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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File No. 001-39589
https://cdn.kscope.io/a455f0ede226ca987dcbfa1d0b891d41-aso-20201031_g1.jpg
Academy Sports and Outdoors, Inc.
(Exact name of registrant as specified in its charter)
Delaware85-1800912
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1800 North Mason Road
Katy, Texas 77449
(Address of principal executive offices) (Zip Code)
(281) 646-5200
(Registrant’s Telephone Number, including Area Code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareASOThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☑
As of December 3, 2020, Academy Sports and Outdoors, Inc. had 89,913,905 shares of common stock, par value $0.01 per share, outstanding.

1


ACADEMY SPORTS AND OUTDOORS, INC.
TABLE OF CONTENTS



Page

2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands)

October 31, 2020February 1, 2020November 2, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$869,725 $149,385 $43,538 
Accounts receivable - less allowance for doubtful accounts of $1,286, $3,275 and $3,642, respectively
11,908 13,999 9,798 
Merchandise inventories, net1,082,907 1,099,749 1,331,969 
Prepaid expenses and other current assets25,789 24,548 26,140 
Assets held for sale1,763 1,763 1,763 
Total current assets1,992,092 1,289,444 1,413,208 
PROPERTY AND EQUIPMENT, NET382,620 441,407 454,406 
RIGHT-OF-USE ASSETS1,163,361 1,145,705 1,165,826 
TRADE NAME577,000 577,000 577,000 
GOODWILL861,920 861,920 861,920 
OTHER NONCURRENT ASSETS4,923 15,845 16,349 
Total assets$4,981,916 $4,331,321 $4,488,709 
LIABILITIES AND STOCKHOLDERS'/PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$868,879 $428,823 $529,926 
Accrued expenses and other current liabilities274,612 211,381 219,992 
Current lease liabilities79,361 76,329 73,252 
Current maturities of long-term debt18,250 34,116 18,250 
Total current liabilities1,241,102 750,649 841,420 
LONG-TERM DEBT, net1,408,885 1,428,542 1,492,609 
LONG-TERM LEASE LIABILITIES1,171,420 1,141,896 1,163,250 
DEFERRED TAX LIABILITIES, NET132,701   
OTHER LONG-TERM LIABILITIES43,244 19,197 19,529 
Total liabilities3,997,352 3,340,284 3,516,808 
COMMITMENTS AND CONTINGENCIES (NOTE 14)
REDEEMABLE MEMBERSHIP UNITS 2,818 2,818 
STOCKHOLDERS'/PARTNERS' EQUITY (1):
Preferred stock, $0.01 par value, authorized 50,000,000 shares; none issued and outstanding
   
Partners' equity, membership units authorized, issued and outstanding were 72,468,164 as of February 1, 2020 and November 2, 2019
 996,285 976,538 
Common stock, $0.01 par value, authorized 300,000,000 shares; 88,103,975 issued and outstanding as of October 31, 2020
881 — — 
Additional paid-in capital93,064 — — 
Retained earnings895,646 — — 
Accumulated other comprehensive loss(5,027)(8,066)(7,455)
Stockholders'/partners' equity984,564 988,219 969,083 
Total liabilities and stockholders'/partners' equity$4,981,916 $4,331,321 $4,488,709 
(1) See Retrospective Presentation of Ownership Exchange in Note 2.
See Condensed Notes to Consolidated Financial Statements
3


ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share data)


