis over the noncancelable terms of the lease.

For leases with fixed increases of the minimum rentals during the noncancelable term, we recorded the difference between the amounts charged to expense and the rent paid as deferred rent and amortized such deferred rent upon the delivery of the lease location by the lessor.

In addition, cash allowances received from landlords were deferred and amortized on a straight-line basis over the noncancelable terms of the lease as a reduction of rent expense.

Deferred rent and construction and tenant allowances are included in other non-current liabilities on the consolidated balance sheets for periods prior to February 3, 2019.

Also, we recorded reserves for leased spaces that were abandoned due to closure.

Prior to the adoption of ASU 2016-02, we recognized rent expense on a straight-line basis over the noncancelable terms of the lease and we recorded lease exit charges for reserves for leased spaces that were abandoned due to closure.

Using a credit-adjusted risk-free rate to calculate the present value of the liability, we estimated future lease obligations based on remaining fixed lease payments, estimated or actual sublease income, and any other relevant factors.

Adoption of ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software- Also during the first quarter of fiscal 2019, we early adopted ASU 2018-15 on a prospective basis, which aligned the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or acquire internal-use software.

The adoption of ASU 2018-15 did not have a material impact on our consolidated financial statements.

ACQUISITIONS AND EQUITY METHOD INVESTMENT

Step Acquisition of TSL- On May 10, 2018, we acquired the remaining interest in TSL for $ 36.2 million CAD ($ 28.2 million USD), net of acquired cash of $ 8.5 million CAD ($ 6.6 million USD), by exercising our call option.

This was accounted for as a step acquisition whereby we remeasured to fair value our previously held assets, which included our equity investment in TSL and notes and accounts receivable from TSL, and included these assets in the determination of the purchase price.

This was accounted for as a step acquisition whereby we remeasured to fair value our previously held assets, which included our equity investment in TSL and receivables from TSL, and included these assets in the determination of the purchase price.

During fiscal 2018, as a result of the remeasurement, we recorded a loss of $ 34.0 million to non-operating expenses, net, in the consolidated statements of operations.

Also during fiscal 2018, we reclassified a net loss of $ 12.2 million of foreign currency translation adjustments related to the previously held balances from accumulated other comprehensive loss to non-operating expenses, net.

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The purchase price and the allocation of the total consideration to the fair values of the assets and liabilities acquired was finalized as of February 2, 2019 and consisted of the following (in USD):

(in thousands)

Final Purchase Price and Allocation

Purchase price:

Cash consideration, net of cash acquired

Replacement stock-based awards attributable to pre-acquisition services

Fair value of pre-existing assets

Fair value of assets and liabilities acquired:

Other current assets

Property and equipment

Intangible assets

Accounts payable and other liabilities

Non-current liabilities

The fair value of previously held assets was determined immediately before the business combination, primarily by considering the income valuation approach (discounted cash flow) and the market valuation approach (precedent comparable transactions).

Additionally, other information such as current market, industry and macroeconomic conditions were utilized to assist in developing these fair value measurements.

The fair value of intangible assets included $ 15.7 million for tradenames, $ 3.6 million for favorable leasehold interests, and $ 1.4 million for customer relationships associated with the Canada loyalty program.

The fair value of unfavorable leasehold interests, included in other non-current liabilities, was $ 7.6 million .

The fair value for tradenames was determined using the relief from royalty method of the income approach, the fair value for leasehold interests was determined based on the market valuation approach, and the fair value for customer relationships related to the loyalty program was determined using the replacement cost method.

The fair value for property and equipment was determined using the cost and market approaches.

The fair value of inventories, which is made up of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs.

The goodwill represents the excess of the purchase price over the fair value of the net assets acquired.

With this being a step acquisition, the purchase price included the fair value of our previously held assets, which considered the valuation of the TSL enterprise.

This valuation identified that the resulting goodwill was not supportable as the value of the acquired net assets exceeded the enterprise fair value.

As a result, during fiscal 2018, we recorded a goodwill impairment charge, net of adjustments as a result of recording adjustments to the preliminary purchase allocations, which resulted in impairing all of the Canada Retail segment’s goodwill.

A portion of the goodwill is not expected to be deductible for income tax purposes.

During fiscal 2018, our consolidated statements of operations included net sales and net losses for TSL of $ 220.3 million and $ 48.9 million, respectively, which included the pre-tax losses from the wind down of operations for the Town Shoes banner, the goodwill impairment charge of $ 41.8 million, long-lived asset impairment charges of $ 3.6 million and lease exit charges of $ 15.5 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase price and the allocation of the total consideration to the fair values of the assets and liabilities acquired was finalized as of November 2, 2019 and consisted of the following:

(in thousands)

Preliminary Purchase Price and Allocation

as of November 5, 2018

Measurement Period Adjustments

Final Purchase Price and Allocation

as of November 2, 2019

Purchase price -

Cash consideration, net of cash acquired

Fair value of assets and liabilities acquired:

Accounts receivable

Other current assets

Property and equipment

Intangible asset

Accounts payable and other liabilities

Non-current liabilities

The fair value of the intangible asset relates to customer relationships and was based on the excess earnings method under the income approach.

The fair value measurement is based on significant unobservable inputs, including the future cash flows and discount and customer attrition rates.

The fair values for property and equipment were determined using the cost and market approaches.

The fair value of inventories, which consist of finished goods, was determined based on market assumptions for realizing a reasonable profit after selling costs.

The inventory valuation step-up was recognized to cost of goods sold during fiscal 2018 based on assumed inventory turns.

The goodwill represents the excess of the purchase price over the fair value of the net assets acquired, and was primarily attributable to acquiring an established design and sourcing process, which provides us the opportunity to expand our exclusive brand products offering at lower cost of goods in our retail segments and an assembled workforce.

We determined that goodwill should be allocated to reporting units within the U.S.

Retail and Brand Portfolio segments based on each reporting unit’s estimated benefit from the expected synergies from the Camuto Group acquisition.

We allocated $ 67.8 million of the goodwill to the U.S.

Retail segment based primarily on a discounted cash flow of the sourcing benefit.

The remaining $ 20.0 million of goodwill was allocated to the First Cost reporting unit within the Brand Portfolio segment based on the fair value of the reporting unit over the fair value of the net assets allocated to the reporting unit.

Goodwill is expected to be deductible for income tax purposes.

Other non-current liabilities included $ 12.7 million of estimated unpaid foreign payroll and other taxes.

