Vera Bradley, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Vera Bradley, Inc. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 53 Consolidated Balance Sheets as of January 29, 2022, and January 30, 2021, 56 Consolidated Statements of Operations for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 57 Consolidated Statements of Comprehensive Income for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 58 Consolidated Statements of Shareholders’ Equity for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 59 Consolidated Statements of Cash Flows for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 60 Notes to Consolidated Financial Statements 62 52 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Vera Bradley, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Vera Bradley, Inc. and subsidiaries (the "Company") as of January 29, 2022 and January 30, 2021, the related consolidated statements of operations, comprehensive income, 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"). In our opinion, the financial statements 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 29, 2022, expressed, an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved 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. Goodwill and Indefinite-Lived Intangible Assets – Refer to Notes 2 and 16 to the financial statements Critical Audit Matter Description The Company’s quantitative analysis of the Pura Vida reporting unit of goodwill (“goodwill”) and the indefinite-lived Pura Vida brand asset (“Pura Vida brand”) for impairment involves the comparison of the fair value of the goodwill or Pura Vida brand asset to its respective carrying value. The fair value of goodwill was determined using an income-based approach and a market-based approach, which required management to make significant estimates and assumptions including the projected revenue growth, operating profit and discount rate. The Company used the relief-from-royalty method to estimate the fair value of the Pura Vida brand, which required management to make significant estimates and assumptions related to the projected revenue growth, long-term growth rate, royalty rate and discount rate. The goodwill balance was $44.3 million as of January 29, 2022, all of which related to the Pura Vida reporting unit. The carrying value of the Pura Vida brand was $36.7 million as of January 29, 2022. The fair values of goodwill and the Pura Vida brand exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized during the year ended January 29, 2022. We identified the impairment analysis of goodwill and the Pura Vida brand as a critical audit matter because of the significant judgments made by management to estimate the fair value of these indefinite-lived assets. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions particularly related to the projected revenue growth, operating profit growth and discount rate for the goodwill impairment analysis and the projected revenue growth, royalty rate, and discount rate for the Pura Vida brand impairment analysis . How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the projected revenue growth, operating profit growth and discount rate for goodwill and Pura Vida brand as well as the royalty rate for the Pura Vida brand included the following, among others: 53 Table of Contents • We tested the effectiveness of controls over management’s goodwill and Pura Vida brand impairment analyses, including those over the determination of the fair value, such as controls related to management’s forecasts of projected revenue growth, operating profit growth, selection of royalty rate and discount rates. • We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts. • We performed sensitivity analyses to evaluate the risk of impairment if key assumptions are changed. • We evaluated the reasonableness of management’s projected revenue growth and operating profit growth by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, and (3) forecasted information included in industry reports. • With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rates and royalty rate assumptions by: ◦ Assessing the appropriateness of the valuation methodology used to determine the discount rates and royalty rate. ◦ Testing the underlying source information and the mathematical accuracy of the calculations. ◦ Developing a range of independent estimates and comparing those to the discount rates and royalty rate selected by management. /s/ Deloitte & Touche LLP Indianapolis, Indiana March 29, 2022 We have served as the Company's auditor since 2016. 54 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Vera Bradley, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Vera Bradley, Inc. and subsidiaries (the “Company”) 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 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) , the consolidated financial statements as of and for the year ended January 29, 2022, of the Company and our report dated March 29, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Indianapolis, Indiana March 29, 2022 55 Table of Contents Vera Bradley, Inc. Consolidated Balance Sheets (in thousands) January 29, 2022 January 30, 2021 Assets Current assets: Cash and cash equivalents $ 88,436 $ 64,175 Short-term investments — 1,295 Accounts receivable, net 20,681 27,543 Inventories 144,881 141,416 Income taxes receivable 9,391 7,372 Prepaid expenses and other current assets 15,928 17,882 Total current assets 279,317 259,683 Operating right-of-use assets 79,873 88,730 Property, plant, and equipment, net 59,941 63,952 Intangible assets, net 44,223 47,296 Goodwill 44,254 44,254 Deferred income taxes 3,857 3,530 Other assets 6,081 6,342 Total assets $ 517,546 $ 513,787 Liabilities, Redeemable Noncontrolling Interest, and Shareholders’ Equity Current liabilities: Accounts payable $ 30,492 $ 27,093 Accrued employment costs 12,463 13,648 Short-term operating lease liabilities 18,699 22,321 Other accrued liabilities 16,422 14,043 Income taxes payable — 321 Total current liabilities 78,076 77,426 Long-term operating lease liabilities 80,861 91,536 Other long-term liabilities 195 109 Total liabilities 159,132 169,071 Commitments and contingencies Redeemable noncontrolling interest 30,974 29,809 Shareholders’ equity: Preferred stock; 5,000 shares authorized, no shares issued or outstanding — — Common stock, without par value; 200,000 shares authorized, 42,429 and 41,808 shares issued and 33,170 and 33,414 outstanding, respectively — — Additional paid-in capital 107,907 105,433 Retained earnings 334,364 316,526 Accumulated other comprehensive (loss) income ( 29 ) 8 Treasury stock ( 114,802 ) ( 107,060 ) Total shareholders’ equity of Vera Bradley, Inc. 327,440 314,907 Total liabilities, redeemable noncontrolling interest, and shareholders’ equity $ 517,546 $ 513,787 The accompanying notes are an integral part of these consolidated financial statements. 56 Table of Contents Vera Bradley, Inc. Consolidated Statements of Operations (in thousands, except per share data) Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Net revenues $ 540,453 $ 468,272 $ 495,212 Cost of sales 252,510 202,754 223,411 Gross profit 287,943 265,518 271,801 Selling, general, and administrative expenses 261,993 252,588 253,425 Other income, net 961 135 1,098 Operating income 26,911 13,065 19,474 Interest expense (income), net 263 1,203 ( 1,085 ) Income before income taxes 26,648 11,862 20,559 Income tax expense 6,430 1,173 5,315 Net income 20,218 10,689 15,244 Less: Net income (loss) attributable to redeemable noncontrolling interest 2,380 2,008 ( 803 ) Net income attributable to Vera Bradley, Inc. $ 17,838 $ 8,681 $ 16,047 Basic weighted-average shares outstanding 33,785 33,390 33,983 Diluted weighted-average shares outstanding 34,437 33,914 34,288 Basic net income per share attributable to Vera Bradley, Inc. common shareholders $ 0.53 $ 0.26 $ 0.47 Diluted net income per share attributable to Vera Bradley, Inc. common shareholders $ 0.52 $ 0.26 $ 0.47 The accompanying notes are an integral part of these consolidated financial statements. 57 Table of Contents Vera Bradley, Inc. Consolidated Statements of Comprehensive Income (in thousands) Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Net income $ 20,218 $ 10,689 $ 15,244 Unrealized (loss) gain on available for sale debt investments ( 4 ) ( 172 ) 131 Cumulative translation adjustment ( 33 ) 22 51 Comprehensive income, net of tax 20,181 10,539 15,426 Less: Comprehensive income (loss) attributable to redeemable noncontrolling interest 2,380 2,008 ( 803 ) Comprehensive income attributable to Vera Bradley, Inc. $ 17,801 $ 8,531 $ 16,229 The accompanying notes are an integral part of these consolidated financial statements. 58 Table of Contents Vera Bradley, Inc. Consolidated Statements of Shareholders’ Equity (in thousands, except share data) Number of Shares Accumulated Other Comprehensive (Loss) Income Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Shareholders’ Equity of Vera Bradley, Inc. Balance at February 2, 2019 34,347,420 6,935,623 $ 95,572 $ 291,994 $ ( 24 ) $ ( 92,839 ) $ 294,703 Net income attributable to Vera Bradley, Inc. — — — 16,047 — — 16,047 Translation adjustments — — — — 51 — 51 Unrealized gain on available for sale investments — — — — 131 — 131 Restricted shares vested, net of repurchase for taxes 231,578 — ( 1,155 ) — — — ( 1,155 ) Stock-based compensation — — 5,940 — — — 5,940 Treasury stock purchased ( 1,075,749 ) 1,075,749 — — — ( 11,320 ) ( 11,320 ) Cumulative adjustment for ASC 842 adoption — — — ( 196 ) — — ( 196 ) Redeemable noncontrolling interest redemption value adjustment — — — ( 431 ) — — ( 431 ) Balance at February 1, 2020 33,503,249 8,011,372 $ 100,357 $ 307,414 $ 158 $ ( 104,159 ) $ 303,770 Net income attributable to Vera Bradley, Inc. — — — 8,681 — — 8,681 Translation adjustments — — — — 22 — 22 Unrealized loss on available for sale investments — — — — ( 172 ) — ( 172 ) Restricted shares vested, net of repurchase for taxes 293,076 — ( 575 ) — — — ( 575 ) Stock-based compensation — — 5,651 — — — 5,651 Treasury stock purchased ( 381,835 ) 381,835 — — — ( 2,901 ) ( 2,901 ) Redeemable noncontrolling interest redemption value adjustment — — — 431 — — 431 Balance at January 30, 2021 33,414,490 8,393,207 $ 105,433 $ 316,526 $ 8 $ ( 107,060 ) $ 314,907 Net income attributable to Vera Bradley, Inc. — — — 17,838 — — 17,838 Translation adjustments — — — — ( 33 ) — ( 33 ) Unrealized loss on available for sale investments — — — — ( 4 ) — ( 4 ) Restricted shares vested, net of repurchase for taxes 621,474 — ( 2,456 ) — — — ( 2,456 ) Stock-based compensation — — 4,930 — — — 4,930 Treasury stock purchased ( 865,534 ) 865,534 — — — ( 7,742 ) ( 7,742 ) Balance at January 29, 2022 33,170,430 9,258,741 $ 107,907 $ 334,364 $ ( 29 ) $ ( 114,802 ) $ 327,440 The accompanying notes are an integral part of these consolidated financial statements. 