Thirteen Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
NET SALES$1,349,076 $1,145,203 $4,091,797 $3,459,405 
COST OF GOODS SOLD908,565 782,781 2,856,840 2,398,783 
GROSS MARGIN440,511 362,422 1,234,957 1,060,622 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES358,955 309,246 955,591 923,418 
OPERATING INCOME81,556 53,176 279,366 137,204 
INTEREST EXPENSE, NET22,399 24,585 70,487 77,171 
GAIN ON EARLY RETIREMENT OF DEBT, NET  (7,831)(42,265)
OTHER (INCOME) EXPENSE, NET764 (467)(857)(1,921)
INCOME BEFORE INCOME TAXES58,393 29,058 217,567 104,219 
INCOME TAX (BENEFIT) EXPENSE(1,193)506 325 1,914 
NET INCOME$59,586 $28,552 $217,242 $102,305 
EARNINGS PER COMMON SHARE:
BASIC (1)
$0.78 $0.39 $2.94 $1.41 
DILUTED (1)
$0.74 $0.38 $2.82 $1.37 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC (1)
76,771 72,484 73,908 72,480 
DILUTED (1)
80,714 75,201 77,171 74,766 
(1) See Retrospective Presentation of Ownership Exchange in Note 2.


See Condensed Notes to Consolidated Financial Statements
4


ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Amounts in thousands)


Thirteen Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
COMPREHENSIVE INCOME:
Net income$59,586 $28,552 $217,242 $102,305 
Unrealized loss on interest rate swaps(331)(1,317)(5,371)(14,459)
Recognized interest (income) expense on interest rate swaps2,811 146 7,578 (1,444)
Loss on swaps from debt refinancing1,330  1,330  
Tax expense(498) (498) 
Total comprehensive income$62,898 $27,381 $220,281 $86,402 

See Condensed Notes to Consolidated Financial Statements

5


ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF PARTNERS' / STOCKHOLDERS' EQUITY
(Unaudited)
(Amounts in thousands)
Redeemable Membership UnitsPartners' Equity / Stockholders' EquityTotal Membership Units / Common Stock
Additional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Partners' / Stockholders' Equity
Partners' EquityCommon Stock
Units (1)
Amount
Units (1)
Amount
Shares (1)
AmountAmountAmountAmountAmount
Units / Shares (1)
Balances as of February 1, 2020162 $2,818 72,306 $996,285  $ $ $ $(8,066)$988,219 72,468 
Net loss— — — (10,020)— — — — — (10,020)— 
Equity compensation— — — 2,109 — — — — — 2,109 — 
Adjustment to Redeemable Membership Units for settlement of vested Restricted Units12 200 — (200)— — — — — (200)12 
Adjustment to Redeemable Membership Units for repurchase of units from Managers(2)(41)2 41 — — — — — 41 — 
Repurchase of Redeemable Membership Units— — (2)(37)— — — — — (37)(2)
Unrealized loss on interest rate swaps— — — — — — — — (4,434)(4,434)— 
Recognized interest expense on interest rate swaps— — — — — — — — 1,893 1,893 — 
Balances as of May 2, 2020172 $2,977 72,306 $988,178 — $— $— $— $(10,607)$977,571 72,478 
Net income— — — 167,676 — — — — — 167,676 — 
Equity compensation— — — 1,581 — — — — — 1,581 — 
Unrealized loss on interest rate swaps— — — — — — — — (606)(606)— 
Recognized interest expense on interest rate swaps— — — — — — — — 2,874 2,874 — 
Balances as of August 1, 2020172 $2,977 72,306 $1,157,435 — $— $— $— $(8,339)$1,149,096 72,478 
Net income— — — — — — — 59,586 — 59,586 — 
Distributions to holders of Membership Units— — — (257,000)— — — — — (257,000)— 
Effect of the Reorganization Transactions(172)(2,977)(72,306)(900,435)72,478 725 66,627 836,060 — 2,977 — 
Equity compensation— — — — — — 23,359 — — 23,359 — 
Issuance of common stock in IPO, net of Offering Costs— — — — 15,625 156 184,726 — — 184,882 15,625 
Cumulative tax effect resulting from Reorganization Transactions— — — — — — (148,829)— — (148,829)— 
Share-Based Award Payments— — — — — — (32,819)— — (32,819)— 
Stock option exercises— — — — 1 — — — — — 1 
Unrealized loss on interest rate swaps (net of tax impact of $53)
— — — — — — — — (278)(278)— 
Recognized interest expense on interest rate swaps (net of tax impact of $221)
— — — — — — — — 2,590 2,590 — 
Loss on swaps from debt refinancing (net of tax impact of $330)
— — — — — — — — 1,000 1,000 — 
Balances as of October 31, 2020 $  $ 88,104 $881 $93,064 $895,646 $(5,027)$984,564 88,104 
(1) See Retrospective Presentation of Ownership Exchange in Note 2.
See Condensed Notes to Consolidated Financial Statements
6


ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
(Amounts in thousands)

Redeemable Membership UnitsPartners' EquityTotal Membership Units
Accumulated Other Comprehensive Income (Loss)Total Partners' Equity
Partners' Equity
Units (1)
Amount
Units (1)
AmountAmountAmount
Units (1)
Balances as of February 2, 20191,362 $17,885 71,111 $848,591 $8,448 $857,039 72,473 
Net income— — — 25,406 — 25,406 — 
Equity compensation— — — 2,022 — 2,022 — 
Cumulative-effect adjustment related to the adoption of the New Lease Standard— — — 5,075 — 5,075 — 
Unrealized loss on interest rate swaps— — — — (3,510)(3,510)— 
Recognized interest income on interest rate swaps— — — — (882)(882)— 
Balances as of May 4, 20191,362 $17,885 71,111 $881,094 $4,056 $885,150 72,473 
Net income— — — 48,347 — 48,347 — 
Equity compensation— — — 2,445 — 2,445 — 
Adjustment to Redeemable Membership Units for settlement of vested Restricted Units18 300 — (300)— (300)18 
Unrealized loss on interest rate swaps— — — — (9,632)(9,632)— 
Recognized interest income on interest rate swaps— — — — (708)(708)— 
Balances as of August 3, 20191,380 $18,185 71,111 $931,586 $(6,284)$925,302 72,491 
Net income— — — 28,552 — 28,552 — 
Equity compensation— — — 1,405 — 1,405 — 
Equity contributions from Managers6 — — 100 — 100 6 
Adjustment to Redeemable Membership Units for settlement of vested Restricted Units— 101 — (100)— (100)— 
Adjustment to Redeemable Membership Units for repurchase of units from Managers(29)(538)29 538 — 538 — 
Repurchase of Redeemable Membership Units— — (29)(473)— (473)(29)
Reclassification of membership units with lapsed put rights (Note 2)(1,195)(14,930)1,195 14,930 — 14,930 — 
Unrealized loss on interest rate swaps— — — — (1,317)(1,317)— 
Recognized interest expense on interest rate swaps— — — — 146 146 — 
Balances as of November 2, 2019162 $2,818 72,306 $976,538 $(7,455)$969,083 72,468 
(1) See Retrospective Presentation of Ownership Exchange in Note 2.


See Condensed Notes to Consolidated Financial Statements
7



ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Thirty-Nine Weeks Ended
October 31, 2020November 2, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$217,242 $102,305 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization79,718 88,693 
Non-cash lease expense14,870 2,471 
Equity compensation27,049 5,872 
Amortization of deferred loan and other costs2,734 2,796 
Loss on swaps from debt refinancing1,330  
Deferred income taxes(11,739)(246)
Non-cash gain on early retirement of debt, net(7,831)(42,265)
Gain on disposal of property and equipment (23)
Casualty loss114 499 
Changes in assets and liabilities:
Accounts receivable, net2,121 8,328 
Merchandise inventories, net16,727 (197,812)
Prepaid expenses and other current assets(1,151)(5,134)
Other noncurrent assets245 433 
Accounts payable439,682 99,557 
Accrued expenses and other current liabilities44,733 30,240 
Income taxes payable9,590  
Other long-term liabilities21,784 (958)
Net cash provided by operating activities857,218 94,756 
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures(21,915)(48,614)
Proceeds from the sale of property and equipment 23 
Notes receivable from member8,125 (3,988)
Net cash used in investing activities(13,790)(52,579)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility500,000 401,100 
Repayment of revolving credit facility(500,000)(356,800)
Repayment of term loan facility(29,653)(118,257)
Debt issuance fees(556) 
Share-Based Award Payments(20,724) 
Distribution(257,000) 
Equity contributions from Managers 100 
Proceeds from issuance of common stock, net of Offering Costs184,882  
Repurchase of Redeemable Membership Units(37)(473)
Net cash used in financing activities(123,088)(74,330)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS720,340 (32,153)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD149,385 75,691 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$869,725 $43,538 
See Condensed Notes to Consolidated Financial Statements

