Designer Brands Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Designer Brands Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Designer Brands Inc. and subsidiaries (the "Company") as of January 29, 2022 and January 30, 2021, 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 29, 2022, 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 29, 2022, 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 referred to above present fairly, in all material respects, the financial position of the Company as of January 29, 2022 and January 30, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2022, 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 29, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 31 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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. Valuation of Inventories – Refer to Note 1 to the financial statements Critical Audit Matter Description The U.S. Retail segment, which includes stores operated in the U.S. under the DSW Designer Shoe Warehouse banner and its related e-commerce site, accounts for inventory using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. The cost basis of inventories reflected on the balance sheet is decreased by charges to cost of sales at the time the retail value of the inventory is lowered by markdowns. Inherent in the valuation of inventory are certain significant judgments and estimates, including estimating inventory markdowns, which can significantly impact the ending inventory valuation and the resulting gross profit. Earnings are negatively impacted as the merchandise is marked down prior to sale. Given the significant estimates and assumptions management utilizes to measure inventory markdowns at period end, a high degree of auditor judgment and an increased extent of effort is required when performing audit procedures to evaluate the reasonableness of estimates and assumptions. Such estimates are based on the timing and completeness of recorded markdowns. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the completeness of estimated inventory markdowns included the following, among others: • We tested the design and effectiveness of controls over the timing and completeness of estimated inventory markdowns, including management’s controls over the valuation of the estimated inventory markdown reserves, and the approval of lowering 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 29, 2022 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 2022. • 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 21, 2022 We have served as the Company's auditor since 1997. 32 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) 2021 2020 2019 Net sales $ 3,196,583 $ 2,234,719 $ 3,492,687 Cost of sales ( 2,127,946 ) ( 1,923,478 ) ( 2,493,017 ) Gross profit 1,068,637 311,241 999,670 Operating expenses ( 870,682 ) ( 753,278 ) ( 874,749 ) Income from equity investment 8,986 9,329 10,149 Impairment charges ( 1,720 ) ( 153,606 ) ( 7,771 ) Operating profit (loss) 205,221 ( 586,314 ) 127,299 Interest expense, net ( 32,129 ) ( 23,694 ) ( 7,355 ) Non-operating income (expenses), net ( 67 ) 1,361 ( 170 ) Income (loss) before income taxes 173,025 ( 608,647 ) 119,774 Income tax benefit (provision) ( 18,544 ) 119,928 ( 25,277 ) Net income (loss) $ 154,481 $ ( 488,719 ) $ 94,497 Basic and diluted earnings (loss) per share: Basic earnings (loss) per share $ 2.12 $ ( 6.77 ) $ 1.28 Diluted earnings (loss) per share $ 2.00 $ ( 6.77 ) $ 1.27 Weighted average shares used in per share calculations: Basic shares 73,024 72,198 73,602 Diluted shares 77,268 72,198 74,605 The accompanying notes are an integral part of the consolidated financial statements. 33 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) 2021 2020 2019 Net income (loss) $ 154,481 $ ( 488,719 ) $ 94,497 Other comprehensive income (loss), net of income taxes: Foreign currency translation loss ( 331 ) ( 618 ) ( 340 ) Unrealized net gain on debt securities — 195 609 Reclassification adjustment for net gains realized in net income (loss) — ( 368 ) ( 58 ) Total other comprehensive income (loss), net of income taxes ( 331 ) ( 791 ) 211 Total comprehensive income (loss) $ 154,150 $ ( 489,510 ) $ 94,708 The accompanying notes are an integral part of the consolidated financial statements. 34 CONSOLIDATED BALANCE SHEETS (in thousands) January 29, 2022 January 30, 2021 ASSETS Current assets: Cash and cash equivalents $ 72,691 $ 59,581 Receivables, net 199,826 196,049 Inventories 586,429 473,183 Prepaid expenses and other current assets 55,270 51,772 Total current assets 914,216 780,585 Property and equipment, net 256,786 296,469 Operating lease assets 647,221 700,481 Goodwill 93,655 93,655 Intangible assets, net 15,527 15,635 Equity investment 55,578 58,598 Other assets 31,651 31,172 Total assets $ 2,014,634 $ 1,976,595 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 340,877 $ 245,071 Accrued expenses 215,812 200,326 Current maturities of long-term debt — 62,500 Current operating lease liabilities 202,228 244,786 Total current liabilities 758,917 752,683 Long-term debt 225,536 272,319 Non-current operating lease liabilities 593,429 677,735 Other non-current liabilities 24,356 30,841 Total liabilities 1,602,238 1,733,578 Commitments and contingencies Shareholders' equity: Common shares paid in-capital, no par value 1,005,382 990,153 Treasury shares, at cost ( 515,065 ) ( 515,065 ) Retained deficit ( 74,304 ) ( 228,785 ) Accumulated other comprehensive loss ( 3,617 ) ( 3,286 ) Total shareholders' equity 412,396 243,017 Total liabilities and shareholders' equity $ 2,014,634 $ 1,976,595 The accompanying notes are an integral part of the consolidated financial statements. 35 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Number of Shares Amounts (in thousands, except per share amounts) Class A Common Shares Class B Common Shares Treasury Shares Common Shares Paid in Capital Treasury Shares Retained Earnings (Deficit) Accumulated Other Comprehensive Loss Total Balance, February 2, 2019 70,672 7,733 15,091 $ 953,801 $ ( 373,436 ) $ 254,718 $ ( 2,706 ) $ 832,377 Cumulative effect of accounting change — — — — — ( 9,556 ) — ( 9,556 ) Net income — — — — — 94,497 — 94,497 Stock-based compensation activity 439 — — 17,579 — — — 17,579 Repurchase of Class A common shares ( 7,078 ) — 7,078 — ( 141,629 ) — — ( 141,629 ) 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 Net income — — — — — 154,481 — 154,481 Stock-based compensation activity 958 — — 15,229 — — — 15,229 Foreign currency translation adjustment — — — — — — ( 331 ) ( 331 ) Balance, January 29, 2022 65,624 7,733 22,169 $ 1,005,382 $ ( 515,065 ) $ ( 74,304 ) $ ( 3,617 ) $ 412,396 The accompanying notes are an integral part of the consolidated financial statements. 