59 Table of Contents Vera Bradley, Inc. Consolidated Statements of Cash Flows (in thousands) Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Cash flows from operating activities Net income $ 20,218 $ 10,689 $ 15,244 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant, and equipment 9,315 13,483 18,447 Impairment charges 85 7,446 — Amortization of operating right-of-use assets 20,521 21,128 21,969 Amortization of intangible assets 3,073 9,009 5,359 Provision for doubtful accounts 101 1,333 160 Stock-based compensation 4,930 5,651 5,940 Deferred income taxes ( 327 ) 4,126 ( 864 ) Loss (gain) on investments — 13 ( 188 ) Adjustment of earn-out liability — 229 ( 1,650 ) Amortization of step-up in inventory basis — — 8,274 Other non-cash (gain) charges, net ( 37 ) ( 1 ) 202 Changes in assets and liabilities: Accounts receivable 6,761 ( 5,579 ) ( 1,013 ) Inventories ( 3,465 ) ( 17,810 ) ( 12,645 ) Prepaid expenses and other assets 2,215 ( 7,940 ) ( 4,477 ) Accounts payable 3,210 7,353 ( 615 ) Income taxes ( 2,340 ) ( 8,121 ) ( 284 ) Operating lease liabilities, net ( 25,961 ) ( 22,680 ) ( 25,302 ) Accrued and other liabilities 1,562 2,373 ( 7,933 ) Net cash provided by operating activities 39,861 20,702 20,624 Cash flows from investing activities Purchases of property, plant, and equipment ( 5,489 ) ( 5,743 ) ( 13,317 ) Purchases of investments — ( 851 ) ( 18,950 ) Proceeds from maturities and sales of investments 1,290 23,281 38,333 Cash received (paid) for business acquisition, net of cash acquired — 993 ( 76,032 ) Proceeds from disposal of property, plant, and equipment 45 — — Net cash (used in) provided by investing activities ( 4,154 ) 17,680 ( 69,966 ) Cash flows from financing activities Tax withholdings for equity compensation ( 2,456 ) ( 575 ) ( 1,155 ) Repurchase of common stock ( 7,742 ) ( 3,077 ) ( 11,341 ) Distributions to redeemable noncontrolling interest ( 1,215 ) ( 1,817 ) ( 1,789 ) Borrowings under asset-based revolving credit agreement — 60,000 — Repayment of borrowings under asset-based revolving credit agreement — ( 60,000 ) — Payment of contingent consideration for business acquisition — ( 18,677 ) — Net cash used in financing activities ( 11,413 ) ( 24,146 ) ( 14,285 ) Effect of exchange rate changes on cash and cash equivalents ( 33 ) 22 51 Net increase (decrease) in cash and cash equivalents 24,261 14,258 ( 63,576 ) Cash and cash equivalents, beginning of period 64,175 49,917 113,493 Cash and cash equivalents, end of period $ 88,436 $ 64,175 $ 49,917 60 Table of Contents Vera Bradley, Inc. Consolidated Statements of Cash Flows (in thousands) (continued) Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Supplemental disclosure of cash-flow information Cash paid for income taxes, net $ 9,083 $ 5,079 $ 6,490 Cash paid for interest $ 293 $ 1,133 $ 119 Supplemental disclosure of non-cash activity Non-cash operating, investing, and financing activities Repurchase of common stock incurred but not yet paid As of January 29, 2022, January 30, 2021 and February 1, 2020 $ — $ — $ 176 As of January 30, 2021, February 1, 2020 and February 2, 2019 $ — $ 176 $ 197 Purchases of property, plant, and equipment incurred but not yet paid As of January 29, 2022, January 30, 2021 and February 1, 2020 $ 250 $ 343 $ 559 As of January 30, 2021, February 1, 2020 and February 2, 2019 $ 343 $ 559 $ 1,065 Contingent consideration related to business acquisition $ — $ — $ 20,098 Refer to Note 4 herein for supplemental cash flow information regarding the Company’s leases. The accompanying notes are an integral part of these financial statements. 61 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 1. Description of the Company The term “Company” refers to Vera Bradley, Inc. and its wholly and majority owned subsidiaries, except where the context requires otherwise or where otherwise indicated. Vera Bradley, Inc. operates two unique lifestyle brands – Vera Bradley and Pura Vida. We believe Vera Bradley and Pura Vida are complementary businesses, both with devoted, emotionally-connected, and multi-generational female customer bases; alignment as causal, comfortable, affordable, and fun brands; positioning as “gifting” and socially-connected brands; strong, entrepreneurial cultures; a keen focus on community, charity, and social consciousness; multi-channel distribution strategies; and talented leadership teams aligned and committed to the long-term success of their brands. Vera Bradley is a leading designer of women’s handbags, luggage and travel items, fashion and home accessories, and unique gifts. Founded in 1982 by friends Barbara Bradley Baekgaard and Patricia R. Miller, the brand’s innovative designs, iconic patterns, and brilliant colors continue to inspire and connect women. In July 2019, Vera Bradley, Inc. acquired a 75% interest in Creative Genius, Inc., which also operates under the name Pura Vida Bracelets (“Pura Vida”). Pura Vida, based in La Jolla, California, is a digitally native lifestyle brand that we believe deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories. Beginning in the second quarter of fiscal 2020, the Company has included an additional segment for Pura Vida due to its acquisition. As a result, the Company now has three reportable segments: Vera Bradley Direct (“VB Direct”), Vera Bradley Indirect (“VB Indirect”), and Pura Vida. • The VB Direct business consists of sales of Vera Bradley products through Vera Bradley full-line and factory outlet stores in the United States; verabradley.com and verabradley.ca; the Vera Bradley online outlet site; and typically the Vera Bradley annual outlet sale in Fort Wayne, Indiana. As of January 29, 2022, the Company operated 70 full-line stores and 75 factory outlet stores. In light of the COVID-19 pandemic, the Company cancelled its calendar year 2021 and 2020 annual outlet sales. • The VB Indirect business consists of sales of Vera Bradley products to approximately 1,800 specialty retail locations, substantially all of which are located in the United States, as well as department stores, national accounts, third-party e-commerce sites, third-party inventory liquidators, and royalties recognized through licensing agreements related to the Vera Bradley brand. • The Pura Vida segment represents revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, the distribution of Pura Vida-branded products to wholesale retailers, substantially all of which are located in the United States, as well as through its first retail store which opened in August 2021. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, and its majority owned subsidiary, Pura Vida beginning on July 17, 2019. The Company has eliminated intercompany balances and transactions in consolidation. Fiscal Periods The Company utilizes a 52-53 week fiscal year ended on the Saturday closest to January 31. As such, fiscal years 2022, 2021, and 2020, ending on January 29, 2022, January 30, 2021, and February 1, 2020 respectively, each reflected a 52-week period. 2. Summary of Significant Accounting Policies Use of Significant Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, and expenses, as well as the disclosures relating to contingent assets and liabilities at the date of the consolidated financial statements. Significant areas requiring the use of management estimates include the 62 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements valuation of inventories, valuation of long-lived assets, including operating right-of-use assets, valuation of goodwill and indefinite-lived intangible assets, accounts receivable valuation allowances, sales return allowances, and the useful lives of assets for depreciation or amortization. Actual results could differ from these estimates. The Company revises its estimates and assumptions as new information becomes available. Cash and Cash Equivalents Cash and cash equivalents represent cash on hand, deposits with financial institutions, and investments with an original maturity of three months or less. Investments Short-term investments consist of investments with a maturity within one year of the balance sheet date. As of January 30, 2021, these investments consisted of U.S. and non-U.S. corporate debt securities. There were no short-term investments as of January 29, 2022. The Company’s objective with respect to these investments is to earn a higher rate of return, relative to deposit accounts, on funds that are otherwise not anticipated to be required to meet liquidity needs in the near-term while maintaining a low level of investment risk. These debt securities are classified as available-for-sale; therefore, unrealized gains and losses are recorded within other comprehensive income. Interest income earned is recorded within interest expense (income), net, in the Company's Consolidated Statements of Operations. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out (“FIFO”) method. Appropriate consideration is given to obsolescence, excess quantities, and other factors, including the popularity of a pattern or product, in evaluating net realizable value. Substantially all inventory relates to finished goods. Property, Plant, and Equipment Property, plant, and equipment are carried at cost and depreciated or amortized over the following estimated useful lives using the straight-line method: Buildings and building improvements .............................................. 39.5 years Land improvements ........................................................................... 5 – 15 years Furniture and fixtures, and leasehold improvements ........................ 3 – 10 years Equipment ......................................................................................... 7 years Vehicles ............................................................................................. 5 years Computer equipment and software ................................................... 3 – 5 years The Company recognizes depreciation and amortization expense within cost of sales for expenditures related to distribution center, sourcing, and other related functions and selling, general, and administrative expenses for all other expenditures. Leas ehold improvements are amortized over the shorter of the life of the asset or the lease term. Lease terms typically range from three to ten years . When a decision is made to abandon property, plant, and equipment prior to the end of the previously estimated useful life, depreciation or amortization estimates are revised to reflect the use of the asset over the shortened estimated useful life. At the time of disposal, the cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts and any resulting loss is included in the Consolidated Statements of Operations. Property, plant, and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset groups may not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows, which is at the retail store level for store-related assets. If the estimated undiscounted future cash flows related to the property, plant, and equipment and operating right-of-use assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the fair value, as further defined below in “Fair Value of Financial Instruments.” Routine maintenance and repair costs are expensed as incurred. 