8



ACADEMY SPORTS AND OUTDOORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
(Amounts in thousands)

Thirty-Nine Weeks Ended
October 31, 2020November 2, 2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest$68,759 $74,818 
Cash paid for income taxes$2,461 $2,588 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Non-cash issuance of common stock$132 $ 
Change in capital expenditures in accounts payable and accrued liabilities$985 $1,668 
Right-of-use assets obtained in exchange for new operating leases$84,595 $55,562 

See Condensed Notes to Consolidated Financial Statements
9


ACADEMY SPORTS AND OUTDOORS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Nature of Operations

The Company
All references to "we", "us," "our" or the "Company" in the financial statements refer to, (1) prior to October 1, 2020, New Academy Holding Company, LLC, a Delaware limited liability company ("NAHC") and the prior parent holding company for our operations, and its consolidated subsidiaries; and (2) on and after October 1, 2020, Academy Sports and Outdoors, Inc., a Delaware corporation ("ASO, Inc.") and the current parent holding company of our operations, and its consolidated subsidiaries. We conduct our operations primarily through our parent holding company's indirect subsidiary, Academy, Ltd., a Texas limited partnership doing business as "Academy Sports + Outdoors", or Academy, Ltd. Our fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31. On August 3, 2011, an investment entity owned by investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co. L.P. (collectively, "KKR"), acquired a majority interest in the Company. Upon completion of our initial public offering (the "IPO") detailed below, affiliates of KKR held a 69.9% ownership interest in the Company (see IPO Over-Allotment Exercise in Note 15).
The Company is one of the leading full-line sporting goods and outdoor recreational products retailers in the United States in terms of net sales. As of October 31, 2020, we operated 259 "Academy Sports + Outdoors" retail locations in 16 states and three distribution centers located in Katy, Texas, Twiggs County, Georgia and Cookeville, Tennessee. Our distribution centers receive, store and ship merchandise to our stores and customers. We also sell merchandise to customers across most of the United States via our academy.com website.
Initial Public Offering and Reorganization Transactions
On October 6, 2020, ASO, Inc. completed an IPO in which we issued and sold 15,625,000 shares of common stock, $0.01 par value for cash consideration of $12.22 per share (representing an initial public offering price of $13.00 per share, net of underwriting discounts) to a syndicate of underwriters led by Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives, resulting in net proceeds of approximately $184.9 million after deducting underwriting discounts, which included approximately $2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $6.1 million in costs directly associated with the IPO ("Offering Costs"), such as legal and accounting fees. The shares sold in the offering were registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to our registration statement on Form S-1 (File No. 333-248683) (the "Registration Statement"), which was declared effective by the Securities and Exchange Commission (the "SEC") on October 1, 2020.
In connection with our IPO, we completed a series of reorganization transactions (the "Reorganization Transactions") that resulted in:
NAHC, the previous parent holding company for the Company, being contributed to ASO, Inc. by its members and becoming a wholly-owned subsidiary of ASO, Inc., which thereupon became our parent holding company; and
one share of common stock of ASO, Inc. issued to then-existing members of NAHC for every 3.15 membership units of NAHC contributed to ASO, Inc.