36 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2021 2020 2019 Cash flows from operating activities: Net income (loss) $ 154,481 $ ( 488,719 ) $ 94,497 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 77,923 88,026 86,649 Stock-based compensation expense 23,923 20,236 17,059 Deferred income taxes ( 1,001 ) 34,485 ( 2,931 ) Income from equity investment ( 8,986 ) ( 9,329 ) ( 10,149 ) Distributions received from equity investment 12,006 8,491 10,514 Impairment charges 1,720 153,606 7,771 Gain on settlement — ( 8,990 ) — Other 2,775 695 3,957 Change in operating assets and liabilities: Accounts receivables 8,703 23,179 265 Income tax receivable ( 12,415 ) ( 149,824 ) — Inventories ( 113,248 ) 160,312 9,290 Prepaid expenses and other current assets ( 3,859 ) 17,166 ( 14,994 ) Accounts payable 92,894 ( 47,014 ) 36,995 Accrued expenses 10,735 30,144 ( 26,595 ) Operating lease assets and liabilities, net ( 74,222 ) 13,743 ( 15,621 ) Net cash provided by (used in) operating activities 171,429 ( 153,793 ) 196,707 Cash flows from investing activities: Cash paid for property and equipment ( 33,030 ) ( 31,114 ) ( 77,820 ) Purchases of available-for-sale investments — — ( 20,973 ) Sales of available-for-sale investments — 24,755 66,389 Proceeds from settlements — 8,990 4,965 Other ( 1,998 ) — — Net cash provided by (used in) investing activities ( 35,028 ) 2,631 ( 27,439 ) Cash flows from financing activities: Borrowing on revolving line of credit — 276,000 463,300 Payments on revolving line of credit — ( 466,000 ) ( 433,300 ) Borrowing under ABL Revolver 349,653 150,000 — Payments on borrowings under ABL Revolver ( 449,653 ) ( 50,000 ) — Proceeds from issuance of Term Loan — 250,000 — Payments on borrowings under Term Loan ( 12,500 ) ( 6,263 ) — Payments of debt issuance costs — ( 21,422 ) — Cash paid for treasury shares — — ( 141,629 ) Dividends paid — ( 7,160 ) ( 72,565 ) Cash paid for income taxes for stock-based compensation shares withheld ( 8,694 ) ( 1,463 ) ( 1,588 ) Other ( 296 ) ( 738 ) 2,429 Net cash provided by (used in) financing activities ( 121,490 ) 122,954 ( 183,353 ) Effect of exchange rate changes on cash balances ( 33 ) 1,225 81 Net increase (decrease) in cash, cash equivalents, and restricted cash 14,878 ( 26,983 ) ( 14,004 ) Cash, cash equivalents, and restricted cash, beginning of period 59,581 86,564 100,568 Cash, cash equivalents, and restricted cash, end of period $ 74,459 $ 59,581 $ 86,564 Supplemental disclosures of cash flow information: Cash paid (received) for income taxes $ 28,419 $ ( 11,822 ) $ 39,450 Cash paid for interest on debt $ 23,341 $ 19,523 $ 8,323 Cash paid for operating lease liabilities $ 273,080 $ 198,400 $ 236,506 Non-cash investing and financing activities: Property and equipment purchases not yet paid $ 4,365 $ 1,590 $ 12,164 Operating lease liabilities arising from lease asset additions $ 15,123 $ 9,407 $ 24,137 Net increase to operating lease assets and lease liabilities for modifications $ 94,992 $ 36,109 $ 71,945 The accompanying notes are an integral part of the consolidated financial statements. 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 1 Description of Business and Significant Accounting Policies 39 Note 2 Revenue 46 Note 3 Related Party Transactions 47 Note 4 Earnings (Loss) Per Share 48 Note 5 Stock-Based Compensation 48 Note 6 Shareholders' Equity 49 Note 7 Receivables 50 Note 8 Property & Equipment 51 Note 9 Goodwill and Intangible Assets 51 Note 10 Accrued Expenses 52 Note 11 Debt 52 Note 12 Leases 53 Note 13 Commitments and Contingencies 54 Note 14 Income Taxes 55 Note 15 Segment Reporting 58 Note 16 Subsequent Event 59 38 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES GENERAL Business Operations- Designer Brands Inc. ("we," "us," "our," and the "Company") is one of North America's largest designers, producers, and retailers of footwear and accessories. We operate in three reportable segments: the U.S. Retail segment, the Canada Retail segment, and the Brand Portfolio segment. The U.S. Retail segment operates the DSW Designer Shoe Warehouse ("DSW") banner through its direct-to-consumer U.S. stores and e-commerce site. The Canada Retail segment operates The Shoe Company and DSW banners through its direct-to-consumer Canada stores and e-commerce sites. The Brand Portfolio segment 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 (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. An integral part of the Brand Portfolio segment is our equity investment in ABG-Camuto LLC ("ABG-Camuto"), which is a partnership between Camuto LLC, a wholly-owned subsidiary doing business as "Camuto Group," and Authentic Brands Group LLC, a global brand management and marketing company. Camuto Group has a 40 % interest in ABG-Camuto, a joint venture that owns several intellectual property rights, including, among others, Vince Camuto and Louise et Cie, and focuses on licensing and developing new category extensions to support the global growth of these brands. Camuto Group has a licensing agreement with ABG-Camuto whereby we pay royalties on our net sales from the brands owned by ABG-Camuto, subject to guaranteed minimums. Camuto Group also owns footwear and certain handbag licensing rights of Jessica Simpson, Lucky Brand and, through a joint venture, JLO Jennifer Lopez. Our other operating segment, which we exited during 2020, is below the quantitative and qualitative thresholds for a reportable segment and is aggregated into Other for segment reporting purposes. Fiscal Year- Our fiscal year ends on the Saturday nearest to January 31. References to a fiscal year (e.g., "2021") refer to the calendar year in which the fiscal year begins. 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 consolidated financial statements each consisted of 52 weeks. IMPACTS OF THE COVID-19 PANDEMIC In March 2020, the World Health Organization declared the coronavirus ("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. and Canada. 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. During the second quarter and into the third quarter of 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 2020 and into the first quarter of 2021, resulting in the elimination of approximately 1,000 associate positions. The charges recorded as a result of this reorganization are included in our integration and restructuring costs discussed below. As a result of the material reduction in net sales and cash flows during 2020, we updated our 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 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. 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 2020, we recorded impairment charges of $ 127.1 million ($ 104.2 million and $ 22.9 million for the U.S. Retail segment and Canada Retail segment, respectively). Also, during 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 pandemic on macroeconomic conditions, we performed an impairment analysis for goodwill and other indefinite-lived intangible assets during the first quarter of 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 First Cost reporting unit within the Brand Portfolio segment did not exceed its carrying 39 value. Accordingly, during 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. 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 over a defined period and options to defer payroll tax payments. Based on our evaluation of the CARES Act, we qualified for certain employer payroll tax credits, which 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 were also available in Canada. During 2021 and 2020, the qualified government credits reduced our operating expenses by $ 4.0 million and $ 11.4 million, respectively, on our consolidated statements of operations. As of January 29, 2022, we had $ 5.3 million of deferred qualified payroll and other tax obligations, which is included in accrued expenses on the consolidated balance sheets that we expect to pay at the end of 2022. 