We recorded an offsetting indemnification asset to other assets, which we expect to collect under the terms of the securities purchase agreement with the Sellers.

See Note 16 , Commitments and Contingencies , for additional information.

Measurement period adjustments were the result of refining cash flow assumptions relating to certain synergy assumptions, adjusting accruals and related indemnification receivables based on additional information, and other immaterial adjustments identified as we performed additional analysis of the assets and liabilities acquired.

Adjustments to the purchase price were based on a working capital settlement with the Sellers as provided by the purchase agreement.

Measurement period adjustments are recognized on a prospective basis in the period of change.

During fiscal 2018, our consolidated statements of operations included net sales from external customers and net losses for Camuto Group of $ 89.6 million and $ 16.2 million, respectively.

We incurred $ 22.2 million of acquisition-related costs as a result of the acquisition (not included in the Camuto Group net loss disclosed in the previous sentence), which were included in operating expenses in the consolidated statements of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Investment in ABG-Camuto- On November 5, 2018, we acquired a 40 % interest in the newly formed ABG-Camuto joint venture for $ 56.8 million in partnership with Authentic Brands Group LLC.

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Combined Results- The following table provides the supplemental unaudited pro forma net sales and net income of the combined entity had the acquisition dates of TSL and Camuto Group and the investment in ABG-Camuto been the first day of our fiscal 2017:

(in thousands)

(in thousands) Fiscal 2018

Net sales $ 3,562,498

Net income $ 74,367

The amounts in the supplemental pro forma results apply our accounting policies, eliminate intercompany transactions, assume the acquisition-related transaction costs were incurred in fiscal 2017, and reflect adjustments for additional expenses that would have been charged assuming borrowings on the revolving line of credit of $ 160.0 million and the same fair value adjustments to inventory, property and equipment, and acquired intangibles had been applied on the first day of our fiscal 2017.

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Accessories and other 101,028 193,952 192,287

1,800,323 2,745,395 2,738,989

Canada Retail segment:

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Accessories and other 7,138 11,120 9,219

182,659 249,017 220,325

Brand Portfolio segment:

Wholesale 197,940 379,698 86,209

Commission income 18,509 26,424 3,894

Direct-to-consumer 32,197 42,163 9,709

248,646 448,285 99,812

Other 62,909 122,090 128,968

Total segment net sales 2,294,537 3,564,787 3,188,094

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Beginning of period $ 16,138 $ 16,151 $ 21,282

Loyalty certificates redeemed, expired, and other adjustments recognized to net sales

Loyalty certificates redeemed and expired and other adjustments recognized to net sales ( 25,049 ) ( 37,311 ) ( 41,210 )

Deferred revenue for loyalty points issued 20,290 37,298 36,079

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End of period $ 4,579 $ 11,528 $ 13,094

As of February 1, 2020 and February 2, 2019 , the asset for recovery of merchandise returns was $ 11.9 million and $ 10.1 million , respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets.

As of January 30, 2021, February 1, 2020 and February 2, 2019, the asset for recovery of merchandise returns was $ 8.4 million, $ 11.9 million and $ 10.1 million, respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets.

RELATED PARTY TRANSACTIONS

Schottenstein Affiliates

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

Schottenstein, the executive chairman of our Board of Directors, and members of his family, beneficially owned approximately 16 % of the Company's outstanding common shares, representing approximately 52 % of the combined voting power.

As of February 1, 2020 , the Schottenstein Affiliates beneficially owned 3.6 million Class A common shares and 7.7 million Class B common shares.

We had the following related party transactions with Schottenstein Affiliates:

As of January 30, 2021, 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 January 30, 2021, 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, 3.9 million Class A common shares and 7.7 million Class B common shares.

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

Leases- We lease our fulfillment center and certain store locations owned by Schottenstein Affiliates.

See Note 14, Leases , for rent expense and future minimum lease payment requirements associated with the Schottenstein Affiliates.

Other Purchases and Services - During fiscal 2019 , 2018 and 2017 , we had other purchases and services from Schottenstein Affiliates of $ 6.0 million , $ 6.5 million and $ 4.6 million , respectively.

Due to Related Parties- As of February 1, 2020 and February 2, 2019 , we had amounts due to related parties of $ 0.9 million and $ 1.0 million , respectively, included in accounts payable on the consolidated balance sheets.

Beginning in the fourth quarter of fiscal 2018, we have a 40 % interest in ABG-Camuto.

ABG-Camuto entered into a licensing agreement with us whereby we pay royalties on the net sales of the brands owned by ABG-Camuto.

During fiscal 2019 and 2018 , we recorded $ 18.2 million and $ 2.4 million of royalty expense payable to ABG-Camuto, respectively.

As of February 1, 2020 and February 2, 2019 , we had $ 0.3 million and $ 2.4 million payable to ABG-Camuto, respectively, included in accrued expenses on the consolidated balance sheets.

Other Purchases and Services - During fiscal 2020, 2019 and 2018, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 4.8 million, $ 6.0 million and $ 6.5 million, respectively.

Due to Related Parties- As of January 30, 2021 and February 1, 2020, we had amounts due to the Schottenstein Affiliates of $ 1.2 million and $ 0.9 million, respectively, included in accounts payable on the 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, subject to guaranteed minimums.

For both fiscal 2020 and 2019, we recorded $ 18.2 million of royalty expense payable to ABG-Camuto, respectively.

See Note 15, Commitments and Contingencies - Contractual Obligations , for future guaranteed minimum royalty payment requirements to ABG-Camuto.

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

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Basic earnings (loss) per share is based on net income (loss) and the weighted average of Class A and Class B common shares outstanding.

Diluted earnings (loss) per share reflects the potential dilution of common shares adjusted for outstanding stock options and RSUs calculated using the treasury stock method.

Diluted earnings per share reflects the potential dilution of common shares adjusted for outstanding stock options and RSUs calculated using the treasury stock method.

The following is a reconciliation of the number of shares used in the calculation of earnings (loss) per share:

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Weighted average basic shares outstanding

72,198 73,602 80,026

Dilutive effect of stock-based compensation awards

Weighted average diluted shares outstanding

72,198 74,605 80,026

For fiscal 2020, 2019 and 2018, the number of potential shares that were not included in the computation of diluted earnings (loss) per share due to the anti-dilutive effect was 5.9 million, 3.2 million and 3.2 million, respectively.

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2005 Equity Incentive Plan but did not affect awards granted under that plan, some of which remain outstanding.

