What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-30 compared with 2020-03-26 · 510 added, 437 removed, 644 unchanged (60% of the section changed)

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Index for Notes to the Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of lululemon athletica inc.

and its subsidiaries (together, the Company) as of February 2, 2020 and February 3, 2019, and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for each of the 52 week period ended February 2, 2020, the 53 week period ended February 3, 2019, and the 52 week period ended January 28, 2018, including the related notes, and the financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the consolidated financial statements).

We also have audited the Company's internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 2, 2020 and February 3, 2019, and the results of its operations and its cash flows for the 52 week period ended February 2, 2020, the 53 week period ended February 3, 2019, and the 52 week period ended January 28, 2018 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

We have audited the consolidated balance sheets of lululemon athletica inc.

and its subsidiaries (together, the Company) as of January 31, 2021 and February 2, 2020, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the 52-week period ended January 31, 2021, the 52-week period ended February 2, 2020, and the 53-week period ended February 3, 2019, including the related notes, listed in the index appearing under item 15(a)(1) and the financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the consolidated financial statements).

We also have audited the Company's internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and February 2, 2020, and the results of its operations and its cash flows for the 52-week period ended January 31, 2021, the 52-week period ended February 2, 2020, and the 53-week period ended February 3, 2019 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) 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

(ii) provide reasonable assurance that transactions are recorded as

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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 (iii) 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.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated 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.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Inventory provision

As described in Note 2 and Note 3 to the consolidated financial statements, inventory is valued at the lower of cost and net realizable value, and management records a provision as necessary to appropriately value inventories that are obsolete, have quality issues, or are damaged.

As described in Notes 2 and 3 to the consolidated financial statements, inventory is valued at the lower of cost and net realizable value, and management records a provision as necessary to appropriately value inventories that are obsolete, have quality issues, or are damaged.

Provision expense is recorded in cost of goods sold.

As of February 2, 2020, the Company's consolidated net inventories balance was $518.5 million and the inventory provision was $22.1 million.

As of January 31, 2021, the Company’s consolidated net inventories balance was $647.2 million inclusive of the inventory provision of $31.0 million.

The amount of the inventory provision is equal to the difference between the cost of the inventory and its estimated net realizable value based on assumptions about product quality, damages, future demand, selling prices, and market conditions.

The principal considerations for our determination that performing procedures relating to the inventory provision is a critical audit matter are (i) management identified the matter as a critical accounting estimate;

and (ii) significant judgment was required by management in determining the estimated net realizable value of inventories that are obsolete, have quality issues, or are damaged, which in turn led to increased audit effort and a higher degree of subjectivity in evaluating audit evidence relating to the estimate.

and (ii) significant judgment was required by management in determining the estimated net realizable value of inventories that are obsolete, have quality issues, or are damaged, which in turn led to significant audit effort and a high degree of subjectivity in evaluating audit evidence relating to the estimate.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the review of the provision including the assumptions used.

These procedures also included, among others:

(i) observing the physical condition of inventories during inventory counts;

(ii) evaluating the appropriateness of management's process for developing the estimates of net realizable value (iii) testing the reliability of reports used by management by agreeing to underlying records;

(iv) testing the reasonableness of the assumptions about quality, damages, future demand, selling prices and market conditions by considering with historical trends and consistency with evidence obtained in other areas of the audit;

These procedures also included, among others, (i) observing the physical condition of inventories during inventory counts;

(ii) evaluating the appropriateness of management’s process for developing the estimates of net realizable value;

(iii) testing the reliability of reports used by management by agreeing to underlying records;

(iv) testing the reasonableness of the assumptions about quality, damages, future demand, selling prices and market conditions by considering historical trends and consistency with evidence obtained in other areas of the audit;

and corroborating the assumptions with individuals within the product team.

Acquisition of MIRROR – valuation of intangible assets

As described in Notes 1, 2 and 6 to the consolidated financial statements, the Company completed the acquisition of Curiouser Products Inc., dba MIRROR, ("MIRROR") for net consideration of $452.6 million in 2020 which resulted in $85.0 million of intangible assets being recorded.

The fair values of intangible assets were based upon valuation techniques including discounted cash flows, relief from royalty, and replacement cost methods.