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 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 2020 due to the impacts of the COVID-19 pandemic, we were in a three-year cumulative loss position as of January 29, 2022 and January 30, 2021, which was 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. For 2021, 2020 and 2019, our effective tax rate was 10.7 %, 19.7 % and 21.1 %, respectively. The rate for 2021 was the result of maintaining a full valuation allowance on deferred tax assets while also recording net discrete tax benefits, primarily as a result of adjustments to our estimated 2020 return reflecting implemented tax strategies. The decrease in the rate for 2020 compared to 2019 was the result of recording 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%. While trends improved during 2021 as compared to 2020, we cannot reasonably estimate the extent to which our business will continue to be affected by the COVID-19 pandemic and to what extent the recent improved trends will continue. For instance, we have continued to experience reduced customer in-store traffic and net sales when compared to pre-COVID-19 periods, and it is unclear when customer behavior will return to pre-COVID-19 patterns, if at all. The ongoing and prolonged nature of the COVID-19 pandemic may lead to further adjustments to our operations. As such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, new variants of COVID-19 and the severity thereof, and the global availability and use of vaccines or palliatives, all of which are highly uncertain and cannot be predicted. As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets. SIGNIFICANT ACCOUNTING POLICIES Variable Interest Entity- In 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 is responsible for design and sourcing, and DSW is the exclusive retailer of the brand. 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 based on the expansion of our VIP rewards programs from her fan base, which no common shares have been earned yet under this arrangement. 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. As a result, we are considered the primary beneficiary of the joint venture and it is consolidated within our financial statements. Assets and liabilities of the joint venture are immaterial. 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. Principles of Consolidation- The consolidated financial statements include the accounts of Designer Brands Inc. and its subsidiaries, including the variable interest entity. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. dollars. 40 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 dates of the financial statements and reported amounts of net sales and expenses during the repor ting periods. Certain estimates and assumptions use forecasted financial information based on information reasonably available to us, along with the estimated, but uncertain, future impacts of the COVID-19 pandemic . Significant estimates and assumptions are required as a part of accounting for sales returns allowances, customer allowances and discounts, allowance for doubtful accounts, 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, 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 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. Revenue Recognition- Sales from the U.S. Retail and Canada Retail segments are recognized upon customer receipt of merchandise, net of estimated returns and exclude sales tax. Customers can purchase products from one of our stores, online or from our mobile application. 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 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. Generally, our wholesale customers arrange their own transportation of merchandise and control is transferred at the time of shipment. Sales are recorded at the transaction price, excluding sales tax, net of estimated reserves for customer returns, allowances and discounts. Direct-to-consumer online sales are recognized upon the estimated customer receipt date based on historical delivery transit times and are net of estimated returns and exclude sales tax. 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. Based on historical information, the likelihood of a gift card remaining unredeemed (referred to as "breakage") can be reasonably estimated at the time of gift card issuance. Breakage income is recognized over the estimated average redemption period of redeemed gift cards. Loyalty Programs- We offer loyalty programs to our customers in the U.S. and Canada. Members under the programs earn points based on their level of spending, as well as for various other activities. 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 of the points earned. We maintain a deferred liability for the outstanding points and certificates based on historical conversion and redemption rates. The deferred liability is reduced and sales are recognized when certificates are redeemed or when points and certificates expire. Cost of Sales- Cost of sales from the U.S. 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, shrink and other inventory valuation adjustments, we include expenses associated with distribution and fulfillment and store occupancy in cost of sales. Distribution and fulfillment expenses comprise of labor costs, third-party fees, rent, depreciation, insurance, utilities, maintenance and other operating costs. 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. In addition to the cost of merchandise sold, which includes freight and the impact of inventory valuation adjustments, we include royalty expense for licensed brands in cost of sales. Operating Expenses- Operating expenses include expenses related to store management and store payroll costs, advertising, store depreciation, new store costs, design, sourcing and distribution costs associated with the Brand Portfolio segment, and corporate expenses. 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. 