2. Summary of Significant Accounting Policies
The accompanying unaudited financial statements of the Company have been prepared as though they were required to be in accordance with Rule 10-01 of Regulation S-X for interim financial statements, however, they do not include all information and footnotes required by United States generally accepted accounting principles ("GAAP") for complete financial statements. Certain information and footnote disclosures normally included in our annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted; however, we believe that the disclosures included herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto for the fiscal year ended February 1, 2020 included in our final prospectus dated October 1, 2020 (the "Prospectus"), as filed with the
10


SEC on October 2, 2020 pursuant to Rule 424(b)(4) under the Securities Act. The information furnished herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the thirteen and thirty-nine weeks ended October 31, 2020 are not necessarily indicative of the results that will be realized for the fiscal year ending January 30, 2021 or any other period. The balance sheet as of February 1, 2020 has been derived from our audited financial statements as of that date. For further information, refer to our audited financial statements and notes thereto included for the year ended February 1, 2020.

Basis of Presentation and Principles of Consolidation
These unaudited condensed consolidated financial statements include the accounts of ASO, Inc. and, its subsidiaries, ASO Co-Invest Blocker Sub, L.P., ASO Blocker Sub, L.P., NAHC, Academy Managing Co., LLC, Associated Investors, LLC, Academy, Ltd., the Company's operating company, and Academy International Limited. ASO Co-Invest Blocker Sub, L.P., ASO Blocker Sub, L.P., NAHC, Academy Managing Co., LLC, and Associated Investors, LLC are intermediate holding companies. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Our management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results could differ significantly from those estimates. Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management including the valuation of merchandise inventories, and performing goodwill, intangible and long-lived asset impairment analyses. Given the global economic climate and additional unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from our estimates.
Reclassifications
Certain reclassifications have been made in the prior period consolidated financial statements to conform to the current period presentation. Within the merchandise division sales table presented in Note 3, certain products and categories were recategorized amongst various categories and divisions, respectively, to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions in the thirteen and thirty-nine weeks ended November 2, 2019 for comparability purposes. This reclassification is in divisional presentation only and did not impact the overall net sales balances previously disclosed.
Retrospective Presentation of Ownership Exchange
Prior to the IPO, ASO, Inc. was a wholly-owned subsidiary of NAHC. On the IPO pricing date (October 1, 2020), the then-existing members of NAHC contributed all of their membership units of NAHC to ASO, Inc. and, in exchange, received one share of common stock of ASO, Inc. for every 3.15 membership units of NAHC contributed to ASO, Inc. (such 3.15:1 contribution and exchange ratio, the "Contribution Ratio"). As a result of such contributions and exchanges, upon the IPO, NAHC became a wholly-owned subsidiary of ASO, Inc., which became our parent holding company. The par value and authorized shares of the common stock of ASO, Inc. of $0.01 and 300,000,000, respectively, remain unchanged as a result of such contributions and exchanges. All membership units and redeemable membership units in the financial statements and notes have been retrospectively adjusted to give effect to the Contribution Ratio, as if such contributions and exchanges occurred as of all pre-IPO periods presented, including the periods presented on the Balance Sheets, Statements of Income, Statements of Partners’ / Stockholders’ Equity, Note 10. Equity and Share-Based Compensation and Note 11. Earnings per Share.
Redeemable Membership Units
Prior to October 1, 2020, Allstar Managers LLC, a Delaware limited liability company ("Managers"), owned membership units in NAHC (each, a "NAHC Membership Unit"). Managers is 100% owned by certain current and former executives and directors of the Company and was formed to facilitate the purchase of indirect contingently redeemable ownership interests in NAHC. Prior to October 1, 2020, certain executives and directors could acquire contingently redeemable membership units in Managers (the "Redeemable Membership Units"), either by (1) purchasing the Redeemable Membership Units with cash consideration, which was subsequently contributed to NAHC by Managers in exchange for a number of NAHC Membership Units equal to the number of Redeemable Membership Units purchased, or (2) by receiving
11