Management applied judgment in estimating the fair values of intangible assets acquired, which involved the use of significant estimates and assumptions with respect to future revenue growth rates, royalty rates, and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the acquisition of MIRROR – is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurements of intangible assets acquired due to the judgment by management when estimating the fair values of the intangible assets;

(ii) significant audit effort in evaluating the significant assumptions relating to the intangible assets, such as the future revenue growth rates, royalty rates, and the discount rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the valuation of intangible assets, including controls over management’s development of the future revenue growth rates, royalty rates, and discount rate assumptions utilized in the valuation of the intangible assets.

These procedures also included, among others, (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair values of intangible assets.

Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of significant assumptions related to the future revenue growth rates, royalty rates and discount rate assumptions for the intangible assets.

Evaluating the reasonableness of the future revenue growth rates involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the royalty rates and discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

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We have served as the Company's auditor since 2006.

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lululemon athletica inc.

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(Amounts in thousands, except per share amounts)

January 31, 2021 February 2, 2020

Current assets

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Accounts receivable 62,399 40,219

Inventories 647,230 518,513

Prepaid and receivable income taxes 139,126 85,159

Other prepaid expenses and other current assets

Prepaid expenses and other current assets 125,107 70,542

2,124,379 1,807,938

Property and equipment, net 745,687 671,693

Right-of-use lease assets 734,835 689,664

Goodwill and intangible assets, net

Goodwill 386,877 24,182

Intangible assets, net 80,080 241

Deferred income tax assets 6,731 31,435

Other non-current assets 106,626 56,201

$ 4,185,215 $ 3,281,354

LIABILITIES AND STOCKHOLDERS' EQUITY

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Accrued inventory liabilities 14,956 6,344

Other accrued liabilities 211,911 112,641

Accrued compensation and related expenses 130,171 133,688

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Other current liabilities 23,598 12,402

883,178 620,418

Non-current lease liabilities 632,590 611,464

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Other non-current liabilities 8,976 5,596

1,626,649 1,329,136

Commitments and contingencies

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Accumulated other comprehensive loss ( 177,155 ) ( 224,581 )

2,558,566 1,952,218

$ 4,185,215 $ 3,281,354

See accompanying notes to the consolidated financial statements

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lululemon athletica inc.

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Fiscal Year Ended

2021 February 2,

2020 February 3,

Net revenue $ 4,401,879 $ 3,979,296 $ 3,288,319

Cost of goods sold 1,937,888 1,755,910 1,472,032

Gross profit 2,463,991 2,223,386 1,816,287

Selling, general and administrative expenses 1,609,003 1,334,247 1,110,379

Asset impairment and restructuring costs

Amortization of intangible assets 5,160 29 72

Acquisition-related expenses 29,842 — —

Income from operations 819,986 889,110 705,836

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Income tax expense 230,437 251,797 231,449

Net income $ 588,913 $ 645,596 $ 483,801

Other comprehensive income (loss), net of tax:

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See accompanying notes to the consolidated financial statements

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lululemon athletica inc.

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(Amounts in thousands)

Exchangeable Stock

Special Voting Stock

Additional Paid-in Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Balance at January 29, 2017

Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total

Shares Shares Par Value Shares Par Value

Balance as of January 28, 2018 9,781 9,781 $ — 125,650 $ 628 $ 284,253 $ 1,455,002 $ ( 142,923 ) $ 1,596,960

Net income 483,801 483,801

Foreign currency translation adjustment ( 73,885 ) ( 73,885 )

Common stock issued upon exchange of exchangeable shares ( 449 ) ( 449 ) — 449 2 ( 2 ) —

Stock-based compensation expense 28,568 28,568

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Repurchase of common stock ( 4,940 ) ( 25 ) ( 6,402 ) ( 591,913 ) ( 598,340 )

Balance at January 28, 2018

Balance as of February 3, 2019 9,332 9,332 $ — 121,600 $ 608 $ 315,285 $ 1,346,890 $ ( 216,808 ) $ 1,445,975

Net income 645,596 645,596

Foreign currency translation adjustment ( 7,773 ) ( 7,773 )

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Repurchase of common stock ( 1,056 ) ( 5 ) ( 1,545 ) ( 171,849 ) ( 173,399 )

Balance at February 3, 2019

Balance as of February 2, 2020 6,227 6,227 $ — 124,122 $ 621 $ 355,541 $ 1,820,637 $ ( 224,581 ) $ 1,952,218

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Exchangeable Stock Special Voting Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total

Shares Shares Par Value Shares Par Value

Net income 588,913 588,913

Foreign currency translation adjustment 47,426 47,426

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Repurchase of common stock ( 369 ) ( 2 ) ( 539 ) ( 63,122 ) ( 63,663 )

Balance at February 2, 2020

Balance as of January 31, 2021 5,203 5,203 $ — 125,150 $ 626 $ 388,667 $ 2,346,428 $ ( 177,155 ) $ 2,558,566

See accompanying notes to the consolidated financial statements

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lululemon athletica inc.