41 Interest Expense, Net- Interest expense, net, is summarized in the following table: (in thousands) 2021 2020 2019 Interest expense $ ( 32,198 ) $ ( 24,032 ) $ ( 8,914 ) Interest income 69 338 1,559 $ ( 32,129 ) $ ( 23,694 ) $ ( 7,355 ) 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 are expected to vest, with forfeitures estimated based on our historical experience and future expectations. Stock-based compensation is included in operating expenses in the consolidated statements of operations. Integration and Restructuring Costs- During 2021, we incurred severance costs of $ 3.3 million ( $ 1.5 million and $ 1.8 million for the U.S. Retail segment and Brand Portfolio segment, respectively). During 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 segment, Canada Retail segment and Brand Portfolio segment, respectively), and professional fees of $ 2.4 million. During 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. Integration and restructuring costs are recorded as operating expenses on the consolidated statements of operations. As of January 29, 2022 and January 30, 2021, we had $ 1.9 million and $ 6.5 million, respectively, of severance liability included in accrued expenses on the consolidated balance sheets. Gain on Settlement- During 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 year. New Store Opening Costs- Costs associated with the opening of new stores are expensed as incurred. During 2021, 2020 and 2019, new store opening costs, primarily pre-opening rent and marketing expenses, were $ 1.6 million, $ 2.7 million and $ 2.6 million, respectively. Marketing Expense- The cost of advertising is generally expensed when the advertising first takes place or when mailed. During 2021, 2020 and 2019, marketing costs were $ 163.0 million, $ 131.7 million and $ 123.9 million, respectively. Non-Operating Income (Expenses), Net- Non-operating income (expenses), net, includes gains and losses from foreign currency revaluation and realized gains and losses related to our investment portfolio. 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 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. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. We review and update our tax positions as necessary to add any new uncertain tax positions taken, or to remove previously identified uncertain positions that have been adequately resolved. Additionally, uncertain positions may be remeasured as warranted by changes in facts or law. Accounting for uncertain tax positions requires estimating the amount, timing and likelihood of ultimate settlement. Although we believe that these estimates are reasonable, actual results could differ from these estimates. 42 Cash, Cash Equivalents, and Restricted Cash - Cash and cash equivalents represent cash, money market funds, and credit card receivables that generally settle within three days. Restricted cash represents cash that is restricted as to withdrawal or usage and consists of a mandatory cash deposit maintained for certain insurance policies and letters of credit. 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) January 29, 2022 January 30, 2021 February 1, 2020 Cash and cash equivalents $ 72,691 $ 59,581 $ 86,564 Restricted cash, included in prepaid expenses and other current assets 1,768 — — Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 74,459 $ 59,581 $ 86,564 Investments - We determine the balance sheet classification of investments at the time of purchase and evaluate the classification at each balance sheet date. For the balance sheet dates presented, we did not hold any investments in securities other than cash equivalents. We account for investments using the equity method of accounting when we exercise significant influence over the investment. If we do not exercise significant influence, we account for the investment using the cost method of accounting. Cost method investments are included in other assets on the consolidated balance sheets. We evaluate our investments for impairment and whether impairment is other-than-temporary at each balance sheet date. The following table presents activity related to our equity investment in ABG-Camuto: (in thousands) 2021 2020 2019 Balance at beginning of period $ 58,598 $ 57,760 $ 58,125 Share of net earnings 8,986 9,329 10,149 Distributions received ( 12,006 ) ( 8,491 ) ( 10,514 ) Balance at end of period $ 55,578 $ 58,598 $ 57,760 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. This third-party provider guarantees payment for the majority of the serviced receivables. Inventories- All of our inventory is made up of finished goods. The U.S. Retail segment inventory is accounted for using the retail inventory method and is stated at the lower of cost or market. Under the retail inventory method, the valuation of inventories at cost and the resulting gross profits are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. The cost basis of inventories is decreased by charges to cost of sales at the time the retail value of the inventory is lowered by markdowns. 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 moving 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. Reductions to inventory values establish a new cost basis. Favorable changes in facts or circumstances do not result in an increase in the newly established cost basis. 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 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. 43 Concentration of Risks- We are subject to risks due to concentration of our merchandise coming from China. All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 75 % of units sourced from China. In addition to the merchandise sourced through our Brand Portfolio segment, our U.S. Retail segment and Canada Retail segment also sources merchandise from both domestic and foreign third-party vendors. Many of our domestic vendors import a large portion of their merchandise from China. We are also subject to risks due to the concentration of vendors within the U.S. Retail and Canada Retail segments. During 2021, three key third-party vendors together supplied approximately 20 % of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise. Financial instruments, which principally subject us to concentration of credit risk, consist of cash and cash equivalents. We invest excess cash when available through financial institutions in money market accounts. 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 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: • Level 1 - Quoted prices in active markets for identical assets or liabilities. • Level 2 - Quoted prices for similar assets or liabilities in active markets or inputs that are observable. • Level 3 - Unobservable inputs in which little or no market activity exists. The carrying value of cash and cash equivalents, restricted cash, 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 credit facility ("ABL Revolver") approximated the carrying value. As of January 29, 2022, the fair value of borrowings under our senior secured term loan ("Term Loan") was $ 237.6 million compared to the carrying value of $ 231.3 million . The fair value of debt borrowings was estimated based on current interest rates offered for similar instruments (categorized as Level 2 under the fair value hierarchy). 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. 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 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 and modified 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 pandemic, 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. 44 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 reviews are conducted at the lowest identifiable level. 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. 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. During 2021, we recorded impairment charges of $ 1.7 million, including $ 1.2 million in the U.S. Retail segment for abandoned equipment we are replacing and $ 0.5 million in the Brand Portfolio segment for the sublease of an abandoned leased space. Refer to section above, Impacts of the COVID-19 Pandemic , regarding impairment charges of long-lived assets during 2020. During 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 segment and Canada Retail segment, respectively). 