the Redeemable Membership Units in settlement of vested restricted units awarded to the executive or director under the Company's 2011 Unit Incentive Plan (see Note 10). Each outstanding Redeemable Membership Unit in Managers corresponded to an outstanding NAHC Membership Unit, on a unit-for-unit basis.
On October 1, 2020, Managers received one share of ASO, Inc. common stock in exchange for every 3.15 membership units in NAHC that Managers contributed to ASO, Inc., and the Redeemable Membership Units in Managers that were held by its owners were reduced proportionately by the Contribution Ratio, so that the outstanding number of Redeemable Membership Units in Managers equal the number of shares of ASO, Inc. common stock held by Managers on a 1:1 basis.
NAHC is the sole managing member of Managers with a controlling voting interest, but no economic interest, in Managers. As the sole managing member of Managers, NAHC operates and controls all business affairs of Managers.
The terms and conditions of the agreements governing the Redeemable Membership Units include provisions by which the holder, or its heirs, have the right to require Managers or NAHC to purchase the holder's Redeemable Membership Units upon the holder’s termination of employment due to death or disability for cash at fair value. The carrying value of the Redeemable Membership Units is classified as temporary equity, initially at fair value, as redemption was an event that was not solely within our control. If redemption becomes probable, we are required to re-measure the Redeemable Membership Units to fair value. Periodically, these rights lapsed due to contractual expiration or a holder's termination of employment for reasons other than death or disability. Due to the lapse of this right for certain issuances, $14.9 million was reclassified from temporary equity to Partners' Equity during the 2019 third quarter.
Income Taxes
The Company is subject to U.S. federal, state and foreign income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including recent results of operations, future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more-likely-than-not that all or a portion of the asset will not be realized. The Company recognizes tax benefits from uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized from such positions are measured based on the largest benefit having a greater than 50% likelihood of being ultimately sustained. Interest and penalties from income tax matters are recognized in income tax expense.


12


3. Net Sales
Revenue from merchandise sales is recognized, net of sales tax, when the Company’s performance obligation to the customer is met, which is when the Company transfers control of the merchandise to the customer. Store merchandise sales are recognized at the point of sale and e-commerce sales are recognized upon delivery to the customer.
The following table sets forth the approximate amount of sales by merchandise divisions for the periods presented (amounts in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Merchandise division sales (1)
Outdoors$487,401 $364,944 $1,448,987 $1,002,138 
Sports and recreation263,506 196,592 919,699 721,665 
Apparel318,731 322,375 939,388 951,385 
Footwear272,626 255,649 762,174 769,857 
Total merchandise sales (2)
1,342,264 1,139,560 4,070,248 3,445,045 
Other sales (3)
6,812 5,643 21,549 14,360 
Net Sales$1,349,076 $1,145,203 $4,091,797 $3,459,405 
(1) Certain products and categories were recategorized amongst various categories and divisions, respectively, to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions in the thirteen and thirty-nine weeks ended November 2, 2019 for comparability purposes. This reclassification is in divisional presentation only and did not impact the overall net sales balances previously disclosed (see Note 2).
(2) E-commerce sales consisted of 7.5% and 9.8% of merchandise sales for the thirteen and thirty-nine weeks ended October 31, 2020, respectively, and 4.5% and 3.8% for the thirteen and thirty-nine weeks ended November 2, 2019, respectively.
(3) Other sales consisted primarily of the sales return allowance, gift card breakage income, credit card bounties and royalties, shipping income, net hunting and fishing license income and other items.
We sell gift cards in stores, online and in third-party retail locations. A liability for gift cards, which is recorded in accrued expenses and other liabilities on our balance sheets is established at the time of sale and revenues are recognized as the gift cards are redeemed in stores or on our website.
The following is a reconciliation of the gift card liability (amounts in thousands):
Thirteen Weeks EndedThirty-Nine Weeks Ended
October 31, 2020November 2, 2019October 31, 2020November 2, 2019
Gift card liability, beginning balance$55,410 $50,631 $67,993 $66,153 
Issued14,910 19,382 47,524 63,883 
Redeemed(17,861)(21,773)(61,574)(80,006)
Recognized as breakage income