63 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements The Company capitalizes certain costs incurred in connection with acquiring, modifying, and installing internal-use software. Capitalized costs are included in property, plant, and equipment and are amortized over three to five years . Software costs that do not meet capitalization criteria are expensed as incurred. Revenue Recognition and Accounts Receivable Vera Bradley and Pura Vida product sales to customers, including amounts billed to customers for shipping fees, as well as royalties from licensing arrangements related to the Vera Bradley brand, are included in net revenues. Costs related to shipping of product are classified in cost of sales in the Consolidated Statements of Operations. The Company has elected to treat shipping and handling activities that occur after the customer has obtained control of a good as an activity to fulfill the promise to transfer the product rather than as an additional promised service. Net revenues exclude sales taxes collected from customers and remitted to governmental authorities from the transaction price. Revenue from the sale of the Company’s products is recognized when control of the promised goods or services is transferred to customers, in the amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenue is recognized using the five-step model. These steps are: (i) identify the contract with the customer; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to each performance obligation; and (v) recognize revenue as the performance obligations are satisfied. The Company collects payment at the point of sale for Vera Bradley full-line and factory outlet store transactions, upon shipment for Vera Bradley e-commerce transactions, and upon purchase for Pura Vida e-commerce transactions. The Company generally collects payment in arrears in accordance with established payment terms for each customer within the VB Indirect segment and for Pura Vida wholesale retailers. Historical experience provides the Company the ability to reasonably estimate the amount of product sales that customers will return. Product returns are often resalable through multiple channels. Additionally, the Company reserves for customer allowances for certain VB Indirect retailers based upon various contract terms and other potential product credits granted to VB Indirect retailers. The returns and credits reserve and the related activity for each fiscal year presented were as follows (in thousands): Balance at Beginning of Year Provision Charged to Net Revenues Allowances Taken / Written Off Balance at End of Year Fiscal year ended January 29, 2022 $ 1,714 $ 17,043 $ ( 17,175 ) $ 1,582 Fiscal year ended January 30, 2021 1,362 14,284 ( 13,932 ) 1,714 Fiscal year ended February 1, 2020 1,911 15,467 ( 16,016 ) 1,362 The Company establishes an allowance for doubtful accounts based on historical experience and customer-specific identification and believes that collections of receivables, net of the allowance for doubtful accounts, are reasonably assured. The allowance for doubtful accounts was approximately $ 1.2 million and $ 1.1 million as of January 29, 2022 and January 30, 2021, respectively. The provision for doubtful accounts is based upon the likelihood of default expected during the life of the receivable. Cost of Sales Cost of sales includes material and labor costs, freight, inventory shrinkage, operating lease costs, duty, and other operating expenses, including depreciation of the Vera Bradley distribution center and equipment. Costs and related expenses to purchase and distribute the products are recorded as cost of sales when the related revenues are recognized. Operating Leases The Company recognizes lease liabilities at the lease commencement date based upon the present value of the remaining lease payments. Operating right-of-use assets are based on the lease liability adjusted for prepaid rent, deferred rent, and tenant allowances received from certain of the Company’s landlords, primarily for its retail store locations. 64 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Operating lease liabilities are amortized based upon the effective interest method. Operating right-of-use assets are amortized based upon the straight-line lease expense less interest on the lease liability. Operating lease expense is recognized on a straight-line basis over the lease term. Variable rent expense is recognized in the period incurred. Operating right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The reviews are conducted at the lowest identifiable level of cash flows, which is at the retail store level for store-related assets. If the estimated undiscounted future cash flows related to the operating right-of-use assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the fair value, as further defined below in “Fair Value of Financial Instruments.” Refer to Note 4 herein for additional information regarding the Company's leases. Store Pre-Opening, Occupancy, and Operating Costs The Company charges costs associated with the opening of new stores to selling, general, and administrative expenses as incurred. Selling, general, and administrative expenses also include store operating costs, store employee compensation, and store occupancy and supply costs. Business Combination The Company acquired a majority interest in Pura Vida on July 16, 2019. In connection with a business combination, the Company records the identifiable assets acquired, liabilities assumed, contingent consideration liabilities, if any, and any noncontrolling interest in the acquiree at their acquisition-date fair values. Goodwill is measured indirectly as the excess of the sum of (1) the consideration transferred (including contingent consideration, if any) and (2) the fair value of any noncontrolling interest in the acquiree over the net assets acquired and liabilities assumed. Refer to Note 14 herein for additional information. These fair value assessments require management judgment and include the use of significant estimates and assumptions including future cash flows, discount and other market rates, and asset lives, among other items. Goodwill and Other Intangible Assets Upon an acquisition, the Company records the fair value of goodwill and the identifiable intangible assets. As of January 29, 2022 and January 30, 2021, the identifiable intangible assets consisted of the Pura Vida brand, customer relationships, and non-competition agreements. Assets that are determined to have an indefinite life, including goodwill and the Pura Vida brand, are not amortized but are assessed for impairment at least annually or whenever events or circumstances indicate that the goodwill may be impaired . Definite-lived intangible assets, including customer relationships and non-competition agreements, are amortized over their estimated useful lives and are also subject to impairment testing, similar to the Company’s long-lived assets. The Company performs its annual goodwill and Pura Vida brand impairment test generally during the second quarter. The Company may first use a qualitative analysis to determine whether it is more-likely-than-not that the fair value of the reporting unit (including goodwill) is less than its carrying value. If it is determined that it is more-likely-than-not that the fair value is less than the carrying value after this analysis, a quantitative impairment test is performed. If the Company elects to bypass the qualitative analysis, or if it is determined through the qualitative analysis that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying value, a quantitative analysis is performed. Under the quantitative test, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the amount of total goodwill allocated to the reporting unit. The fair value of the reporting unit is determined using an income-based approach and a market-based approach. The Company's critical estimates for the goodwill test include the revenue growth rate, operating profit, and discount rate. The fair value of the Pura Vida brand is estimated using the relief-from-royalty method. The critical estimates for the Pura Vida brand impairment test include the projected revenue growth, long-term growth rate, the royalty rate, and the discount rate. As of January 29, 2022, the carrying value of goodwill and the Pura Vida brand was $ 44.3 million and $ 36.7 million, respectively. For the annual impairment analysis performed during fiscal 2022, we performed a quantitative analysis. There was no impairment recorded for goodwill or the Pura Vida brand during fiscal 2022. 65 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements The estimated fair values of our Pura Vida reporting unit and the Pura Vida brand are subject to change as a result of many factors including changing economic conditions. Should actual cash flows and our future estimates deteriorate from the estimates we used, impairment charges may be necessary in future years. Redeemable Noncontrolling Interest On July 16, 2019, as contemplated by the Interest Purchase Agreement, the Company and certain of its subsidiaries and the owners of the remaining twenty-five percent ( 25 %) ownership interest in Pura Vida (the “Sellers”) which was not acquired by the Company (the “Remaining Pura Vida Interest”) entered into a Put/Call Agreement (the “Put/Call Agreement”). Pursuant to the Put/Call Agreement, and subject to the terms and conditions thereof, the Sellers have the right to sell all of the Remaining Pura Vida Interest to the Company, and the Company has the right to purchase all of the Remaining Pura Vida Interests from Sellers, in each case generally at any time following the fifth anniversary of the closing date of the transaction until the tenth anniversary thereof. The purchase price for any Remaining Pura Vida Interest put to, or called by, the Company will be determined based on the arithmetic average of a multiple of adjusted EBITDA of Pura Vida and a multiple of adjusted EBITDA of the Company, as defined in the Put/Call Agreement, over the twelve-month period ending on the last day of the month immediately preceding the month in which an exercise notice is delivered by a relevant party. In the event of a change in control of the Company, the parties may exercise a portion of their put and call rights prior to the fifth anniversary of the closing date (as defined in the Put/Call Agreement). As a result of this redemption feature, the Company recorded the noncontrolling interest as redeemable and classified it in temporary equity within its Consolidated Balance Sheets initially at its acquisition-date fair value. The noncontrolling interest is adjusted each reporting period for income (or loss) attributable to the noncontrolling interest. A measurement period adjustment, if any, is then made to adjust the noncontrolling interest to the higher of the redemption value or carrying value each reporting period. These adjustments are recognized through retained earnings and are not reflected in net income or net income attributable to Vera Bradley, Inc. When calculating earnings per share attributable to Vera Bradley, Inc., the Company adjusts net income attributable to Vera Bradley, Inc. for the measurement period adjustment to the extent the redemption value exceeds the fair value of the noncontrolling interest on a cumulative basis. The fair value of the noncontrolling interest is estimated using a combination of the income approach, a discounted cash flow analysis, and the market approach, utilizing the guideline company method. The reporting unit’s discounted cash flow analysis requires significant management judgment with respect to revenue, total direct costs, selling, general, and administrative expenses, capital expenditures, and the selection and use of an appropriate discount rate. The projected revenue and expense assumptions and capital expenditures are based on our annual and long-term business plans. Discount rates reflect market-based estimates of the risks associated with the projected cash flows directly resulting from the use of those assets in operations. Refer to Note 15 her ein for additional information regarding the redeemable noncontrolling interest. Stock-Based Compensation The Company accounts for stock-based compensation using the fair-value recognition provisions of ASC 718, Stock Compensation . Under these provisions, for its awards of restricted stock and restricted-stock units, the Company recognizes stock-based compensation expense in an amount equal to the fair market value of the underlying stock on the grant date of the respective award. The Company recognizes this expense, net of estimated forfeitures, on a straight-line basis over the requisite service period. Advertising Costs The Company expenses advertising costs at the time the promotion first appears in media, in stores, or on its websites, and includes those costs in selling, general, and administrative expenses in the Consolidated Statements of Operations. Total advertising expense was as follows (in thousands): Fiscal year ended January 29, 2022 $ 61,223 Fiscal year ended January 30, 2021 54,571 Fiscal year ended February 1, 2020 (1) 46,460 (1) As a result of the July 2019 acquisition of Pura Vida, fiscal 2020 includes approximately six months of Pura Vida advertising expense. 