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 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. Where deemed appropriate, we may also utilize a market approach for estimating fair value. 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 the COVID-19 Pandemic , regarding impairment charges of goodwill during 2020. Self-Insurance Reserves- We record estimates for certain health and welfare, workers' compensation and casualty insurance costs that are self-insured programs. Self-insurance reserves include actuarial estimates of both claims filed, carried at their expected ultimate settlement value, and claims incurred but not yet reported. The liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. Estimates for self-insurance reserves are calculated utilizing claims development estimates based on historical experience and other factors. 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- Our wholly-owned Canadian subsidiary has Canadian dollars as its functional currency. Assets and liabilities of this business are translated into U.S. dollars at exchange rates in effect at the balance sheet date or historical rates as appropriate. Each quarter, amounts included in our consolidated statements of operations from this business are translated at the average exchange rate for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss. 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 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 2021, 2020 and 2019, we recognized costs associated with matching contributions of $ 5.9 million, $ 5.3 million and $ 5.9 million, respectively. 45 2. REVENUE DISAGGREGATION OF NET SALES The following table presents net sales disaggregated by product and service category for each segment: (in thousands) 2021 2020 2019 Net sales: U.S. Retail segment: Women's footwear $ 1,772,729 $ 1,161,836 $ 1,853,265 Men's footwear 620,631 386,338 539,917 Kids' footwear 234,806 151,121 158,261 Accessories and other 141,540 101,028 193,952 2,769,706 1,800,323 2,745,395 Canada Retail segment: Women's footwear 117,045 92,623 133,762 Men's footwear 60,972 45,665 63,140 Kids' footwear 48,503 37,233 40,995 Accessories and other 8,289 7,138 11,120 234,809 182,659 249,017 Brand Portfolio segment: Wholesale 240,491 197,940 379,698 Commission income 17,657 18,509 26,424 Direct-to-consumer 27,876 32,197 42,163 286,024 248,646 448,285 Other — 62,909 122,090 Total segment net sales 3,290,539 2,294,537 3,564,787 Elimination of intersegment sales ( 93,956 ) ( 59,818 ) ( 72,100 ) Total net sales $ 3,196,583 $ 2,234,719 $ 3,492,687 DEFERRED REVENUE LIABILITIES We record deferred revenue liabilities for remaining obligations we have to our customers. The following table presents the changes and total balances for gift cards and loyalty programs: (in thousands) 2021 2020 2019 Gift cards: Beginning of period $ 34,442 $ 35,461 $ 34,998 Gift cards redeemed and breakage recognized to net sales ( 75,352 ) ( 59,173 ) ( 91,000 ) Gift cards issued 77,693 58,154 91,463 End of period $ 36,783 $ 34,442 $ 35,461 Loyalty programs: Beginning of period $ 11,379 $ 16,138 $ 16,151 Loyalty certificates redeemed and expired and other adjustments recognized to net sales ( 30,453 ) ( 25,049 ) ( 37,311 ) Deferred revenue for loyalty points issued 34,810 20,290 37,298 End of period $ 15,736 $ 11,379 $ 16,138 46 CUSTOMER ALLOWANCES We reduce sales by the amount of actual and remaining expected customer allowances, discounts and returns, and cost of sales by the amount of merchandise we expect to recover. Customer allowances are provided to our wholesale customers for margin assistance, co-op advertising support, and various other deductions. We estimate the reserves needed for margin assistance by reviewing inventory levels held by retailers, expected markdowns, gross margins realized, and other performance indicators. Product returns and other customer deductions are estimated based on anticipated future returns using historical experience and trends. Co-op advertising allowances are estimated based on arrangements with customers. The following table presents the changes and total balances for sales reserves: (in thousands) 2021 2020 2019 Sales returns allowances: Beginning of period $ 17,333 $ 21,408 $ 17,743 Net sales reduced for estimated returns 424,402 279,923 448,886 Actual returns during the period ( 423,161 ) ( 283,998 ) ( 445,221 ) End of period $ 18,574 $ 17,333 $ 21,408 Customer allowances and discounts reserve: Beginning of period $ 4,579 $ 11,528 $ 13,094 Acquisition adjustments during measurement period — — ( 3,267 ) Net sales reduced for estimated allowances and discounts 8,709 14,363 43,733 Actual allowances and discounts during the period ( 11,191 ) ( 21,312 ) ( 42,032 ) End of period $ 2,097 $ 4,579 $ 11,528 As of January 29, 2022 and January 30, 2021, the asset for recovery of merchandise returns was $ 9.4 million and $ 8.4 million, respectively, and is included in prepaid expenses and other current assets on the consolidated balance sheets. 3. RELATED PARTY TRANSACTIONS SCHOTTENSTEIN AFFILIATES We have transactions with entities owned or controlled by Jay L. Schottenstein, the executive chairman of our Board of Directors, and members of his family (the "Schottenstein Affiliates"). As of January 29, 2022, the Schottenstein Affiliates beneficially owned approximately 19 % of the Company's outstanding common shares, representing approximately 54 % of the combined voting power, consisting of, in the aggregate, 6.5 million Class A common shares and 7.7 million Class B common shares. The following summarizes the related party transactions with the Schottenstein Affiliates for the relevant periods: Leases- We lease our fulfillment center and certain store locations owned by the Schottenstein Affiliates. See Note 12 , Leases , for rent expense and future minimum lease payment requirements associated with the Schottenstein Affiliates. Other Purchases and Services - During 2021, 2020 and 2019, we had other purchases and services we incurred from the Schottenstein Affiliates of $ 4.9 million, $ 4.8 million and $ 6.0 million, respectively. Due to Related Parties- Amounts due to the Schottenstein Affiliates, other than operating lease liabilities, were immaterial for all periods presented. ABG-CAMUTO We have a 40 % interest in our equity investment in ABG-Camuto. We have 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 each fiscal year 2021, 2020 and 2019, we recorded royalty expense for amounts paid to ABG-Camuto of $ 18.2 million. See Note 13, Commitments and Contingencies - Contractual Obligations , for f uture guaranteed minimum royalty payment requirements to ABG-Camuto. Amounts due to ABG-Camuto were immaterial for all periods presented. 