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Fiscal Year Ended

2021 February 2,

2020 February 3,

Cash flows from operating activities

Net income $ 588,913 $ 645,596 $ 483,801

Adjustments to reconcile net income to net cash provided by operating activities:

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Derecognition of unredeemed gift card liability ( 13,696 ) ( 11,939 ) ( 6,859 )

Asset impairment for ivivva restructuring

Settlement of derivatives not designated in a hedging relationship 4,485 ( 1,925 ) ( 14,876 )

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Changes in operating assets and liabilities:

Inventories ( 96,548 ) ( 117,591 ) ( 85,942 )

Prepaid and receivable income taxes ( 53,966 ) ( 35,775 ) ( 437 )

Other prepaid expenses and other current and non-current assets

Prepaid expenses and other current assets ( 70,999 ) ( 53,754 ) ( 28,546 )

Other non-current assets ( 49,056 ) ( 27,852 ) ( 2,107 )

Accounts payable 82,663 ( 14,810 ) 71,962

Accrued inventory liabilities 8,046 ( 9,598 ) 4,312

Other accrued liabilities 91,115 14,276 9,416

Accrued compensation and related expenses ( 6,692 ) 25,326 41,600

Current income taxes payable

Current and non-current income taxes payable ( 24,125 ) ( 34,137 ) 46,428

Unredeemed gift card liability 47,962 33,289 24,885

Non-current income taxes payable

Right-of-use lease assets and current and non-current lease liabilities 13,267 17,422 —

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Settlement of net investment hedges ( 14,607 ) 347 ( 16,216 )

Acquisition, net of cash acquired ( 452,581 ) — —

Other investing activities 882 4,293 ( 771 )

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See accompanying notes to the consolidated financial statements

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lululemon athletica inc.

INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations and Basis of Presentation

Summary of Significant Accounting Policies

Property and Equipment

Other Non-Current Assets

Other Current Liabilities

Other Non-Current Liabilities

Long-Term Debt and Credit Facilities

Stockholders' Equity

Stock-Based Compensation and Benefit Plans

Fair Value Measurement

Derivative Financial Instruments

Asset Impairment and Restructuring

Earnings Per Share

Commitments and Contingencies

Supplemental Cash Flow Information

Segmented Information and Disaggregated Net Revenue

Quarterly Financial Information (Unaudited)

Subsequent Events

Note 1 Nature of Operations and Basis of Presentation

Note 2 Summary of Significant Accounting Policies

Note 3 Inventories

Note 4 Prepaid Expenses and Other Current Assets

Note 5 Property and Equipment

Note 6 Acquisition

Note 7 Goodwill

Note 8 Intangible Assets

Note 9 Other Non-Current Assets

Note 10 Other Accrued Liabilities

Note 11 Revolving Credit Facilities

Note 12 Stockholders' Equity

Note 13 Stock-Based Compensation and Benefit Plans

Note 14 Fair Value Measurement

Note 15 Derivative Financial Instruments

Note 16 Leases

Note 17 Income Taxes

Note 18 Earnings Per Share

Note 19 Commitments and Contingencies

Note 20 Supplemental Cash Flow Information

Note 21 Segmented Information

Note 22 Net Revenue by Category and Geography

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lululemon athletica inc.

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Nature of operations

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales.

The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, Japan, New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland.

There were 491 , 440 , and 404 company-operated stores in operation as of February 2, 2020 , February 3, 2019 , and January 28, 2018 , respectively.

During fiscal 2017, the Company restructured its ivivva operations.

Please refer to Note 14 for further details regarding the ivivva restructuring.

Please refer to Note 21 for further details on the impact of the COVID-19 coronavirus on the Company's operations subsequent to February 2, 2020.

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales.

The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, Germany, New Zealand, South Korea, Japan, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland.

There were 521 , 491 , and 440 company-operated stores in operation as of January 31, 2021, February 2, 2020, and February 3, 2019, respectively.