Eligible recipients include key employees as well as directors.

Eligible recipients include key associates as well as directors.

The maximum number of shares of Class A common shares underlying awards which may be issued over the term of the Plan cannot exceed 11.0 million shares.

As of February 1, 2020 , 2.9 million shares of Class A common shares remain available for future stock-based compensation grants under the Plan.

As of January 30, 2021, 9.2 million shares of Class A common shares remain available for future stock-based compensation grants under the Plan.

Stock-based compensation expense consisted of the following:

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Restricted and director stock units 18,769 14,980 12,493

$ 20,236 $ 17,059 $ 17,393

Stock Options- Stock options were granted with an exercise price per share equal to the fair market value of our common stock on the grant date.

Stock options generally vest 20 % per year on a cumulative basis and remain exercisable for a period of 10 years from the date of grant.

Stock-based compensation expense is recognized only for those awards that are expected to vest, with forfeitures estimated based on our historical experience and future expectations.

As of February 1, 2020 , the total compensation cost related to unvested options not yet recognized was approximately $ 2.0 million , with a weighted average expense recognition period remaining of 1.8 years .

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The following table summarizes the stock-based compensation award activity for outstanding stock options for fiscal 2019 :

(in thousands, except per share amounts and years)

Shares Subject to Options

Weighted Average Exercise Price per Share

Weighted Average Remaining Contractual Life

Aggregate Intrinsic Value

Outstanding - beginning of period

Outstanding - end of period

Vested and expected to vest - end of period

Exercisable - end of period

The aggregate intrinsic value is calculated as the amount by which the fair value of the underlying common shares exceeds the option exercise price.

The total intrinsic value of options exercised during fiscal 2019 , 2018 and 2017 was $ 1.2 million , $ 2.1 million and $ 2.0 million , respectively.

The total fair value of options that vested during fiscal 2019 , 2018 and 2017 was $ 1.1 million , $ 0.8 million and $ 0.6 million , respectively.

Stock option activity for the periods presented and unvested options as of January 30, 2021 was immaterial.

Restricted Stock Units- Grants of time-based RSUs generally cliff vest over three years and performance-based RSUs generally cliff vest over three years based upon the achievement of pre-established goals as of the end of the first year of the term.

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The grant date fair value of RSUs is based on the closing market price of the Class A common shares on the date of the grant.

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The following table summarizes the stock-based compensation award activity for unvested stock units for fiscal 2020:

Time-Based RSUs

Performance-Based RSUs

(shares in thousands)

Number of Shares

Weighted Average Grant Date Fair Value

Number of Shares

Weighted Average Grant Date Fair Value

Time-Based RSUs Performance-Based RSUs

(shares in thousands) Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value

Outstanding - beginning of period 1,687 $ 21.37 768 $ 21.24

Granted 5,880 $ 6.57 11 $ 5.49

Vested ( 358 ) $ 19.58 ( 226 ) $ 19.74

Forfeited ( 764 ) $ 10.41 ( 13 ) $ 21.94

Outstanding - end of period 6,445 $ 9.20 540 $ 21.84

The total fair value of time-based RSUs that vested during fiscal 2020, 2019 and 2018 was $ 6.5 million, $ 3.8 million and $ 1.7 million, respectively.

As of February 1, 2020 , the total compensation cost related to unvested time-based RSUs not yet recognized was $ 15.3 million , with a weighted average expense recognition period remaining of 1.9 years .

As of January 30, 2021, the total compensation cost related to unvested time-based RSUs not yet recognized was $ 27.9 million, with a weighted average expense recognition period remaining of 2.1 years.

The total fair value of performance-based RSUs that vested during fiscal 2020, 2019 and 2018 was $ 4.0 million, $ 3.9 million and $ 3.2 million, respectively.

As of February 1, 2020 , the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 4.4 million , with a weighted average expense recognition period remaining of 1.7 years .

Director Stock Units- We issue stock units to directors who are not employees.

As of January 30, 2021, the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 2.3 million, with a weighted average expense recognition period remaining of 1.0 year.

Director Stock Units- We issue stock units to directors who are not associates.

Stock units are automatically granted to each director on the date of each annual meeting of shareholders based on the closing market price of the Class A common shares.

2 unchanged sentences

Stock units granted to directors not yet settled, which are not subject to forfeiture, are considered to be outstanding for the purposes of computing basic earnings (loss) per share.

As of February 1, 2020 , we had 0.5 million director stock units not yet settled.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 30, 2021, we had 0.4 million director stock units not yet settled.

SHAREHOLDERS' EQUITY

3 unchanged sentences

The following table provides additional information for our common shares:

February 1, 2020

February 2, 2019

(in thousands)

January 30, 2021 February 1, 2020

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

Authorized shares 250,000 100,000 250,000 100,000

3 unchanged sentences

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

Share Repurchases - On August 17, 2017 , the Board of Directors authorized the repurchase of an additional $ 500 million of Class A common shares under our share repurchase program, which was added to the $ 33.5 million remaining from the previous authorization.

During fiscal 2019 , we repurchased 7.1 million Class A common shares at a cost of $ 141.6 million , with $ 334.9 million of Class A common shares that remain authorized under the program as of February 1, 2020 .

During fiscal 2018, we repurchased 2.0 million Class A common shares at a cost of $ 47.5 million , with $ 476.6 million of Class A common shares that remain authorized under the program as of February 2, 2019 .

The share repurchase program may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common shares under the program.

Shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions.

Share Repurchases - On August 17, 2017, the Board of Directors authorized the repurchase of an additional $ 500 million of Class A common shares under our share repurchase program, which was added to the $ 33.5 million remaining from the previous authorization, with $ 334.9 million of Class A common shares that remain authorized under the program as of January 30, 2021.

The share repurchase program is subject to the ABL Revolver and Term Loan restrictions and may be suspended, modified or discontinued at any time, and we have no obligation to repurchase any amount of our common shares under the program.