47 4. EARNINGS (LOSS) PER SHARE 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 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 between basic and diluted weighted average shares outstanding, as used in the calculation of earnings (loss) per share: (in thousands) 2021 2020 2019 Weighted average basic shares outstanding 73,024 72,198 73,602 Dilutive effect of stock-based compensation awards 4,244 — 1,003 Weighted average diluted shares outstanding 77,268 72,198 74,605 For 2021, 2020 and 2019, the number of shares relating to potentially dilutive stock-based compensation awards that were excluded from the computation of diluted earnings (loss) per share due to their anti-dilutive effect was 3.1 million, 5.9 million and 3.2 million, respectively. 5. STOCK-BASED COMPENSATION The DSW Inc. 2014 Long-Term Incentive Plan (the "Plan") provides for the issuance of stock-based compensation awards to eligible recipients. The Plan replaced the DSW Inc. 2005 Equity Incentive Plan but did not affect outstanding awards granted under that plan. Eligible recipients include associates, including executive officers, and non-employee 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 January 29, 2022, 8.6 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: (in thousands) 2021 2020 2019 Stock options $ 643 $ 1,467 $ 2,079 Restricted and director stock units 23,280 18,769 14,980 $ 23,923 $ 20,236 $ 17,059 STOCK OPTIONS Stock options were granted with an exercise price per share equal to the fair market value of our Class A common shares 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 option activity for the periods presented and unvested options as of January 29, 2022 were immaterial. RESTRICTED STOCK UNITS Grants of time-based RSUs generally cliff vest after three years and performance-based RSUs generally cliff vest after three years based upon the achievement of pre-established goals as of the end of the first year of the term. RSUs receive dividend equivalents in the form of additional RSUs, which are subject to the same restrictions and forfeiture provisions as the original award. 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. 48 The following table summarizes the activity for unvested RSUs for 2021: 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 6,445 $ 9.20 540 $ 21.84 Granted 1,161 $ 15.40 595 $ 15.38 Vested ( 1,165 ) $ 13.39 ( 366 ) $ 21.79 Forfeited ( 383 ) $ 9.28 ( 25 ) $ 15.38 Outstanding - end of period 6,058 $ 9.60 744 $ 17.39 The total fair value of time-based RSUs that vested during 2021, 2020 and 2019 was $ 15.1 million, $ 6.5 million and $ 3.8 million, respectively. As of January 29, 2022, the total compensation cost related to unvested time-based RSUs not yet recognized was $ 23.3 million, with a weighted average expense recognition period remaining of 1.7 years. The total fair value of performance-based RSUs that vested during 2021, 2020 and 2019 was $ 7.4 million, $ 4.0 million and $ 3.9 million, respectively. As of January 29, 2022, the total compensation cost related to unvested performance-based RSUs not yet recognized was approximately $ 6.5 million, with a weighted average expense recognition period remaining of 2.1 years. DIRECTOR STOCK UNITS We issue stock units to non-employee directors. 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. In addition, each director that is eligible to receive compensation for board service may elect to have the cash portion of such compensation paid in the form of stock units. Stock units granted to directors vest immediately and directors are given the option to settle their units 30 days after the grant date, at a specified date more than 30 days following the grant date, or defer receipt until completion of service. 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 January 29, 2022, we had 0.5 million director stock units not yet settled. 6. SHAREHOLDERS' EQUITY SHARES Our Class A common shares are listed for trading under the ticker symbol "DBI" on the New York Stock Exchange. There is currently no public market for the Company's Class B common shares, but the Class B common shares can be exchanged for the Company's Class A common shares at the election of the holder on a share for share basis. Holders of Class A common shares are entitled to one vote per share and holders of Class B common shares are entitled to eight votes per share on matters submitted to shareholders for approval. The following table provides additional information for our common shares: (in thousands) January 29, 2022 January 30, 2021 Class A Class B Class A Class B Authorized shares 250,000 100,000 250,000 100,000 Issued shares 87,793 7,733 86,835 7,733 Outstanding shares 65,624 7,733 64,666 7,733 Treasury shares 22,169 — 22,169 — We have authorized 100 million shares of no par value preferred shares, with no shares issued for any of the periods presented. 49 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 for repurchase under the program as of January 29, 2022. 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. ACCUMULATED OTHER COMPREHENSIVE LOSS For 2021, the change in accumulated other comprehensive loss was due to foreign currency translation adjustments as shown in the consolidated statements of shareholders' equity. For 2020 and 2019, changes for the balances of each component of accumulated other comprehensive loss, net of tax, were as follows: (in thousands) Foreign Currency Translation Available-for-Sale Securities Total Balance, February 2, 2019 $ ( 2,328 ) $ ( 378 ) $ ( 2,706 ) Other comprehensive income (loss) before reclassifications ( 340 ) 609 269 Amounts reclassified to non-operating expenses, net — ( 58 ) ( 58 ) Other comprehensive income (loss) ( 340 ) 551 211 Balance, February 1, 2020 ( 2,668 ) 173 ( 2,495 ) 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 ) 7. RECEIVABLES Receivables, net, consisted of the following: (in thousands) January 29, 2022 January 30, 2021 Customer accounts receivables: Serviced by third-party provider with guaranteed payment $ 27,827 $ 29,615 Serviced by third-party provider without guaranteed payment 82 363 Serviced in-house 2,783 4,576 Income tax receivable 162,240 149,824 Other receivables 8,026 12,865 Total receivables 200,958 197,243 Allowance for doubtful accounts ( 1,132 ) ( 1,194 ) $ 199,826 $ 196,049 The following table presents the activity for the allowance for doubtful accounts: (in thousands) 2021 2020 2019 Allowance for doubtful accounts - beginning of period $ ( 1,194 ) $ ( 1,219 ) $ ( 939 ) Provision for bad debts ( 40 ) ( 1,041 ) ( 1,446 ) Recoveries and other adjustments 102 1,066 1,166 Allowance for doubtful accounts - end of period $ ( 1,132 ) $ ( 1,194 ) $ ( 1,219 ) 50 8. PROPERTY AND EQUIPMENT Property and equipment, net, consisted of the following: (dollars in thousands) Useful Life (years) January 29, 2022 January 30, 2021 Land Indefinite $ 1,110 $ 1,110 Buildings 39 12,485 12,485 Building and leasehold improvements 3 - 20 or the lease term if shorter 447,158 446,937 Furniture, fixtures and equipment 3 - 15 466,405 471,586 Software 3 - 5 206,579 194,064 Construction in progress 17,239 10,659 Total property and equipment 1,150,976 1,136,841 Accumulated depreciation and amortization ( 894,190 ) ( 840,372 ) $ 256,786 $ 296,469 9. GOODWILL AND INTANGIBLE ASSETS GOODWILL The following table presents the changes to goodwill by segment: (in thousands) January 29, 2022 January 30, 2021 Goodwill Accumulated Impairments Net Goodwill Accumulated Impairments Net Beginning of period by segment: U.S. 