On July 7, 2020, the Company acquired Curiouser Products Inc., dba MIRROR, ("MIRROR") which has been consolidated from the date of acquisition.

MIRROR generates net revenue from the sale of in-home fitness equipment and associated content subscriptions.

Please refer to Note 6.

Acquisition for further information.

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global pandemic by the World Health Organization in March 2020 and it has caused governments and public health officials to impose restrictions and to recommend precautions to mitigate the spread of the virus.

In February 2020, the Company temporarily closed all of its retail locations in Mainland China, and in March 2020, the Company temporarily closed all of its retail locations in North America, Europe, and certain countries in Asia Pacific.

The stores in Mainland China reopened during the first quarter of fiscal 2020, and stores in other markets began reopening in accordance with local government and public health authority guidelines during the second quarter of fiscal 2020.

Almost all of the Company's retail locations were open during the third quarter of fiscal 2020, and while most retail locations have remained open, certain locations have temporarily closed based on government and health authority guidance in those markets.

The Company's distribution centers and most of its open retail locations are operating with restrictive and precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and limited occupancy levels.

In response to the COVID-19 pandemic, various government programs have been announced which provide financial relief for affected businesses.

The most significant relief measures which the Company qualified for are the Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in the United States, and the Canada Emergency Wage Subsidy ("CEWS") under the COVID-19 Economic Response Plan in Canada.

During fiscal 2020 the Company recognized payroll subsidies totaling $ 37.1 million under these wage subsidy programs and similar plans in other jurisdictions.

These subsidies were recorded as a reduction in the associated wage costs which the Company incurred, and were recognized in selling, general and administrative expenses.

The Financial Accounting Standards Board ("FASB") issued guidance in April 2020 in relation to accounting for lease concessions made in connection with the effects of COVID-19.

In accordance with this guidance, the Company has elected to treat COVID-19-related lease concessions as variable lease payments.

The Company is actively negotiating commercially reasonable lease concessions.

Lease concessions of $ 9.1 million were recognized during fiscal 2020.

Temporary closures as a result of COVID-19 and associated reduction in operating income during the first two quarters of fiscal 2020 were considered to be an indicator of impairment and the Company performed an assessment of recoverability for the long-lived assets and right-of-use assets associated with closed retail locations.

In the first quarter of fiscal 2020, the Company recognized an insignificant impairment charge as a result of this analysis.

Revenue is presented net of an allowance for expected returns.

The increase in the sales return allowance reflects the higher proportion of direct to consumer net revenue, and the longer period of time taken for returns to be made as a result of restricted capacity at retail locations.

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The COVID-19 pandemic has materially impacted the Company's operations.

The extent to which COVID-19 continues to impact the Company's operations, and in turn, its operating results and financial position will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact.

Continued proliferation of the virus, or resurgence, may result in further or prolonged closures of the Company's retail locations and distribution centers, reduce operating hours, interrupt the Company's supply chain, cause changes in guest behavior, and reduce discretionary spending.

Such factors could result in the impairment of long-lived assets and right-of-use assets and the need for an increased provision against the carrying value of the Company's inventories.

Basis of presentation

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Fiscal 2018 was a 53-week year.

Fiscal 2019 , 2018 , and 2017 ended on February 2, 2020 , February 3, 2019 , and January 28, 2018 , respectively.

Fiscal 2020, 2019, and 2018 ended on January 31, 2021, February 2, 2020, and February 3, 2019, respectively, and are referred to as "2020," "2019," and "2018," respectively.

The Company's business is affected by the pattern of seasonality common to most retail apparel businesses.

Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.

Certain comparative figures have been reclassified to conform to the financial presentation adopted for the current year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Accounts receivable

Accounts receivable primarily arise out of inventory duty receivables, sales to wholesale accounts, and license and supply arrangements.

Accounts receivable primarily arise out of duty receivables, sales to wholesale accounts, and license and supply arrangements.

The allowance for doubtful accounts represents management's best estimate of probable credit losses in accounts receivable.

Receivables are written off against the allowance when management believes that the amount receivable will not be recovered.

As of February 2, 2020 , February 3, 2019 , and January 28, 2018 , the Company recorded an insignificant allowance for doubtful accounts.

As of January 31, 2021, February 2, 2020, and February 3, 2019, the Company recorded an insignificant allowance for doubtful accounts.

Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and net realizable value.