Any share repurchases will be completed in the open market at times and in amounts considered appropriate based on price and market conditions.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss- Changes for the balances of each component of accumulated other comprehensive loss were as follows (all amounts are net of tax):

(in thousands)

Foreign Currency Translation

Available-for-Sale Securities

Balance, January 28, 2017

Other comprehensive income (loss) before reclassifications

Amounts reclassified to non-operating expenses, net

Other comprehensive income (loss)

Foreign Currency Translation Available-for-Sale Securities Total

Balance, February 3, 2018 $ ( 9,278 ) $ ( 796 ) $ ( 10,074 )

7 unchanged sentences

Balance, February 1, 2020 ( 2,668 ) 173 ( 2,495 )

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTS RECEIVABLE

Accounts receivable, net, consisted of the following:

(in thousands)

February 1, 2020

February 2, 2019

Other comprehensive income (loss) before reclassifications ( 618 ) 195 ( 423 )

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

Other comprehensive loss ( 618 ) ( 173 ) ( 791 )

Balance, January 30, 2021 $ ( 3,286 ) $ — $ ( 3,286 )

Receivables, net, consisted of the following:

(in thousands) January 30, 2021 February 1, 2020

Customer accounts receivables:

2 unchanged sentences

Serviced in-house 4,576 7,630

Construction and tenant allowance receivables due from landlords (1)

Income tax receivable 149,824 —

Other receivables 12,865 28,166

Accounts receivable

Total receivables 197,243 90,370

Allowance for doubtful accounts ( 1,194 ) ( 1,219 )

Accounts receivable, net

Upon transition to ASU 2016-02 at the beginning of fiscal 2019, amounts for construction and tenant allowance receivables due from landlords were netted against the operating lease liabilities.

$ 196,049 $ 89,151

The following presents the activity in our balance in the allowance for doubtful accounts:

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Allowance for doubtful accounts - end of period $ ( 1,194 ) $ ( 1,219 ) $ ( 939 )

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Investments in available-for-sale securities consisted of the following:

(in thousands)

February 1, 2020

February 2, 2019

(in thousands) January 30, 2021 February 1, 2020

Carrying value of investments $ — $ 24,831

Unrealized gains included in accumulated other comprehensive loss — 143

Unrealized losses included in accumulated other comprehensive loss

Fair value $ — $ 24,974

PROPERTY AND EQUIPMENT

Property and equipment, net, consisted of the following:

(in thousands)

February 1, 2020

February 2, 2019

(in thousands) January 30, 2021 February 1, 2020

Land $ 1,110 $ 1,110

Buildings 12,485 12,485

Building and leasehold improvements 446,937 449,958

Furniture, fixtures and equipment 471,586 482,573

Software 194,064 189,291

Construction in progress 10,659 32,645

1 unchanged sentence

Accumulated depreciation and amortization ( 840,372 ) ( 773,053 )

Property and equipment, net

$ 296,469 $ 395,009

DESIGNER BRANDS INC.

2 unchanged sentences

Goodwill- Activity related to our goodwill was as follows:

February 1, 2020

February 2, 2019

(in thousands)

Accumulated Impairments

January 30, 2021 February 1, 2020

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

Beginning of period by segment:

Retail $ 93,655 $ — $ 93,655 $ 25,899 $ — $ 25,899

Canada Retail 41,610 ( 41,610 ) — 42,048 ( 42,048 ) —

Brand Portfolio 19,989 — 19,989 63,614 — 63,614

155,254 ( 41,610 ) 113,644 131,561 ( 42,048 ) 89,513

Activity by segment:

1 unchanged sentence

Canada Retail -

Acquired TSL goodwill

Impairment charges

Currency translation adjustment 1,476 ( 1,476 ) — ( 438 ) 438 —

Brand Portfolio:

Acquired Camuto Group goodwill

Impairment charges — ( 19,989 ) ( 19,989 ) — — —

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

Allocation of goodwill to U.S.

Other - Eliminated goodwill from Ebuys exit

Retail — — — ( 67,756 ) — ( 67,756 )

1,476 ( 21,465 ) ( 19,989 ) 23,693 438 24,131

End of period by segment:

Retail 93,655 — 93,655 93,655 — 93,655

Canada Retail 43,086 ( 43,086 ) — 41,610 ( 41,610 ) —

Brand Portfolio 19,989 ( 19,989 ) — 19,989 — 19,989

$ 156,730 $ ( 63,075 ) $ 93,655 $ 155,254 $ ( 41,610 ) $ 113,644

Intangible Assets- Intangible assets consisted of the following:

February 1, 2020

February 2, 2019

(in thousands)

Accumulated Amortization

Definite-lived:

Customer relationships

Favorable leasehold interests

January 30, 2021 February 1, 2020

(in thousands) Cost Accumulated Amortization Net Cost Accumulated Amortization Net

Definite-lived customer relationships $ 2,909 $ ( 2,791 ) $ 118 $ 9,360 $ ( 2,044 ) $ 7,316

Indefinite-lived trademarks and tradenames 15,517 — 15,517 15,530 — 15,530

$ 18,426 $ ( 2,791 ) $ 15,635 $ 24,890 $ ( 2,044 ) $ 22,846

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The customer relationships are amortized by the straight-line method over three years associated with the Canada loyalty program and eight years for Brand Portfolio customer relationships.

Upon transition to ASU 2016-02 at the beginning of fiscal 2019, amounts for favorable leasehold interests were netted against the operating lease assets.

ACCRUED EXPENSES

Accrued expenses consisted of the following:

(in thousands)

February 1, 2020

February 2, 2019

Gift cards and merchandise credits

(in thousands) January 30, 2021 February 1, 2020

Gift cards $ 34,442 $ 35,461

Accrued compensation and related expenses 49,864 26,768

3 unchanged sentences

Customer allowances and discounts 4,579 11,528

OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consisted of the following:

(in thousands)

February 1, 2020

February 2, 2019

Foreign tax contingent liabilities

Deferred tax liabilities

Construction and tenant allowances (1)

Deferred rent (1)

Accrual for lease obligations (1)

Unfavorable leasehold interests (1)

Upon transition to ASU 2016-02 at the beginning of fiscal 2019, amounts for construction and tenant allowances, deferred rent, the accrual for lease obligations, and unfavorable leasehold interests were netted against the operating lease assets.

The following table presents the changes and total balances for the accrual for lease obligations:

Other 58,523 63,562

$ 200,326 $ 194,264

Debt consisted of the following:

(in thousands) January 30, 2021 February 1, 2020

ABL Revolver $ 100,000 $ —

Term Loan 243,750 —

Credit Facility — 190,000

Total debt 343,750 190,000

Less unamortized Term Loan debt issuance costs ( 8,931 ) —

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

Long-term debt $ 272,319 $ 190,000

As of January 30, 2021, future maturities of debt are as follows:

(in thousands)

Beginning of period

Netted against lease assets upon transition to ASU 2016-02

Assumed liability in acquisitions

Lease obligation payments, net of sublease income

End of period

Fiscal 2021 $ 62,500

Fiscal 2022 12,500

Fiscal 2023 12,500

Fiscal 2024 12,500

Fiscal 2025 243,750

Total $ 343,750

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 January 30, 2021, the ABL Revolver had a borrowing base of $ 400.0 million, with $ 100.0 million outstanding and $ 5.3 million in letters of credit issued, resulting in $ 294.7 million available for borrowings.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As a result of our decision to exit the Ebuys business, which is included in our Other segment, during fiscal 2018, we exited a leased office space that expires in 2020 and a fulfillment center that expires in 2023 and recorded a lease exit charge of $ 6.3 million .