66 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Fair Value of Financial Instruments 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. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date: • Level 1 – Quoted prices in active markets for identical assets or liabilities; • Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; • Level 3 – Unobservable inputs based on the Company’s own assumptions. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. The carrying amounts reflected on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, and accounts payable as of January 29, 2022 and January 30, 2021, approximated their fair values. The following table details the fair value measurements of the Company’s investments as of January 29, 2022 and January 30, 2021 (in thousands): Level 1 Level 2 Level 3 January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 January 29, 2022 January 30, 2021 Cash equivalents (1) $ 2,856 $ 1,565 $ — $ — $ — $ — Short-term investments: U.S. corporate debt securities — — — 627 — — Non-U.S. corporate debt securities — — — 668 — — (1) Cash equivalents relate to a money market fund that has a maturity of three months or less at the date of purchase. Due to its short maturity, the Company believes the carrying value approximates fair value. The Company assesses potential impairments to its long-lived assets, which includes property, plant, and equipment and lease right-of-use assets, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Store-level assets and right-of-use assets are grouped at the individual store-level for the purpose of the impairment assessment. Recoverability of an asset group is measured by a comparison of the carrying amount of an asset group to its estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. The fair value of the store assets is determined using the discounted future cash flow method of anticipated cash flows through the store’s lease-end date using fair value measurement inputs classified as Level 3. The fair value of right-of-use assets is estimated using market comparative information for similar properties. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The Company recorded $ 0.1 million and $ 7.4 million in impairment charges related to store assets including property, plant, and equipment and lease right-of-use assets during the fiscal years ended January 29, 2022 and January 30, 2021. There were no impairment charges for the fiscal year ended February 1, 2020. Assets recognized or disclosed at fair value on the consolidated financial statements on a nonrecurring basis include items such as property, plant, and equipment, including leasehold improvements, and operating lease assets, as well as assets related to the Pura Vida acquisition including goodwill and intangible assets. These assets are measured at fair value if determined to be impaired. Refer to Note 14 herein for additional information on the methods used in the valuation of acquired intangible assets. The discounted cash flow models used to estimate the applicable fair values involve numerous estimates and assumptions that are highly subjective. Changes to these estimates and assumptions could materially impact the fair value estimates. The estimates and assumptions critical to the overall fair value estimates include: (1) estimated future cash flow generated at the store level; (2) discount rates used to derive the present value factors used in determining the fair values; and (3) market rentals at the retail store. These and other estimates and assumptions are impacted by economic conditions and our expectations and may change in the future based on period-specific facts and circumstances. If economic conditions were to deteriorate, future impairment charges may be required which may be material. 67 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Income Taxes The Company accrues income taxes payable or refundable and recognizes deferred tax assets and liabilities based on differences between the book and tax bases of assets and liabilities. The Company measures deferred tax assets and liabilities using enacted rates in effect for the years in which the differences are expected to reverse, and recognizes the effect of a change in enacted rates in the period of enactment. The Company establishes liabilities for uncertain positions taken or expected to be taken in income tax returns, using a more-likely-than-not recognition threshold. The Company includes in income tax expense any interest and penalties related to uncertain tax positions. Cloud Computing Arrangements The Company capitalizes implementation costs associated with its Cloud Computing Arrangements (“CCA”) consistent with costs capitalized for internal-use software. The CCA costs are amortized over the term of the related hosting agreement, taking into consideration renewal options, if any. The renewal period is included in the amortization period if determined that the option is reasonably certain to be exercised. The amortization expense is recorded in the same line item within the Company's Consolidated Statements of Operations as the related hosting fees. The balance of the unamortized CCA implementation costs totaled $ 8.0 million and $ 8.1 million as of January 29, 2022 and January 30, 2021, respectively. Of this total, $ 2.8 million and $ 2.4 million was recorded within prepaid expenses and other current assets and $ 5.2 million and $ 5.7 million was recorded within other assets on the Company's Consolidated Balance Sheets as of January 29, 2022 and January 30, 2021, respectively. The CCA implementation costs are recorded within operating activities in the Company's Consolidated Statements of Cash Flows. Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements . The amendments in this update remove, modify, and add certain disclosure requirements to ASC 820, Fair Value Measurement . This guidance is effective for interim and annual periods beginning on or after December 15, 2019 (fiscal 2021). Early adoption is permitted, and certain amendments are to be adopted prospectively for only the most recent annual or interim period presented in the initial year of adoption or retrospectively. The adoption of this standard in the first quarter of fiscal 2021 did not have a material impact on the Company's consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments . This standard replaces the incurred loss impairment methodology in current GAAP with a methodology that uses a forward-looking approach to recording credit losses for certain financial instruments including debt securities, trade receivables, and other financial assets. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for SEC filers, which is the Company's fiscal 2021. Early adoption is permitted. The adoption of this standard in the first quarter of fiscal 2021 did not have a material impact on the Company's consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The amendments in this update remove certain exceptions to the general principals in Topic 740, as well as simplify GAAP for certain areas and improve consistency within the topic. This guidance is effective for interim and annual periods beginning on or after December 15, 2020 (fiscal 2022). Early adoption is permitted, with all amendments required to be adopted in the same period. The adoption of this standard in the first quarter of fiscal 2022 did not have a material impact on the Company's consolidated financial statements. 68 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 3. Revenue from Contracts with Customers Disaggregation of Revenue The following presents the Company's net revenues disaggregated by product category for the fifty-two weeks ended January 29, 2022, January 30, 2021, and February 1, 2020 (in thousands): Fifty-Two Weeks Ended January 29, 2022 VB Direct Segment VB Indirect Segment Pura Vida Segment Total Product categories Bags $ 138,910 $ 33,125 $ 974 $ 173,009 Travel 82,507 12,150 — 94,657 Accessories 65,219 10,021 111,248 186,488 Home 41,987 4,416 — 46,403 Apparel/Footwear (6) 18,592 2,406 4,110 25,108 Other 7,660 (1) 3,883 (2) 3,245 (3) 14,788 Total net revenues $ 354,875 (4) $ 66,001 (5) $ 119,577 (4) $ 540,453 (1) Primarily includes net revenues from stationery, freight, and gift card breakage. (2) Primarily includes net revenues from licensing agreements, freight, and merchandising. (3) Related to freight. (4) Net revenues were related to product sales recognized at a point in time. (5) $ 63.1 million of net revenues related to product sales recognized at a point in time and $ 2.9 million of net revenues related to sales-based royalties recognized over time. (6) Includes mask sales. Fifty-Two Weeks Ended January 30, 2021 VB Direct Segment VB Indirect Segment Pura Vida Segment Total Product categories Bags $ 105,197 $ 26,732 $ — $ 131,929 Travel 59,606 12,191 — 71,797 Accessories 49,578 8,207 106,547 164,332 Home 31,819 2,253 — 34,072 Apparel/Footwear (6) 36,762 13,416 1,857 52,035 Other 6,312 (1) 3,718 (2) 4,077 (3) 14,107 Total net revenues $ 289,274 (4) $ 66,517 (5) $ 112,481 (4) $ 468,272 (1) Primarily includes net revenues from stationery, freight, and gift card breakage. (2) Primarily includes net revenues from licensing agreements, freight, and merchandising. (3) Related to freight. (4) Net revenues were related to product sales recognized at a point in time. (5) $ 63.5 million of net revenues related to product sales recognized at a point in time and $ 3.0 million of net revenues related to sales-based royalties recognized over time. (6) Includes mask sales. 