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 Activity by segment: Canada Retail- Currency translation adjustment 28 ( 28 ) — 1,476 ( 1,476 ) — Brand Portfolio- Impairment charges — — — — ( 19,989 ) ( 19,989 ) 28 ( 28 ) — 1,476 ( 21,465 ) ( 19,989 ) End of period by segment: U.S. Retail 93,655 — 93,655 93,655 — 93,655 Canada Retail 43,114 ( 43,114 ) — 43,086 ( 43,086 ) — Brand Portfolio 19,989 ( 19,989 ) — 19,989 ( 19,989 ) — $ 156,758 $ ( 63,103 ) $ 93,655 $ 156,730 $ ( 63,075 ) $ 93,655 51 INTANGIBLE ASSETS Intangible assets consisted of the following: (in thousands) January 29, 2022 January 30, 2021 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Definite-lived customer relationships $ 1,409 $ ( 1,409 ) $ — $ 2,909 $ ( 2,791 ) $ 118 Indefinite-lived trademarks and tradenames 15,527 — 15,527 15,517 — 15,517 $ 16,936 $ ( 1,409 ) $ 15,527 $ 18,426 $ ( 2,791 ) $ 15,635 10. ACCRUED EXPENSES Accrued expenses consisted of the following: (in thousands) January 29, 2022 January 30, 2021 Gift cards $ 36,783 $ 34,442 Accrued compensation and related expenses 41,603 49,864 Accrued taxes 28,327 24,206 Loyalty programs deferred revenue 15,736 11,379 Sales returns allowances 18,574 17,333 Customer allowances and discounts 2,097 4,579 Other 72,692 58,523 $ 215,812 $ 200,326 11. DEBT Debt consisted of the following: (in thousands) January 29, 2022 January 30, 2021 ABL Revolver $ — $ 100,000 Term Loan 231,250 243,750 Total debt 231,250 343,750 Less unamortized Term Loan debt issuance costs ( 5,714 ) ( 8,931 ) Less current maturities of long-term debt — ( 62,500 ) Long-term debt $ 225,536 $ 272,319 As of January 29, 2022, the total borrowings under the Term Loan were classified as long-term debt since we had the ability and intent to refinance the Term Loan using borrowings from our ABL Revolver, which we classify as long-term debt. See Note 16 , Subsequent Event, for additional information. ABL REVOLVER On August 7, 2020, we replaced our previous senior unsecured revolving credit agreement 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, as of January 29, 2022, was 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 constituted 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 29, 2022, the ABL 52 Revolver had a borrowing base of $ 400.0 million, with no outstanding borrowings and $ 4.9 million in letters of credit issued, resulting in $ 395.1 million available for borrowings. 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 3.00 % as of January 29, 2022. 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 required minimum quarterly principal payments with the remaining outstanding balance due in August 2025. The Term Loan had limited prepayment requirements under certain conditions. The Term Loan was 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 accrued 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 11.77 % when including the amortization of debt issuance costs) as of January 29, 2022. 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 included 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. As of January 29, 2022, we were limited in our ability to pay dividends, repurchase stock, and make certain restricted payments above a maximum of $ 10.0 million over the term of the Term Loan. 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 29, 2022, we were in compliance with all financial covenants. 12. LEASES 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. We receive operating sublease income from unrelated third parties for leasing portions or all of certain properties. Operating sublease income and operating expenses for these properties are included in operating expenses in our consolidated statements of operations. 53 Lease income and lease expense consisted of the following: (in thousands) 2021 2020 2019 Operating sublease income $ 11,879 $ 12,219 $ 9,601 Operating lease expense: Lease expense to unrelated parties $ 192,146 $ 199,729 $ 213,156 Lease expense to related parties 9,273 9,239 9,486 Variable lease expense to unrelated parties 73,159 63,881 53,239 Variable lease expense to related parties 1,520 1,341 1,283 $ 276,098 $ 274,190 $ 277,164 Lease term and discount rate for our operating leases were as follows: January 29, 2022 January 30, 2021 Other operating lease information: Weighted-average remaining lease term 5.1 years 5.3 years Weighted-average discount rate 4.0 % 4.0 % As of January 29, 2022, our future fixed minimum lease payments are as follows: (in thousands) Unrelated Parties Related Parties Total 2022 $ 221,933 $ 7,118 $ 229,051 2023 185,069 4,573 189,642 2024 140,140 4,139 144,279 2025 103,219 3,919 107,138 2026 75,748 3,596 79,344 Future fiscal years thereafter 130,377 3,838 134,215 856,486 27,183 883,669 Less discounting impact on operating leases ( 85,380 ) ( 2,632 ) ( 88,012 ) Total operating lease liabilities 771,106 24,551 795,657 Less current operating lease liabilities ( 195,944 ) ( 6,284 ) ( 202,228 ) Non-current operating lease liabilities $ 575,162 $ 18,267 $ 593,429 As of January 29, 2022, we have entered into lease commitments for one new store location and three store relocations 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 $ 8.8 million. 13. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS We are involved in various legal proceedings that are incidental to the conduct of our business. Although it is not possible to predict with certainty the eventual outcome of any litigation, we believe the amount of any potential liability with respect to current legal proceedings will not be material to the results of operations or financial condition. As additional information becomes available, we will assess any potential liability related to pending litigation and revise the estimates as needed. 54 INSURANCE RECOVERIES During 2020, a third-party vendor experienced 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 2020, we recognized an insurance recovery receivable of $ 3.0 million, recorded as an offset to cost of sales, 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 continue to work with the insurance carrier to reach an agreement on the total amount to be recovered. GUARANTEES We provide guarantees for lease obligations that are scheduled to expire in 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 29, 2022, the total future minimum lease payment requirements for these guarantees were approximately $ 13.7 million. CONTRACTUAL OBLIGATIONS As of January 29, 2022, 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. As of January 29, 2022, our noncancelable purchase obligations and future guaranteed minimum royalty payments are as follows: (in thousands) Noncancelable Purchase Obligations Guaranteed Minimum Royalties Unrelated Parties Related Party Total 2022 $ 9,101 $ 16,309 $ 18,350 $ 34,659 2023 7,306 15,309 18,350 33,659 2024 2,331 14,884 19,650 34,534 2025 691 12,184 19,650 31,834 2026 691 12,184 19,650 31,834 Future fiscal years thereafter 1,266 50,868 39,300 90,168 $ 21,386 $ 121,738 $ 134,950 $ 256,688 14. INCOME TAXES Income (loss) before income taxes consisted of the following: (in thousands) 2021 2020 2019 Domestic