Also during fiscal 2018, as a result of our decision to exit the Town Shoes banner, which is included in our Canada Retail segment, we closed or re-branded all Town Shoes banner stores and recorded lease exit charges of $ 15.5 million .

The lease exit charges were recorded to operating expenses in the consolidated statements of operations with a related addition to the accrual for lease obligations that included the reserves for these leases based on the remaining lease payments and estimated sublease income.

We incurred $ 19.5 million of charges related to the exit of the Town Shoes banner, which included lease exit charges, severance, and inventory write-downs.

Credit Facility - Our Credit Facility, with a maturity date of August 25, 2022 , provides a revolving line of credit up to $ 400 million , 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.

The Credit Facility may be used to provide funds for working capital, capital expenditures, share repurchases, other expenditures, and permitted acquisitions as defined by the Credit Facility.

Our Credit Facility allows the payments of dividends by us or our subsidiaries, provided that immediately before and after a dividend payment there is no event of default, as defined in our Credit Facility.

Loans issued under the revolving line of credit bear 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 3.4 % as of February 1, 2020 .

Any loans issued in CAD bear interest at the alternate base rate plus a margin based on our leverage ratio.

Interest on letters of credit issued under the Credit Facility is variable based on our leverage ratio and the type of letters of credit, with an interest rate of 1.8 % as of February 1, 2020 .

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

As of February 1, 2020 and February 2, 2019 , we had $ 190.0 million and $ 160.0 million , respectively, outstanding under the Credit Facility.

As of February 1, 2020 , with the amount outstanding under the Credit Facility and $ 3.0 million in letters of credit issued, we had $ 207.0 million available for borrowings.

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

Debt Covenants- The Credit Facility contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as the maintenance of a leverage ratio not to exceed 3.25 :1 and a fixed charge coverage ratio not to be less than 1.75 :1 .

A violation of any of the covenants could result in a default under the Credit Facility that would permit the lenders to restrict our ability to further access the Credit Facility for loans and letters of credit and require the immediate repayment of any outstanding loans under the Credit Facility.

As of February 1, 2020 , we were in compliance with all financial covenants.

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

We pay variable amounts for certain lease and non-lease components as well as for contingent rentals based on sales for certain leases where the sales are in excess of specified levels and for leases that have certain contingent triggering events that are in effect.

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") (as defined) 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 January 30, 2021.

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 % (effective interest rate of 11.81 % when including the amortization of debt issuance costs) as of January 30, 2021.

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 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.

As of January 30, 2021, we were in compliance with all financial covenants.

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

We pay variable amounts for certain lease and non-lease components as well as for contingent rent based on sales for certain leases where the sales are in excess of specified levels and for leases that have certain contingent triggering events that are in effect.

We also lease equipment under operating leases.

1 unchanged sentence

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

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lease income and lease expense consisted of the following for fiscal 2019 (after the adoption of ASU 2016-02) and fiscal 2018 and 2017 (prior to the adoption of ASU 2016-02):

Lease income and lease expense consisted of the following:

(in thousands) 2020 2019 2018

Operating lease income

Operating sublease income $ 12,219 $ 9,601 $ 4,659

Operating lease expense:

3 unchanged sentences

Variable lease expense to related parties 1,341 1,283 —

$ 274,190 $ 277,164 $ 237,915

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other operating lease information:

Weighted-average remaining lease term

Weighted-average remaining lease term 5.3 years

Weighted-average discount rate 4.0 %

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

(in thousands)

Unrelated Parties

Related Parties

As of January 30, 2021, our future fixed minimum lease payments are as follows:

(in thousands) Unrelated Parties Related Parties Total

Fiscal 2021 $ 267,251 $ 9,085 $ 276,336

Fiscal 2022 202,431 7,118 209,549

Fiscal 2023 159,705 4,573 164,278

Fiscal 2024 117,648 4,139 121,787

Fiscal 2025 83,705 3,919 87,624

Future fiscal years thereafter 156,796 7,434 164,230

987,536 36,268 1,023,804

Less discounting impact on operating leases ( 97,539 ) ( 3,744 ) ( 101,283 )

2 unchanged sentences

Non-current operating lease liabilities $ 653,184 $ 24,551 $ 677,735

As of February 1, 2020 , we have entered into lease commitments for eleven new store locations and one store relocation where the leases have not yet commenced, and therefore the lease liabilities have not yet been recorded.

We expect the lease commencement to begin in the next fiscal quarter for these locations and we will record additional operating lease liabilities of approximately $ 20.1 million .

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of February 2, 2019 , future minimum lease payment requirements, excluding contingent rental payments, maintenance, insurance, real estate taxes, and the amortization of deferred rent and construction and tenant allowances, consisted of the following, as determined prior to the adoption of ASU 2016-02:

(in thousands)

Unrelated Parties

Related Parties

Future fiscal years thereafter

As of January 30, 2021, we have entered into lease commitments for nine new store locations and one store relocation where the leases have not yet commenced, and therefore the lease liabilities have not yet been recorded.

We expect the lease commencement to begin over the next three fiscal quarters for these locations and we will record additional operating lease liabilities of approximately $ 14.0 million.

COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed.

Foreign Tax Contingencies- During the due diligence procedures performed related to the acquisition of Camuto Group, we identified probable contingent liabilities associated with unpaid foreign payroll and other taxes that could also result in assessed penalties and interest.

We developed an initial estimate of the range of outcomes related to these obligations and have since refined our estimates with additional analysis.

Our current estimate of the range of outcomes is $ 28.1 million to $ 40.0 million for obligations we are aware of at this time.

We expect to resolve certain obligations with tax authorities over the next twelve months.