69 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Fifty-Two Weeks Ended February 1, 2020 VB Direct Segment VB Indirect Segment Pura Vida Segment Total Product categories (1) Bags $ 136,509 $ 41,206 $ — $ 177,715 Travel 91,732 16,712 — 108,444 Accessories 75,162 15,470 64,568 155,200 Home 32,987 2,703 — 35,690 Apparel/Footwear 5,092 640 — 5,732 Other 6,002 (2) 5,080 (3) 1,349 (4) 12,431 Total net revenues $ 347,484 (5) $ 81,811 (6) $ 65,917 (5) $ 495,212 (1) Other net revenues have been recast to exclude Apparel/Footwear to conform with the current-year presentation. (2) Primarily includes net revenues from stationery, freight, and gift card breakage. (3) Primarily includes net revenues from licensing agreements, freight, and merchandising. (4) Related to freight. (5) Net revenues were related to product sales recognized at a point in time. (6) $ 78.0 million of net revenues related to product sales recognized at a point in time and $ 3.8 million of net revenues related to sales-based royalties recognized over time. Contract Balances Contract liabilities as of January 29, 2022 and January 30, 2021, were $ 3.9 million and $ 4.1 million, respectively. The balance as of January 29, 2022 consisted of unearned revenue related to unredeemed gift cards, the monthly bracelet and jewelry clubs of the Pura Vida segment, Pura Vida loyalty club points, Pura Vida customer deposits and payments collected before shipment, and an immaterial amount of unearned revenue for pre-payments of royalties in certain of the Company’s licensing arrangements. The balance as of January 30, 2021 consisted of unearned revenue related to the monthly bracelet and jewelry clubs of the Pura Vida segment, unredeemed gift cards, Pura Vida loyalty club points, Pura Vida customer deposits and payments collected before shipment, and an immaterial amount of unearned revenue for pre-payments of royalties in certain of the Company’s licensing arrangements. These contract liabilities are recognized within other accrued liabilities on the Company’s Consolidated Balance Sheets. Substantially all contract liabilities are recognized within one year. The Company did no t have contract assets as of January 29, 2022 and January 30, 2021. The balance for accounts receivable from contracts with customers, net of allowances, as of January 29, 2022 and January 30, 2021 was $ 18.1 million and $ 26.0 million, respectively, which is recognized within accounts receivable, net, on the Company’s Consolidated Balance Sheets. The provision for doubtful accounts was $ 1.2 million and $ 1.1 million as of January 29, 2022 and January 30, 2021, respectively. The provision for doubtful accounts is based upon the likelihood of default expected during the life of the receivable. Performance Obligations The performance obligations for the VB Direct, VB Indirect, and Pura Vida segments include the promise to transfer distinct goods (or a bundle of distinct goods). The VB Indirect segment also includes the right to access intellectual property (“IP”) related to the Vera Bradley brand. Remaining Performance Obligations The Company does not have remaining performance obligations in excess of one year or contracts that it does not have the right to invoice as of January 29, 2022. Significant Judgments Product Sales In the Vera Bradley retail stores and the Pura Vida retail store (recognized within the VB Direct segment and the Pura Vida segments), control is transferred and net revenue is recognized at the point of sale. Product shipments for the Company’s e- 70 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements commerce channels (recognized within the VB Direct and Pura Vida segments) and shipments to its wholesale retailers (recognized within the VB Indirect segment and Pura Vida segment) are generally shipped Free on Board (“FOB”) shipping point typically from its distribution center in Roanoke, Indiana, for Vera Bradley products and primarily from its third-party fulfillment center in Tijuana, Mexico for Pura Vida products. Net revenue is recognized upon shipment consistent with when control is transferred to the customer. Upon shipment, the customer has the right to direct the use of, and obtain substantially all of the benefits from, the product. Licensing Royalties The Company grants rights to access its Vera Bradley IP and accounts for any resulting sales-based royalty revenue over time, as the subsequent sales occur. The Company has contractually guaranteed minimum royalties in certain of its sales-based royalty arrangements which are recognized straight-line over the remaining license period once determined that the minimum sales level will not be achieved. Licensing royalties are recognized within VB Indirect segment net revenues. Transaction Price and Amounts Allocated to Performance Obligations The transaction price is the amount of consideration the Company expects to be entitled to in a sales transaction. The transaction price is net of discounts, estimated variable consideration (if any), and any customer allowances offered or estimated, including those offered to certain Indirect retailers based on various contract terms. The transaction price also is net of allowances for product returns, which the Company is able to reasonably estimate based upon historical experience. The transaction price is allocated to each performance obligation in the contract based upon the standalone selling price. Contract Costs Sales commissions are paid to certain employees based upon specific sales achieved during a time period. As the Company’s contracts related to these sales commissions do not exceed one year, these incentive payments are expensed as incurred. Other Practical Expedients Significant Financing Components The Company does not adjust for the time value of money as the majority of its contracts have an original expected duration of one year or less; contracts that are greater than one year are related to net revenues that are constrained until the subsequent sales occur. The net revenues associated with these contracts are immaterial, and the Company does not adjust for the time value of money. Concentration of Credit Risk Five customers represented approximately 40.0 % of the balance of accounts receivable, net as of January 29, 2022. 4. Leases In the prior-year, the Company temporarily closed its full-line and factory outlet stores beginning on March 19, 2020, due to the COVID-19 pandemic, for various lengths of time (from several weeks to several months). The stores began to re-open on May 5, 2020, with substantially all stores open by the end of July 2020. All of the Company's stores were open during fiscal 2022. As a result of the temporary closures in the prior-year, certain rent payments were deferred. An immaterial amount of rent abatements were received as of January 29, 2022 and January 30, 2021. An immaterial amount of rent deferrals were received as of January 30, 2021. No additional rent deferrals were received during fiscal 2022. In April 2020, the FASB issued guidance that allows a company to elect to account for COVID-19-related rent concessions as (1) if they were part of the enforceable rights and obligations under the existing lease contract or (2) lease modifications. Leases that are eligible under this guidance include those that do not have a substantial increase of obligations to the lessee. The Company elected to treat COVID-19-related rent abatements as a reduction to its operating lease cost in the period the abatements are received for leases that do not have a substantial change in obligations. Lease abatements received which were coupled with lease extensions of greater than a month, or a substantial change of future lease payments, were recorded as a lease modification under ASC 842. 71 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements The Company also received lease payment deferrals in some cases, extending the due date of the lease payments. The Company did not remeasure the lease liability and continued to account for the lease following the rights and obligations of the existing lease. Nature of Leases The Company has operating leases at all of its retail stores, including Pura Vida's retail store, as well as for its New York office, the California Pura Vida office, Asia sourcing office, and showrooms. The Company also has operating leases for certain equipment and storage spaces. The Company does not have residual value guarantees, restrictions, or covenants imposed by leases. Determination of Lease Terms Retail store leases have remaining terms of up to 10 years as of January 29, 2022. These leases generally have early termination rights when certain sales thresholds are not met for a specified measurement period. The Company's other leases have remaining terms of up to approximately five years as of January 29, 2022. If the lease contains a renewal period at the Company's option, the renewal period is included in the lease term if determined the option is reasonably certain to be exercised at lease commencement. The Company's lease options generally do not include termination rights other than those mentioned. The Company did not have financing leases as of January 29, 2022. Variable Rental Payments All of the Company's retail store leases contain variable rental payments when the retail store's sales exceed a specified breakpoint. In addition, the majority of the Company's leases contain real estate taxes, common area maintenance, and similar items that are billed as pass-through charges from its landlords. These rental payments are not included in the measurement of the lease liability, but are recognized as variable lease cost in the period incurred. Certain of the Company's leases also contain lease components with increases based upon an index or rate. These lease components are included on the Company's balance sheet at the rate as of lease commencement. Future changes in the index or rate will generally be included as variable lease cost. Significant Judgments and Assumptions Determination of Whether a Contract Contains a Lease The Company determines whether a contract is or contains a lease at the inception of the contract. The contract is, or contains, a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from use of the property, plant, and equipment and have the right to direct its use. Discount Rate The weighted-average discount rate as of January 29, 2022 and January 30, 2021, was 4.7 % and 4.8 %, respectively. The discount rate is not readily determinable in the lease; therefore, the Company estimated the incremental borrowing rate, at the commencement or remeasurement date of each lease, which is the rate of interest it would have to borrow on a collateralized basis over a similar term with similar payments. Leases Not Yet Commenced As of January 29, 2022, the Company had three leases which were executed but did it not have control of the underlying assets; therefore, the lease liability and right-of-use asset are not recorded on the Condensed Consolidated Balance Sheet. These leases contain undiscounted lease payments, which will be included in the determination of the lease liability, totaling approximately $ 5.3 million and have terms of approximately 10 years commencing in fiscal year 2023. Practical Expedients (Policy Elections) The Company has elected the following practical expedients as policy elections upon the adoption of ASC Topic 842. 