income (loss) $ 161,409 $ ( 559,120 ) $ 111,021 Foreign income (loss) 11,616 ( 49,527 ) 8,753 $ 173,025 $ ( 608,647 ) $ 119,774 55 Income tax provision (benefit) consisted of the following: (in thousands) 2021 2020 2019 Current: Federal $ 16,696 $ ( 151,931 ) $ 21,196 Foreign 1,774 1,451 205 State and local 1,061 ( 3,840 ) 6,596 Total current tax expense (benefit) 19,531 ( 154,320 ) 27,997 Deferred: Federal ( 555 ) 23,601 ( 620 ) Foreign ( 556 ) 1,504 ( 1,241 ) State and local 124 9,287 ( 859 ) Total deferred tax expense (benefit) ( 987 ) 34,392 ( 2,720 ) Income tax provision (benefit) $ 18,544 $ ( 119,928 ) $ 25,277 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) 2021 2020 2019 Income tax provision (benefit) at federal statutory rate $ 36,335 $ ( 127,816 ) $ 25,152 State and local taxes, net of federal benefit (provision) 7,870 ( 23,678 ) 4,809 Foreign tax rate differential 1,111 ( 3,000 ) 546 Change in valuation allowance ( 29,950 ) 87,579 ( 3,949 ) Non-deductible compensation 6,799 3,617 344 CARES Act rate differential ( 1,697 ) ( 57,894 ) — Other ( 1,924 ) 1,264 ( 1,625 ) $ 18,544 $ ( 119,928 ) $ 25,277 See Note 1 , Description of Business and Significant Accounting Policies - Impacts of the COVID-19 Pandemic , for discussion of the CARES Act rate differential and the change in valuation allowance. 56 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows: (in thousands) January 29, 2022 January 30, 2021 Deferred tax assets: Operating lease liabilities $ 202,683 $ 232,910 Net operating losses 27,516 34,917 Stock-based compensation 10,334 11,782 Inventories 9,250 9,103 Accrued expenses 4,832 5,567 Loyalty programs deferred revenue 3,714 2,406 State bonus depreciation 3,253 4,654 Intangible assets 2,994 5,031 Other 2,738 5,977 267,314 312,347 Less: valuation allowance ( 70,762 ) ( 101,185 ) Total deferred tax assets, net of valuation allowance 196,552 211,162 Deferred tax liabilities: Operating lease assets ( 170,421 ) ( 187,398 ) Property and equipment ( 26,527 ) ( 23,306 ) Other ( 3,210 ) ( 5,065 ) ( 200,158 ) ( 215,769 ) Net deferred tax liabilities $ ( 3,606 ) $ ( 4,607 ) Net deferred income taxes are reported within the consolidated balance sheets as follows: (in thousands) January 29, 2022 January 30, 2021 Deferred tax assets included in other assets $ 356 $ — Deferred tax liabilities included in other non-current liabilities ( 3,962 ) ( 4,607 ) $ ( 3,606 ) $ ( 4,607 ) As of January 29, 2022, the valuation allowance is primarily related to federal, state and foreign deferred tax assets. Additionally, there are $ 9.1 million state and $ 14.4 million foreign net operating losses, which, if not utilized, a portion of the carryovers will begin to expire in 2025 and 2038, respectively. The following table presents the changes in valuation allowance: (in thousands) 2021 2020 2019 Valuation allowance - beginning of period $ 101,185 $ 9,472 $ 14,097 Additions charged to income tax provision (benefit) — 87,579 — Allowances taken or written off ( 29,950 ) — ( 3,949 ) Other adjustments ( 473 ) 4,134 ( 676 ) Valuation allowance - end of period $ 70,762 $ 101,185 $ 9,472 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. 57 The following table presents the changes in gross unrecognized tax benefits: (in thousands) 2021 2020 2019 Unrecognized tax benefits - beginning of period $ 10,087 $ 10,764 $ 11,608 Additions for tax positions taken in the current year 1,021 603 1,692 Reductions for tax positions taken in prior years: Changes in estimates — — ( 340 ) Settlements — ( 1,280 ) ( 2,196 ) Unrecognized tax benefits - end of period $ 11,108 $ 10,087 $ 10,764 Of the total unrecognized tax benefits at January 29, 2022, January 30, 2021 and February 1, 2020, approximate ly $ 9.5 million, $ 8.7 million and $ 9.2 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 (benefit). As of January 29, 2022, January 30, 2021 and February 1, 2020, interest and penalties were $ 3.1 million, $ 2.6 million and $ 2.3 million, respectively. We are no longer subject to U.S. federal or state income tax examinations for years prior to 2015. We have a federal and 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. 15. SEGMENT REPORTING The following table provides certain financial da ta by segment reconciled to the consolidated financial statements: (in thousands) U.S. Retail Canada Retail Brand Portfolio Other Corporate / Eliminations Total 2021 Net sales: External customer sales $ 2,769,706 $ 234,809 $ 192,068 $ — $ — $ 3,196,583 Intersegment sales — — 93,956 — ( 93,956 ) — Total net sales $ 2,769,706 $ 234,809 $ 286,024 $ — $ ( 93,956 ) $ 3,196,583 Gross profit $ 933,555 $ 76,728 $ 66,774 $ — $ ( 8,420 ) $ 1,068,637 Income from equity investment $ — $ — $ 8,986 $ — $ — $ 8,986 Cash paid for property and equipment $ 15,296 $ 3,225 $ 630 $ — $ 13,879 $ 33,030 Depreciation and amortization $ 40,693 $ 7,378 $ 5,262 $ — $ 24,590 $ 77,923 2020 Net sales: External customer sales $ 1,800,323 $ 182,659 $ 188,828 $ 62,909 $ — $ 2,234,719 Intersegment sales — — 59,818 — ( 59,818 ) — 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 $ — $ — $ 9,329 $ — $ — $ 9,329 Cash paid for property and equipment $ 9,997 $ 3,420 $ 1,194 $ 67 $ 16,436 $ 31,114 Depreciation and amortization $ 47,083 $ 7,817 $ 5,433 $ 42 $ 27,651 $ 88,026 58 (in thousands) U.S. Retail Canada Retail Brand Portfolio Other Corporate / Eliminations Total 2019 Net sales: External customer sales $ 2,745,395 $ 249,017 $ 376,185 $ 122,090 $ — $ 3,492,687 Intersegment sales — — 72,100 — ( 72,100 ) — Total net sales $ 2,745,395 $ 249,017 $ 448,285 $ 122,090 $ ( 72,100 ) $ 3,492,687 Gross profit $ 786,976 $ 79,850 $ 114,170 $ 26,065 $ ( 7,391 ) $ 999,670 Income from equity investment $ — $ — $ 10,149 $ — $ — $ 10,149 Cash paid for property and equipment $ 36,302 $ 7,600 $ 3,574 $ 178 $ 30,166 $ 77,820 Depreciation and amortization $ 47,282 $ 9,583 $ 5,644 $ 372 $ 23,768 $ 86,649 The U.S. Retail and Brand Portfolio segments and Other net sales recognized are primarily based on sales to customers in the U.S., and Canada Retail segment net sales recognized are based on sales to customers in Canada. Net sales realized from geographic markets outside of the U.S. and Canada have collectively been immaterial. As of January 29, 2022 and January 30, 2021, long-lived assets, consisting of property and equipment and operating lease assets, included $ 835.9 million and $ 917.5 million, respectively, in the U.S. and $ 66.1 million and $ 78.9 million, respectively, in Canada, with only an immaterial amount in other countries . 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 57 % 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. 16. SUBSEQUENT EVENT On February 8, 2022, we settled in full the $ 231.3 million principal amount outstanding under our Term Loan. In connection with this settlement, we incurred a $ 12.7 million loss on extinguishment of debt, comprised of a $ 6.9 million prepayment premium and a $ 5.7 million write-off of unamortized debt issuance costs, which will be recorded in the first quarter of 2022. The settlement of the Term Loan was made using proceeds from borrowings under the ABL Revolver. 59 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.