As of February 1, 2020 , we recorded a contingent liability of $ 28.1 million , with $ 22.1 million included in accrued expenses and $ 6.0 million included in other non-current liabilities on the consolidated balance sheets, representing the low end of the range and an indemnification asset of $ 24.5 million , with $ 19.6 million included in accounts receivable and $ 4.9 million included in other assets on the consolidated balance sheets, representing the estimated amount we expect to collect under the terms of the securities purchase agreement with 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 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 February 1, 2020 , the total future minimum lease payment requirements for this guarantee was approximately $ 13.4 million .

Contractual Obligations- As of February 1, 2020 , we have entered into various noncancelable purchase and service agreements, including construction commitments for capital items to be purchased for projects that were under construction or for which a lease has been signed.

Insurance Recoveries- During fiscal 2020, we experienced lost sales and the related margins and recognized incremental losses due to an incident at a third-party vendor that resulted in a shutdown of services to us that impacted our ability to fulfill orders from customers for a limited period of time.

This incident is covered under an insurance policy that provides for reimbursement of lost profits and recognized losses as a result of the outage.

During fiscal 2020, we recognized insurance recovery gains of $ 3.0 million, recorded to cost of sales on the consolidated statements of operations, for recognized losses that we believe are probable of being reimbursed through the insurance policy.

Reimbursement for lost profits and any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when realized or realizable.

We will continue to work with the insurance carrier to reach an agreement on the total amount to be recovered.

Guarantee- We provide guarantees for lease obligations that are scheduled to expire in fiscal 2023 for locations that have been leased to third parties.

If a 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 January 30, 2021, the total future minimum lease payment requirements for these guarantees were approximately $ 15.9 million.

Contractual Obligations- As of January 30, 2021, we have entered into various noncancelable purchase and service agreements, including construction commitments for capital items to be purchased for projects that were under construction or for which a lease has been signed.

In addition, we have license agreements that allow us to use third-party owned brands, including a license agreement with ABG-Camuto (a related party), that have guaranteed minimum royalty payments.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of February 1, 2020 , our noncancelable purchase obligations and future guaranteed minimum royalty payments are as follows:

As of January 30, 2021, our noncancelable purchase obligations and future guaranteed minimum royalty payments are as follows:

Guaranteed Minimum Royalties

(in thousands)

Noncancelable Purchase Obligations

Unrelated Parties

Related Party

(in thousands) Noncancelable Purchase Obligations Unrelated Parties Related Party Total

Fiscal 2021 $ 5,449 $ 19,253 $ 18,350 $ 37,603

Fiscal 2022 1,922 16,309 18,350 34,659

Fiscal 2023 1,521 15,309 18,350 33,659

Fiscal 2024 — 15,309 19,650 34,959

Fiscal 2025 — 6,984 19,650 26,634

Future fiscal years thereafter — 20,952 58,950 79,902

Income, including income (loss) from equity investment in TSL, before income taxes consisted of the following:

$ 8,892 $ 94,116 $ 153,300 $ 247,416

Income (loss) before income taxes and loss from equity investment in TSL consisted of the following:

(in thousands)

Domestic income

Foreign income (loss), including income (loss) from equity investment in TSL

Income, including income (loss) from equity investment in TSL, before income taxes

Income tax provision consisted of the following:

2020 2019 2018

Domestic income (loss) $ ( 559,120 ) $ 111,021 $ 123,172

Foreign income (loss), including loss from equity investment in TSL ( 49,527 ) 8,753 ( 113,805 )

Income (loss) before income taxes and loss from equity investment in TSL $ ( 608,647 ) $ 119,774 $ 9,367

Income tax provision (benefit) consisted of the following:

(in thousands)

2020 2019 2018

Federal $ ( 151,931 ) $ 21,196 $ 29,073

Foreign 1,451 205 188

State and local ( 3,840 ) 6,596 12,268

Total current tax expense

( 154,320 ) 27,997 41,529

Federal 23,601 ( 620 ) ( 2,234 )

Foreign 1,504 ( 1,241 ) ( 9,273 )

State and local 9,287 ( 859 ) ( 189 )

Total deferred tax expense

Income tax provision

34,392 ( 2,720 ) ( 11,696 )

Income tax provision (benefit) $ ( 119,928 ) $ 25,277 $ 29,833

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following presents a reconciliation of the income tax provision based on the U.S.

federal statutory tax rate to the total tax provision (the U.S.

federal statutory tax rate used below for fiscal 2017 excludes the impact of the revised rate due to the U.S.

Tax Reform as that change is reflected in the net impact of implementing the U.S.

The following presents a reconciliation of the income tax provision (benefit) based on the U.S.

federal statutory tax rate to the total tax provision (benefit):

(in thousands) 2020 2019 2018

Income tax provision at federal statutory rate

State and local taxes, net of federal benefit

Income tax provision (benefit) at federal statutory rate $ ( 127,816 ) $ 25,152 $ 1,966

State and local taxes, net of federal benefit (provision) ( 23,678 ) 4,809 5,688

Foreign tax rate differential ( 3,000 ) 546 ( 3,270 )

2 unchanged sentences

Non-deductible compensation 3,617 344 2,219

CARES Act rate differential ( 57,894 ) — —

Change in uncertain tax positions ( 290 ) ( 527 ) 2,611

Net impact of implementing the U.S.

Income tax provision

On December 22, 2017, the U.S.

Tax Reform was enacted in the U.S., which significantly changed how the U.S.

taxes corporations.

Tax Reform reduced the federal statutory tax rate from 35 % to 21 % and requires complex computations to be performed that were not previously required in U.S.

Treasury Department, the U.S.

Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the U.S.

Tax Reform will be applied or otherwise administered that is different from our interpretation.

During fiscal 2017 , we recognized $ 10.1 million of additional net tax expense based on our initial assessment of implementing the U.S.

During fiscal 2018 , we completed our determination of the accounting implications of the U.S.

Tax Reform and recognized $ 2.1 million of additional net tax expense as a result of implementing the U.S.