72 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Short-Term Leases The Company elected to exclude leases with a term of 12 months or less from recognition on the balance sheet for all leases. Not Separating Lease and Nonlease Components The Company elected to combine lease and nonlease components and recognize as a single lease component for all leases. Amounts Recognized in the Consolidated Financial Statements The following lease expense is recorded within cost of sales for the Asia sourcing office and certain equipment leases and within selling, general, and administrative expenses for all other leases, including retail store leases, in the Company's Consolidated Statements of Operations for the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020 (in thousands): Fifty-Two Weeks Ended January 29, 2022 January 30, 2021 February 1, 2020 Operating lease cost $ 25,200 $ 26,112 $ 28,808 Variable lease cost 7,560 5,821 9,266 Short-term lease cost 515 445 576 Total lease cost $ 33,275 $ 32,378 $ 38,650 The weighted-average remaining lease term as of January 29, 2022 and January 30, 2021 was 5.3 years and 5.4 years, respectively. Supplemental operating cash flow information was as follows (in thousands): Fifty-Two Weeks Ended January 29, 2022 January 30, 2021 February 1, 2020 Cash paid for amounts included in the measurement of operating lease liabilities (1) $ 33,517 $ 27,180 $ 32,702 Right-of-use assets increase as a result of new and modified operating lease liabilities, net $ 11,584 $ 1,268 $ 10,850 (1) $ 2.5 million of lease liabilities were recorded within accounts payable on the Company's Consolidated Balance Sheets as of January 30, 2021, and were paid in the first quarter of fiscal 2022. Maturity Analysis of Operating Lease Liabilities Maturities of the Company's operating lease liabilities (undiscounted) reconciled to its lease liability as of January 29, 2022 were as follows (in thousands): Operating Leases Fiscal 2023 $ 22,905 Fiscal 2024 23,465 Fiscal 2025 20,681 Fiscal 2026 15,161 Fiscal 2027 10,654 Thereafter 20,589 Total remaining obligations 113,455 Less: Interest ( 13,895 ) Present value of lease liabilities $ 99,560 73 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 5. Property, Plant, and Equipment Property, plant, and equipment consisted of the following (in thousands): January 29, 2022 January 30, 2021 Land and land improvements $ 5,981 $ 5,981 Building and building improvements 46,233 46,233 Furniture, fixtures, leasehold improvements, computer equipment and software 88,097 84,223 Equipment and vehicles 27,893 27,327 Construction in progress 733 454 168,937 164,218 Less: Accumulated depreciation and amortization ( 108,996 ) ( 100,266 ) Property, plant, and equipment, net $ 59,941 $ 63,952 Depreciation and amortization expense associated with property, plant, and equipment, excluding impairment charges (in thousands): Fiscal year ended January 29, 2022 $ 9,315 Fiscal year ended January 30, 2021 13,483 Fiscal year ended February 1, 2020 18,447 6. Debt As of January 29, 2022 and January 30, 2021, the Company had no borrowings outstanding and availability of $ 75.0 million under its Credit Agreement. Credit Agreement On September 7, 2018, Vera Bradley Designs, Inc. (“VBD”), a wholly-owned subsidiary of the Company, entered into an asset-based revolving Credit Agreement (the “Credit Agreement”) among VBD, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. The Credit Agreement provides for certain credit facilities to VBD in an aggregate principal amount not to initially exceed the lesser of $ 75.0 million or the amount of borrowing availability determined in accordance with a borrowing base of certain assets. Any proceeds of the credit facilities will be used to finance general corporate purposes of VBD and its subsidiaries, including but not limited to Vera Bradley International, LLC and Vera Bradley Sales, LLC (collectively, the “Named Subsidiaries”). The Credit Agreement also contains an option for VBD to arrange with lenders to increase the aggregate principal amount by up to $ 25.0 million. Amounts outstanding under the Credit Agreement bear interest at a per annum rate equal to either (i) for CBFR borrowings (including swingline loans), the CB Floating Rate, where the CB Floating Rate is the prime rate which shall never be less than the adjusted one month LIBOR rate on such day, plus the Applicable Rate, where the Applicable Rate is a percentage spread ranging from - 1.00 % to - 1.50 % or (ii) for each eurodollar borrowing, the Adjusted LIBO Rate, where the Adjusted LIBO Rate is the LIBO rate for such interest period multiplied by the statutory reserve rate, for the interest period in effect for such borrowing, plus the Applicable Rate, where the Applicable Rate is a percentage ranging from 1.00 % to 1.30 %. The applicable CB Floating Rate, Adjusted LIBO Rate, or LIBO Rate shall be determined by the administrative agent. The Credit Agreement also requires VBD to pay a commitment fee for the unused portion of the revolving facility of up to 0.20 % per annum. VBD’s obligations under the Credit Agreement are guaranteed by the Company and the Named Subsidiaries. The obligations of VBD under the Credit Agreement are secured by substantially all of the respective assets of VBD, the Company, and the Named Subsidiaries and are further secured by the equity interests in VBD and the Named Subsidiaries. The Credit Agreement contains various affirmative and negative covenants, including restrictions on the Company's ability to incur debt or liens; engage in mergers or consolidations; make certain investments, acquisitions, loans, and advances; sell assets; enter into certain swap agreements; pay dividends or make distributions or make other restricted payments; engage in certain transactions with affiliates; and amend, modify, or waive any of its rights related to subordinated 74 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements indebtedness and certain charter and other organizational, governing, and material agreements. The Company may avoid certain of such restrictions by meeting payment conditions defined in the Credit Agreement. The Credit Agreement also requires the loan parties, as defined in the Credit Agreement, to maintain a minimum fixed charge coverage ratio of 1.0 0 to 1.00 during periods when borrowing availability is less than the greater of (A) $ 7.5 million, and (B) 10 % of the lesser of (i) the aggregate revolving commitment, and (ii) the borrowing base. The fixed charge coverage ratio, availability, aggregate revolving commitment, and the borrowing base are further defined in the Credit Agreement. The Credit Agreement contains customary events of default, including, among other things: (i) the failure to pay any principal, interest, or other fees under the Credit Agreement; (ii) the making of any materially incorrect representation or warranty; (iii) the failure to observe or perform any covenant, condition, or agreement in the Credit Agreement or related agreements; (iv) a cross default with respect to other material indebtedness; (v) bankruptcy and insolvency events; (vi) unsatisfied material final judgments; (vii) Employee Retirement Income Security Act of 1974 (“ERISA”) events that could reasonably be expected to have a material adverse effect; and (viii) a change in control (as defined in the Credit Agreement). Any commitments made under the Credit Agreement mature on September 7, 2023. There were no material fees or expenses associated with the Credit Agreement. 7. Income Taxes The components of income tax expense were as follows (in thousands): January 29, 2022 January 30, 2021 February 1, 2020 Current: Federal $ 5,923 $ ( 4,644 ) $ 4,509 Foreign 279 268 681 State 555 1,423 989 6,757 ( 2,953 ) 6,179 Deferred: Federal ( 1,300 ) 4,794 ( 805 ) State 973 ( 668 ) ( 59 ) ( 327 ) 4,126 ( 864 ) Total income tax expense $ 6,430 $ 1,173 $ 5,315 A breakdown of the Company’s income before income taxes is as follows (in thousands): January 29, 2022 January 30, 2021 February 1, 2020 Domestic $ 24,881 $ 10,151 $ 16,267 Foreign 1,767 1,711 4,292 Total income before income taxes $ 26,648 $ 11,862 $ 20,559 75 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements A reconciliation of income tax expense to the amount computed at the federal statutory rate is as follows (in thousands): January 29, 2022 January 30, 2021 February 1, 2020 Federal taxes at statutory rate $ 5,596 21.0 % $ 2,491 21.0 % $ 4,317 21.0 % State and local income taxes, net of federal benefit 1,175 4.4 598 5.0 752 3.7 Impact related to redeemable noncontrolling interest ( 508 ) ( 1.9 ) ( 419 ) ( 3.5 ) 168 0.8 Shortfall from stock-based compensation ( 472 ) ( 1.8 ) 597 5.0 63 0.3 Impact of foreign rate differential ( 82 ) ( 0.3 ) 211 1.8 ( 210 ) ( 1.0 ) Change in uncertain tax positions 32 0.1 ( 2 ) — ( 17 ) ( 0.1 ) Benefits provided by the CARES Act — — ( 2,793 ) ( 23.5 ) — — Other 689 2.6 490 4.1 242 1.2 Total income tax expense $ 6,430 24.1 % $ 1,173 9.9 % $ 5,315 25.9 % For the tax year ending January 30, 2021, the effective tax rate reflects the favorable impact of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, enacted on March 27, 2020. The Company realized a $ 2.8 million tax benefit related to the net operating loss carryback provisions of the CARES Act. Deferred income taxes reflect the net tax effects of temporary differences between the book and tax bases of assets and liabilities. Significant components of deferred tax assets and liabilities were as follows (in thousands): January 29, 2022 January 30, 2021 Deferred tax assets: Operating lease liabilities $ 27,317 $ 31,061 Compensation and benefits 2,807 2,229 Inventories 1,637 1,305 Other 2,867 4,778 Subtotal deferred tax assets 34,628 39,373 Less: valuation allowances ( 48 ) ( 51 ) Total deferred tax assets 34,580 39,322 Deferred tax liabilities: Operating lease assets ( 21,043 ) ( 23,519 ) Property, plant, and equipment ( 6,056 ) ( 8,228 ) Other ( 3,624 ) ( 4,045 ) Total deferred tax liabilities ( 30,723 ) ( 35,792 ) Net deferred tax assets $ 3,857 $ 3,530 76 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Uncertain Tax Positions A reconciliation of the beginning and ending gross amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands): January 29, 2022 January 30, 2021 February 1, 2020 Beginning balance $ 55 $ 59 $ 83 Net increases in unrecognized tax benefits as a result of current year activity 37 — 11 Lapse of statute of limitations — ( 4 ) ( 35 ) Ending balance $ 92 $ 55 $ 59 As of January 29, 2022, $ 0.1 million of total unrecognized tax benefits, net of federal benefit, would, if recognized, favorably affect the effective tax rate in future periods. Total unrecognized tax benefits are currently not expected to decrease by a significant amount in the next twelve months. The Company recognized an immaterial amount of interest only, no penalties, related to unrecognized tax benefits in the fiscal years ended January 30, 2021 and February 1, 2020. Unrecognized tax benefits are included within other long-term liabilities in the Company's Consolidated Balance Sheets. The Company files income tax returns in the U.S. federal jurisdiction and various U.S. state and foreign jurisdictions. The Company is subject to U.S. federal income tax examinations for fiscal years 2019 and forward. With a few exceptions, the Company is subject to audit by various state and foreign taxing authorities for fiscal 2018 through the current fiscal year. 8. Stock-Based Compensation The Company’s stock-based compensation consists of awards of restricted stock and restricted stock units. The Company recognized stock-based compensation expense of $ 4.9 million, $ 5.7 million, and $ 5.9 million in the fiscal years ended January 29, 2022, January 30, 2021, and February 1, 2020, respectively. Awards of Restricted-Stock Units The Company reserved 3,000,000 shares of common stock for issuance or transfer under the 2020 Equity and Incentive Plan, which allows for grants of restricted stock units, as well as other equity awards. The Company maintains the 2010 Equity and Incentive Plan for awards granted prior to the effectiveness of the 2020 Equity and Incentive Plan. During the fiscal year ended January 29, 2022, the Company granted a total of 652,339 time-based and performance-based restricted stock units to certain employees and non-employee directors under the 2020 Equity and Incentive Plan with an aggregate fair value of $ 6.7 million. The Company determined the fair value of the units based on the closing price of the Company’s common stock on the grant date. The majority of time-based restricted stock units vest and settle in shares of the Company’s common stock, on a one -for-one basis, in equal installments on each of the first three anniversaries of the grant date. Restricted stock unit awards issued to non-employee directors vest after a one-year period from the grant date. The Company recognizes the expense relating to these awards, net of estimated forfeitures, on a straight-line basis over the vesting period. The majority of performance-based restricted stock units vest upon the completion of a three-year period of time (cliff vesting), subject to the employee’s continuing employment throughout the three-year performance period and the Company’s achievement of annual earnings per share targets, or other Company performance targets, during the three-year performance period. The Company recognizes the expense relating to these units, net of estimated forfeitures and based on the probable outcome of achievement of the financial targets, on a straight-line basis over the vesting period. 