For fiscal 2019 , the impact of taxation of the foreign operations on our total effective income tax rate was primarily related to valuation allowances taken.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net impact of implementing tax reform — — 2,144

Other 1,554 ( 1,098 ) ( 878 )

Income tax provision (benefit) $ ( 119,928 ) $ 25,277 $ 29,833

See Note 1, Significant Accounting Policies - Impacts of COVID-19 , for discussion of CARES Act rate differential and the change in valuation allowance.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

(in thousands)

February 1, 2020

February 2, 2019

(in thousands) January 30, 2021 February 1, 2020

Deferred tax assets:

State bonus depreciation

Construction and tenant allowances

Operating lease liabilities $ 232,910 $ 259,846

Net operating losses 34,917 9,251

Stock-based compensation 11,782 10,987

Inventories 9,103 11,669

Accrued expenses 5,567 4,193

Accrued rewards

Lease liability

Foreign net operating losses

Acquisition-related transaction costs

Intangible assets 5,031 442

State bonus depreciation 4,654 3,342

Loyalty programs deferred revenue 2,406 3,405

Gift cards 2,153 3,801

Other 3,824 4,459

312,347 311,395

valuation allowance ( 101,185 ) ( 9,472 )

1 unchanged sentence

Deferred tax liabilities:

Right of use asset

Operating lease assets ( 187,398 ) ( 242,733 )

Property and equipment ( 23,306 ) ( 25,359 )

Intangible assets

Prepaid expenses and other

Net deferred tax assets

Other ( 5,065 ) ( 3,977 )

( 215,769 ) ( 272,069 )

Net deferred tax assets (liabilities) $ ( 4,607 ) $ 29,854

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes are reported within the consolidated balance sheets as follows:

(in thousands)

February 1, 2020

February 2, 2019

(in thousands) January 30, 2021 February 1, 2020

Deferred tax assets $ — $ 31,863

Deferred tax liabilities included in other non-current liabilities ( 4,607 ) ( 2,009 )

Net deferred tax assets as shown above

We establish valuation allowances for deferred tax assets when the amount of expected future taxable income is not likely to support the use of the deduction or credit.

As of February 1, 2020 , the valuation allowance is primarily related to foreign net operating losses, which, if not utilized, a portion of the carryovers will begin to expire in fiscal 2034.

Net deferred tax assets (liabilities) as shown above $ ( 4,607 ) $ 29,854

As of January 30, 2021, the valuation allowance is primarily related to federal, state and foreign deferred tax assets.

Additionally, there are state and foreign net operating losses, which, if not utilized, a portion of the carryovers will begin to expire in fiscal 2025 and 2034, respectively .

The following presents the changes in valuation allowance:

1 unchanged sentence

Valuation allowance - beginning of period $ 9,472 $ 14,097 $ 2,736

Additions charged to income tax provision

Additions charged to income tax provision (benefit) 87,579 — 8,157

Additions related to acquisitions — — 6,124

2 unchanged sentences

Valuation allowance - end of period $ 101,185 $ 9,472 $ 14,097

Tax Reform included a mandatory one-time tax on accumulated earnings of foreign subsidiaries, and as a result, all previously unremitted earnings for which no U.S.

deferred tax liability had been previously accrued have now been subject to

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notwithstanding the U.S.

taxation of these amounts, we intend to continue to invest all of these earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S.

We intend to continue to invest all of the earnings of foreign subsidiaries, as well as our capital in these subsidiaries, indefinitely outside of the U.S.

and we do not expect to incur any significant, additional taxes related to such amounts.

5 unchanged sentences

Changes in estimates — ( 340 ) —

Lapses of applicable statutes of limitations

Settlements ( 1,280 ) ( 2,196 ) ( 422 )

Unrecognized tax benefits - end of period $ 10,087 $ 10,764 $ 11,608

Of the $ 10.8 million , $ 11.6 million and $ 7.9 million of total unrecognized tax benefits at February 1, 2020 , February 2, 2019 and February 3, 2018 , respectively, approximately $ 9.2 million , $ 10.2 million and $ 6.7 million , respectively, represent the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in future periods.

Of the total unrecognized tax benefits at January 30, 2021, February 1, 2020 and February 2, 2019, approximate ly $ 8.7 million, $ 9.2 million and $ 10.2 million, respectively, represent the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate in future periods.

While it is expected that the amount of unrecognized tax benefits will change in the next 12 months, any changes are not expected to have a material impact on our financial position, results of operations or cash flows.

We recognize interest and penalties related to unrecognized tax benefits as a component of the income tax provision.

As of February 1, 2020 , February 2, 2019 and February 3, 2018 , interest and penalties were $ 2.3 million , $ 1.8 million and $ 0.9 million , respectively.

We recognize interest and penalties related to unrecognized tax benefits as a component of the income tax provision (benefit).

As of January 30, 2021, February 1, 2020 and February 2, 2019, interest and penalties were $ 2.6 million, $ 2.3 million and $ 1.8 million, respectively.

We are no longer subject to U.S.

federal income tax examinations for years prior to fiscal 2014 and state income tax examinations for years prior to 2015.

We have a federal income tax return and three state income tax returns in the process of examination at this time.

federal income tax examinations for years prior to fiscal 2017 and state income tax examinations for years prior to fiscal 2016.

We have three state income tax returns in the process of examination at this time.

We estimate the range of possible changes that may result from any future tax examinations to be insignificant at this time.

SEGMENT REPORTING

Our three reportable segments, which are also operating segments, are the U.S.

Retail segment, the Canada Retail segment, and the Brand Portfolio segment.

We have determined that the Chief Operating Decision Maker ("CODM") is our Chief Executive Officer and we have identified such segments based on internal management reporting and responsibilities.

The performance of each segment is based primarily on net sales and gross profit.

As a result, we do not allocate operating expenses to the segments.

We changed our presentation of net sales and gross profit for all periods presented to include commission income.

Total assets by segment are not presented in the table below as the CODM does not evaluate, manage or measure performance of segments using total assets.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT REPORTING

The following provides certain financial data by segment reconciled to the consolidated financial statements:

(in thousands)

Canada Retail

Brand Portfolio

Corporate / Eliminations

(in thousands) U.S.

Retail Canada Retail Brand Portfolio Other Corporate / Eliminations Total

External customer sales $ 1,800,323 $ 182,659 $ 188,828 $ 62,909 $ — $ 2,234,719

1 unchanged sentence

Total net sales $ 1,800,323 $ 182,659 $ 248,646 $ 62,909 $ ( 59,818 ) $ 2,234,719

Gross profit $ 242,786 $ 28,651 $ 36,393 $ 962 $ 2,449 $ 311,241

Income from equity investment in ABG-Camuto $ — $ — $ 9,329 $ — $ — $ 9,329

4 unchanged sentences

Total net sales $ 2,745,395 $ 249,017 $ 448,285 $ 122,090 $ ( 72,100 ) $ 3,492,687

Gross profit (loss) $ 786,976 $ 79,850 $ 114,170 $ 26,065 $ ( 7,391 ) $ 999,670

Income from equity investment in ABG-Camuto $ — $ — $ 10,149 $ — $ — $ 10,149

1 unchanged sentence

Depreciation and amortization $ 47,282 $ 9,583 $ 5,644 $ 372 $ 23,768 $ 86,649

External customer sales $ 2,738,989 $ 220,325 $ 89,636 $ 128,968 $ — $ 3,177,918

Intersegment sales — — 10,176 — ( 10,176 ) —

Total net sales $ 2,738,989 $ 220,325 $ 99,812 $ 128,968 $ ( 10,176 ) $ 3,177,918

Gross profit (loss) $ 840,174 $ 55,937 $ 18,920 $ 25,252 $ ( 1,594 ) $ 938,689

Income from equity investment in ABG-Camuto $ — $ — $ 1,298 $ — $ — $ 1,298

Cash paid for property and equipment $ 32,544 $ 6,396 $ 447 $ 147 $ 25,821 $ 65,355

3 unchanged sentences

and Canada have collectively been immaterial.

As of February 1, 2020 and February 2, 2019 , long-lived assets, consisting of property and equipment and operating lease assets, included $ 1.2 billion and $ 374.1 million , respectively, in the U.S.

As of January 30, 2021 and February 1, 2020, long-lived assets, consisting of property and equipment and operating lease assets, included $ 0.9 billion and $ 1.2 billion, respectively, in the U.S.

and $ 78.9 million and $ 114.5 million, respectively, in Canada, with only an immaterial amount in other countries.

No single customer accounts for ten percent or more of consolidated total net sales.

No single customer accounts for 10% or more of consolidated total net sales.

However, the Brand Portfolio segment has four customers that make up approximately 50 % of its total net sales, excluding intersegment net sales, and the loss of any or all of these customers could have a material adverse effect on the Brand Portfolio segment.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables contain selected quarterly consolidated financial data for fiscal 2019 and 2018 that have been prepared on the same basis as the accompanying audited consolidated financial statements and include all adjustments necessary for a fair presentation, in all material respects, of the information set forth therein on a consistent basis:

Fiscal 2019 Quarters Ended (1)

(in thousands, except per share data)

August 3, 2019

November 2, 2019

February 1, 2020

Operating profit (loss)

Net income (loss)

Diluted earnings (loss) per share (4)

Fiscal 2018 Quarters Ended (2)

(in thousands, except per share data)

August 4, 2018

November 3, 2018

February 2, 2019

Operating profit (loss)

Net income (loss) (3)

Diluted earnings (loss) per share (4)

During fiscal 2019 , operating results were impacted by the following pre-tax items for the quarters presented:

Fiscal 2019 Quarters Ended

(in thousands)

August 3, 2019

November 2, 2019

February 1, 2020

Integration and restructuring expenses

Impairment charges

(2) During fiscal 2018 , operating results were impacted by the following pre-tax items for the quarters presented:

Fiscal 2018 Quarters Ended

(in thousands)

August 4, 2018

November 3, 2018

February 2, 2019

Lease exit and other termination costs

Acquisition-related costs and target acquisition costs

Impairment charges (adjustments)

Fair value adjustments to TSL's previously held assets

Camuto Group inventory step-up

Restructuring expenses

Foreign currency transactions losses (gains)

During the fourth quarter of fiscal 2018, we recognized $ 2.1 million of additional net tax expense as a result of finalizing the U.S.

Tax Reform implementation assessment.

The sum of the quarterly diluted earnings (loss) per share amounts may not equal the fiscal year amount due to rounding and the use of weighted average shares outstanding for each period.

DESIGNER BRANDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUBSEQUENT EVENTS

Coronavirus- In March 2020, the World Health Organization declared the coronavirus ("COVID-19") outbreak a pandemic, which continues to spread throughout North America and worldwide.

The health and safety of our customers and employees remain our top priority as we continue to make decisions during this rapidly evolving situation.

We have taken decisive actions across our businesses to help protect employees, customers and others in the communities we serve.

As a measure to limit the spread of the virus, effective March 18, 2020, we temporarily closed all of our stores in the U.S.

Our e-commerce business will continue to be available to customers and our stores will be used in the fulfillment of online orders to be shipped to customers or available for curbside pickup.

During this unprecedented period of uncertainty, we have in place business continuity plans involving adjustments to operational plans, inventory disciplines, liquidity management, and reductions to our expense and capital expenditure plans.

Such measures include implementing temporary leaves of absence for over 80% of our workforce without direct pay and pay reductions for nearly all employees not placed on temporary leave.

The COVID-19 outbreak and the temporary closure of all of our stores has had a material adverse impact on our business, liquidity, financial condition, and results of operations.

While we cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact, based on our current understanding of governmental mandates and maintaining the health and safety of our customers and employees, we believe our stores will primarily begin re-opening in the second quarter of fiscal 2020 with a gradual return of store traffic through the remainder of fiscal 2020.

As such, the impacts of COVID-19 to our businesses are highly uncertain and we will continue to assess the financial impacts.

The disruption to the global economy and to our business, along with a sustained decline in our stock price, may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, accounts receivables, long-lived assets, intangibles, and goodwill, may not be recoverable.

Dividends- On March 17, 2020 , the Board of Directors declared a quarterly cash dividend payment of $ 0.10 per share for both Class A and Class B common shares.

The dividend was paid on April 10, 2020 to shareholders of record at the close of business on March 30, 2020 .

Credit Facility - Subsequent to February 1, 2020 , we borrowed $ 205.0 million from the Credit Facility as a precautionary measure to increase our cash position and preserve financial flexibility considering uncertainty in the U.S.

and global markets resulting from COVID-19, resulting in $ 2.0 million of available for borrowing.

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

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

Reduces the borrowing availability to $ 375.0 million on October 31, 2020, $ 350.0 million on January 30, 2021, $ 325.0 million on May 1, 2021, and $ 300.0 million on July 31, 2021;

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

Changes the maximum leverage ratio covenant to 3.50 :1 as of May 2, 2020, 4.00 :1 as of August 1, 2020, 3.75 :1 as of October 31, 2020, and 3.50 :1 as of January 30, 2021 and as of the end of each fiscal quarter thereafter;

Changes the minimum fixed charge coverage ratio to 1.25 :1 as of May 2, 2020 and 1.05 :1 as of August 1, 2020 and as of the end of each fiscal quarter thereafter;

Restricts the Company from paying dividends, making share repurchases, and making certain acquisitions.

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-K

Item 9A. Controls and Procedures