77 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements The following table summarizes information about restricted-stock units as of and for the year ended January 29, 2022 (units in thousands): Time-based Restricted Stock Units Performance-based Restricted Stock Units Number of Units Weighted- Average Grant Date Fair Value (per unit) Number of Units Weighted- Average Grant Date Fair Value (per unit) Nonvested units outstanding at January 30, 2021 1,049 $ 5.73 896 $ 8.34 Granted 369 10.22 283 10.24 Change due to performance condition achievement — — ( 163 ) 8.48 Vested ( 556 ) 6.07 ( 304 ) 10.95 Forfeited ( 7 ) 6.95 ( 4 ) 7.31 Nonvested units outstanding at January 29, 2022 855 $ 7.43 708 $ 7.95 As of January 29, 2022, there was $ 5.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock units. That cost is expected to be recognized over a weighted average period of 1.3 years, subject to meeting performance conditions. The total fair value of restricted stock units for which restrictions lapsed (vested) during fiscal 2022 was $ 9.0 million. 9. Commitments and Contingencies The Company is subject to various claims and contingencies arising in the normal course of business, including those relating to product liability, legal claims, employee benefits, environmental issues, and other matters. Management believes that at this time it is not probable that any of these claims will have a material adverse effect on the Company’s financial condition, results of operations, or cash flows. However, the outcomes of legal proceedings and claims brought against the Company are subject to uncertainty and future developments could cause these actions or claims, individually or in the aggregate, to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows of a particular reporting period. In August of 2019, Vesi Incorporated (“Vesi”) filed suit against the Company in the U.S. District Court for the Southern District of Ohio related to the Company’s licensing business and alleging breach of fiduciary duty, unfair competition, defamation, and tortious interference with prospective business relationships. The complaint seeks damages in an amount not less than $ 10.0 million for punitive damages, attorney fees, prejudgment interest, and any other additional relief. The Company has denied any liability and intends to vigorously defend itself in the case. In November 2019, the Company filed a counterclaim against the principals of Vesi as personal guarantors for monies owed to the Company by Vesi. The Company has filed a motion for summary judgement asking the Court to dismiss all claims with prejudice and grant judgement on its counterclaim. The motion is fully briefed and the Company is awaiting a decision from the Court. At this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition or results of operations due to the fact that the Company is vigorously defending itself and management believes that the Company has a number of meritorious legal defenses. In April of 2020, Chidimma Igboakaeze filed suit seeking class certification for all current and former hourly-paid employees who worked for the Company within the state of California during the four years preceding the filing until final judgement. The complaint alleged various violations of the California Labor Code related to wages, overtime, meal and rest breaks, non-compliant wage statements and records and other similar allegations related to employment. The Plaintiff also filed a Private Attorney General Act claim with the state of California regarding the same allegations. This case was settled in the first quarter of fiscal 2022 for an immaterial amount. 78 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 10. 401(k) Profit Sharing Plan and Trust The Company has a 401(k) profit sharing plan and trust for all qualified employees and provides a 100 % match for the first 3 % of employee contributions and a 50 % match for the next 2 % of employee contributions, for a maximum Company match of 4 % of employee contributions, limited to the annual legal allowable limit. Additionally, the Company has the option of making discretionary profit sharing payments to the plan as approved by the board of directors. As of January 29, 2022, January 30, 2021, and February 1, 2020, no discretionary profit sharing payments had been approved. The 401(k) contribution match was temporarily suspended beginning in March 2020 as a result of the COVID-19 pandemic and resumed in January 2021. The Company recognizes 401(k) Company contributions within cost of sales for employees related to distribution center, sourcing, and other related functions and selling, general, and administrative expenses for all other employees. Total Company contributions to the plan were as follows (in thousands): Fiscal year ended January 29, 2022 $ 1,929 Fiscal year ended January 30, 2021 723 Fiscal year ended February 1, 2020 1,732 11. Related-Party Transactions Charitable Contributions . The Vera Bradley Foundation for Breast Cancer (the “Foundation”) was founded by one of the Company’s directors, who is also on the board of directors of the Foundation. The liability associated with commitments to the Foundation was approximately $ 0.1 million and $ 0.2 million as of January 29, 2022 and January 30, 2021, respectively. The liability consisted of pass-through donations from customers and is included in other accrued liabilities in the Consolidated Balance Sheets. The associated expense for contributions to the Foundation, which is included in selling, general, and administrative expenses, was as follows (in thousands): Fiscal year ended January 29, 2022 $ 160 Fiscal year ended January 30, 2021 53 Fiscal year ended February 1, 2020 101 79 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 12. Earnings Per Share Basic net income per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed based on the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding restricted stock and restricted-stock units. The components of basic and diluted net income per share are as follows (in thousands, except per share data): Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Numerator: Net income $ 20,218 $ 10,689 $ 15,244 Less: Net income (loss) attributable to redeemable noncontrolling interest 2,380 2,008 ( 803 ) Net income attributable to Vera Bradley, Inc. $ 17,838 $ 8,681 $ 16,047 Denominator: Weighted-average number of common shares (basic) 33,785 33,390 33,983 Dilutive effect of stock-based awards 652 524 305 Weighted-average number of common shares (diluted) 34,437 33,914 34,288 Net income per share attributable to Vera Bradley, Inc.: Basic $ 0.53 $ 0.26 $ 0.47 Diluted $ 0.52 $ 0.26 $ 0.47 As of January 29, 2022, January 30, 2021, and February 1, 2020, there were an immaterial number of additional shares issuable upon the vesting of restricted stock units that were excluded from the diluted share calculations because they were anti-dilutive. The diluted share calculations include performance-based restricted stock units for completed performance periods. 13. Common Stock On November 29, 2018, the Company's board of directors approved a share repurchase plan (the “2018 Share Repurchase Program”) authorizing up to $ 50.0 million of repurchases of shares of the Company's common stock. On December 3, 2020, the 2018 Share Repurchase Program was extended through December 11, 2021. On March 20, 2020, the Company temporarily suspended the share repurchase program to conserve cash as a result of the COVID-19 pandemic. The board of directors authorized the resumption of the share repurchase program beginning on March 11, 2021. In December 2021, the Company's board of directors approved a new share repurchase plan (the “2021 Share Repurchase Program”) which authorized Company management to utilize up to $ 50.0 million of available cash for repurchases of shares of the Company's common stock. The 2021 Share Repurchase Program went into effect beginning December 13, 2021 and expires in December 2024. During the fiscal year ended January 29, 2022, the Company purchased and held 865,534 shares at an average price of $ 8.94 per share, excluding commissions, for an aggregate amount of $ 7.7 million, under the 2018 and 2021 Share Repurchase Programs. During the fiscal year ended January 30, 2021, the Company purchased and held 381,835 shares at an average price of $ 7.60 per share, excluding commissions, for an aggregate amount of $ 2.9 million, under the 2018 Share Repurchase Program. During the fiscal year ended February 1, 2020, the Company purchased and held 1,075,749 shares at an average price of $ 10.52 per share, excluding commissions, for an aggregate amount of $ 11.3 million, under the 2018 Share Repurchase Program. 80 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements As of January 29, 2022, there was $ 45.8 million remaining available to repurchase shares of the Company’s common stock under the 2021 Share Repurchase Program. As of January 29, 2022, the Company held as treasury shares 9,258,741 shares of its common stock at an average price of $ 12.40 per share, excluding commissions, for an aggregate carrying amount of $ 114.8 million. The Company’s treasury shares may be issued under the 2010 Equity and Incentive Plan (with respect to outstanding awards under that plan), under the 2020 Equity and Incentive Plan, or for other corporate purposes. 14. Acquisition of Pura Vida On July 16, 2019, the Company completed its acquisition of a seventy-five percent ( 75 %) ownership interest in Creative Genius, Inc. or “Pura Vida” (the “Transaction”) in exchange for cash consideration of approximately $ 75.0 million. During the third quarter of fiscal 2020, the Company provided additional cash consideration of approximately $ 3.0 million for a working capital adjustment. The Company also received a working capital reimbursement of $ 1.0 million during the first quarter of fiscal 2021. Additional measurement period adjustments were recorded for conditions that existed as of the acquisition date. Pura Vida, based in La Jolla, California, is a digitally native lifestyle brand that we believe deeply resonates with its loyal consumer following. The Pura Vida brand has a differentiated and expanding offering of bracelets, jewelry, and other lifestyle accessories. The Company believes that the acquisition will strengthen the Company by providing increased product diversification and future growth opportunities partially as a result of resource and knowledge-sharing. In accordance with the Interest Purchase Agreement, the Company also agreed to a contingent payment of up to $ 22.5 million based on calendar year 2019 adjusted EBITDA of Pura Vida, as defined in the Interest Purchase Agreement. This contingent payment was paid in the first quarter of fiscal 2021 and totaled $ 18.7 million. The Company’s existing available cash, cash equivalents, and investments funded the purchase price due at the closing of the Transaction and subsequent to the closing. Pre-tax Transaction costs totaled $ 2.7 million for the fiscal year ended February 1, 2020. These costs are recorded within selling, general, and administrative expenses in the Consolidated Statements of Operations and within corporate unallocated expenses. There were no Transaction costs for the fiscal years ended January 29, 2022 and January 30, 2021. On July 16, 2019, as contemplated by the Interest Purchase Agreement, the Company and certain of its subsidiaries and the owners of the remaining twenty-five percent ( 25 %) ownership interest in Pura Vida which was not acquired by the Company entered into a Put/Call Agreement. Refer to Note 2 herein for additional information regarding the Put/Call Agreement. The following schedule summarizes the consideration paid for Pura Vida, the fair value of the assets acquired and liabilities assumed, the fair value of the noncontrolling interest, and the fair value of the contingent consideration related to the earn-out provision. 81 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements in thousands Fair Value at Acquisition Date Cash and cash equivalents $ 1,495 Accounts receivable, net (5) 7,680 Inventories (1) 27,654 Prepaid expenses and other current assets 1,537 Operating right of use asset 1,250 Property, plant, and equipment, net 751 Goodwill (2) 44,254 Pura Vida brand (3) 36,668 Other intangible assets (4) 24,996 Total assets acquired 146,285 Accounts payable 6,818 Accrued employment costs 2,351 Other accrued liabilities (5) 6,637 Operating lease liability 1,637 Total liabilities assumed 17,443 Less: Contingent consideration related to earn-out provision (6) ( 20,098 ) Redeemable noncontrolling interest ( 32,210 ) Cash acquired ( 1,495 ) Total closing consideration amount, net of cash acquired (7) $ 75,039 (1) Includes an $ 8.3 million step-up adjustment which was recognized in cost of sales during the four months following the acquisition. Inventories were valued using the cost approach. The significant assumptions used for the valuation include inventory balances, projected gross and operating margins, and cost and time to dispose (sell) inventory on hand. (2) Refer to Notes 2 and 16 herein for additional information regarding goodwill. (3) The Pura Vida brand intangible asset was valued using the relief-from-royalty method. The significant assumptions used for the valuation include the royalty rate, estimated projected revenues, the long-term growth rate, and the discount rate. Refer to Note 16 herein for additional information regarding intangible assets. (4) Other intangible assets include customer relationships and non-competition agreements. Customer relationships were valued using the multi-period excess earnings method. Significant assumptions used for the valuation include projected cash flows, the discount rate, and the customer attrition rate. The non-competition agreements were valued using the with-or-without method. Significant assumptions used for the valuation include projected cash flows, probability of competition, impact of competition on business, and the discount rate. Refer to Note 16 herein for additional information regarding intangible assets. (5) Includes $ 4.1 million related to an indemnified liability. (6) Contingent consideration related to the earn-out provision was valued using a Monte Carlo simulation in order to forecast the value of the potential future payment. Significant assumptions used for the valuation include the discount rate, projected cash flows, and calculated volatility. (7) Of the total $ 75.0 million closing consideration, $ 1.0 million was refunded to the Company through a working capital adjustment during the first quarter of fiscal 2021. Cash consideration paid during fiscal 2020 totaled $ 76.0 million. The operations of Pura Vida are recorded in the Company’s Consolidated Statements of Operations for the fiscal year ended February 1, 2020, beginning on July 17, 2019, which represents the first full day following the acquisition. Refer to Note 17 herein for segment-level financial information associated with Pura Vida. 82 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 15. Redeemable Noncontrolling Interest Redeemable noncontrolling interest represents the remaining twenty-five percent ( 25 %) interest in Pura Vida not acquired by the Company. Refer to Note 2 herein for additional information. Changes in redeemable noncontrolling interest for the fifty-two weeks ended January 29, 2022, January 30, 2021, and February 1, 2020 were as follows (in thousands): Balance at February 2, 2019 $ — Fair value of noncontrolling interest at acquisition 31,786 Fair value measurement period adjustment 424 Net loss attributable to redeemable noncontrolling interest ( 803 ) Distributions to redeemable noncontrolling interest ( 1,789 ) Adjustment to redemption value 431 Balance at February 1, 2020 $ 30,049 Net income attributable to redeemable noncontrolling interest 2,008 Distributions to redeemable noncontrolling interest ( 1,817 ) Adjustment to redemption value ( 431 ) Balance at January 30, 2021 $ 29,809 Net income attributable to redeemable noncontrolling interest 2,380 Distributions to redeemable noncontrolling interest ( 1,215 ) Balance at January 29, 2022 $ 30,974 83 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements 16. Intangible Assets and Goodwill The following tables detail the carrying value of the Company’s intangible assets other than goodwill related to the acquisition of a majority interest in Pura Vida. January 29, 2022 in thousands Gross Basis Accumulated Amortization (1) Carrying Amount Definite-lived intangible assets Customer Relationships $ 24,208 $ ( 17,041 ) $ 7,167 Non-competition Agreements 788 ( 400 ) 388 Total definite-lived intangible assets 24,996 ( 17,441 ) 7,555 Indefinite-lived intangible asset Pura Vida Brand 36,668 — 36,668 Total intangible assets, excluding goodwill $ 61,664 $ ( 17,441 ) $ 44,223 (1) Amortization expense is recorded within the Pura Vida segment. January 30, 2021 in thousands Gross Basis Accumulated Amortization (1) Carrying Amount Definite-lived intangible assets Customer Relationships $ 24,208 $ ( 14,125 ) $ 10,083 Non-competition Agreements 788 ( 243 ) 545 Total definite-lived intangible assets 24,996 ( 14,368 ) 10,628 Indefinite-lived intangible asset Pura Vida Brand 36,668 — 36,668 Total intangible assets, excluding goodwill $ 61,664 $ ( 14,368 ) $ 47,296 (1) Amortization expense is recorded within the Pura Vida segment. The amortization expense for intangible assets is as fo llows (in thousands): Amortization Expense Fiscal 2023 $ 3,073 Fiscal 2024 3,073 Fiscal 2025 1,409 Total $ 7,555 The total amount of the goodwill as of January 29, 2022 and January 30, 2021, was $ 44.3 million recorded within the Pura Vida segment upon acquisition. Goodwill is deductible for tax purposes, limited to the Company's 75 % majority ownership 84 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements interest. Refer to Note 2 herein for addition information regarding goodwill. There were no changes in goodwill for the fiscal years ended January 29, 2022 and January 30, 2021. Future impacts of COVID-19, including but not limited to the duration and magnitude of the pandemic, may have an impact on the triggering event assessment or future fair value estimate of goodwill, brand intangible asset, and definite-lived intangible assets, which could lead to material impairment charges. Refer to Note 2 herein for additional information regarding the fair value measurement. 17. Segment Reporting The Company has three operating segments, which are also its reportable segments: VB Direct, VB Indirect, and Pura Vida. These operating segments are components of the Company for which separate financial information is available and for which operating results are evaluated on a regular basis by the chief operating decision maker in deciding how to allocate resources and in assessing the performance of the segments. The VB Direct segment includes Vera Bradley full-line and factory outlet stores, the Vera Bradley websites, verabradley.com and verabradley.ca, the Vera Bradley online outlet site, and the Vera Bradley annual outlet sale. Revenues generated through this segment are driven through the sale of Vera Bradley-branded products from Vera Bradley to end consumers. The VB Indirect segment represents revenues generated through the distribution of Company-branded products to specialty retailers representing approximately 1,800 locations, substantially all of which are located in the United States, as well as select department stores, national accounts, third-party e-commerce sites, third-party inventory liquidators, and licensing agreements related to the Vera Bradley brand. No customer accounted for 10% or more of the Company’s net revenues during fiscal years 2022, 2021, and 2020. The Pura Vida segment represents revenues generated through the Pura Vida websites, www.puravidabracelets.com, www.puravidabracelets.eu, and www.puravidabracelets.ca, the Pura Vida retail store, and through the distribution of Pura Vida-branded products to wholesale retailers, substantially all of which are located in the United States. Corporate costs represent the Company’s administrative expenses, which include, but are not limited to: human resources, legal, finance, information technology, design, product development, merchandising, corporate-level marketing and advertising, and various other corporate-level-activity-related expenses not directly attributable to a reportable segment. All intercompany-related activities are eliminated in consolidation and are excluded from the segment reporting. Company management evaluates segment operating results based on several indicators. The primary or key performance indicators for each segment are net revenues and operating income. The table below represents key financial information for each of the Company’s operating and reportable segments: VB Direct, VB Indirect, and Pura Vida. The accounting policies of the segments are the same as those described in Note 2. The Company does not report depreciation or amortization expense, total assets, or capital expenditures by segment as such information is neither used by management nor accounted for at the segment level. 85 Table of Contents Vera Bradley, Inc. Notes to Consolidated Financial Statements Net revenues and operating income information for the Company’s reportable segments consisted of the following (in thousands): Fiscal Year Ended January 29, 2022 January 30, 2021 February 1, 2020 Segment net revenues: VB Direct $ 354,875 $ 289,274 $ 347,484 VB Indirect 66,001 66,517 81,811 Pura Vida 119,577 112,481 65,917 Total $ 540,453 $ 468,272 $ 495,212 Segment operating income (loss): VB Direct $ 73,506 $ 48,524 $ 68,505 VB Indirect 20,323 24,502 31,077 Pura Vida 9,519 8,031 ( 3,179 ) Total $ 103,348 $ 81,057 $ 96,403 Reconciliation: Segment operating income $ 103,348 $ 81,057 $ 96,403 Less: Unallocated corporate expenses ( 76,437 ) ( 67,992 ) ( 76,929 ) Operating income $ 26,911 $ 13,065 $ 19,474 Sales outside of the United States were immaterial for all periods presented. Revenues from external customers for Vera Bradley brand products are attributable to sales of bags, accessories, travel, apparel/footwear, and home items. Other revenues from Vera Bradley external customers primarily include revenues associated with our stationery, freight, licensing, merchandising, and gift card breakage. Revenues from external customers for Pura Vida brand products are primarily attributable to sales of accessories and apparel. Other revenues from Pura Vida external customers include revenues associated with freight. Refer to Note 3 herein for disaggregation of net revenues by reportable segment. As of January 29, 2022 and January 30, 2021, substantially all of the Company’s long-lived assets were located in the United States. 86 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.