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The Company performs physical inventory counts and cycle counts throughout the year and adjusts the shrink reserve accordingly.

Business combinations

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The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred including the acquisition-date fair value of the Company's previously held equity interests.

The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed, with any excess recorded as goodwill.

These fair value determinations require judgment and may involve the use of significant estimates and assumptions.

The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed.

Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined.

Transaction costs associated with the acquisition are expensed as incurred.

Goodwill represents the excess of the aggregate of the consideration transferred, the fair value of any non-controlling interest in the acquiree, and the acquisition-date fair value of the Company's previously held equity interest over the net assets acquired and liabilities assumed.

Goodwill is allocated to the reporting unit which is expected to receive the benefit from the synergies of the combination.

Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired.

Generally, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If factors indicate that this is the case, the Company then estimates the fair value of the related reporting unit.

If the fair value is less than the carrying value, the goodwill of the reporting unit is determined to be impaired and the Company will record an impairment equal to the excess of the carrying value over its fair value.

Intangible assets

Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired.

The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision.

If the Company revises the useful life, the unamortized balance is amortized over the remaining useful life on a prospective basis.

Property and equipment

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Equipment and vehicles 30 %

Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired.

The Company's operating segment for goodwill is its company-operated stores.

Cloud Computing Arrangements

Costs incurred to implement cloud computing service arrangements are initially deferred, and recognized as other non-current assets.

Implementation costs are subsequently amortized over the expected term of the related cloud service.

The carrying value of cloud computing implementation costs are tested for impairment when an event or circumstance indicates that the asset might be impaired.

Changes in cloud computing arrangement implementation costs are classified within operating activities in the consolidated statements of cash flows.

Impairment of long-lived assets

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Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined.

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Leased property and equipment

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Revenue recognition

Net revenue is comprised of company-operated store net revenue, direct to consumer net revenue through websites and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the Company's distribution centers, and other net revenue, which includes revenue from outlets, temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue, which consists of royalties as well as sales of the Company's products to licensees.

All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities.

Net revenue is comprised of company-operated store net revenue, direct to consumer net revenue through websites and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the Company's distribution centers, and other net revenue, which includes revenue from MIRROR, outlets, temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue, which consists of royalties as well as sales of the Company's products to licensees.

All revenue is reported net of markdowns, discounts, sales taxes collected from customers on behalf of taxing authorities, and returns.

MIRROR generates net revenue from the sale of in-home fitness equipment and associated content subscriptions.

Certain in-home fitness contracts contain multiple performance obligations, including hardware and a subscription service commitment.

For customer contracts that contain multiple performance obligations the Company accounts for individual performance obligations if they are distinct.

The transaction price, net of discounts, is allocated to each performance obligation based on its standalone selling price.

Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company's customers.

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Revenue from company-operated stores and other retail locations is recognized at the point of sale.

Direct to consumer revenue and sales to wholesale accounts are recognized upon receipt by the customer.

Direct to consumer revenue, sales to wholesale accounts and in-home fitness hardware sales are recognized

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upon receipt by the customer.

In certain arrangements the Company receives payment before the customer receives the promised good.

These payments are initially recorded as deferred revenue, and recognized as revenue in the period when control is transferred to the customer.

Revenue is presented net of an allowance for estimated returns, which is based on historic experience.

Revenue is presented net of an allowance for estimated returns.

The Company's liability for sales return refunds is recognized within other current liabilities, and an asset for the value of inventory which is expected to be returned is recognized within other prepaid expenses and other current assets on the consolidated balance sheets.

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Proceeds from the sale of gift cards are initially deferred and recognized within unredeemed gift card liability on the consolidated balance sheets, and are recognized as revenue when tendered for payment.

Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies, an estimate of the gift card balances that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed.

While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity.

In these circumstances, to the extent management determines there is no requirement for remitting card balances to government agencies under unclaimed property laws, the portion of card balances not expected to be redeemed are recognized in net

revenue in proportion to the gift cards which have been redeemed, under the redemption recognition method.

For the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , net revenue recognized on unredeemed gift card balances was $ 11.9 million , $ 6.9 million , and $ 6.2 million , respectively.

See Note 19 for disaggregated net revenue by channel, geographic area, and product category.

While the Company will continue to honor all gift cards presented for payment, to the extent management determines there is no requirement to remit unused card balances to government agencies under unclaimed property laws, the portion of card balances not expected to be redeemed are recognized in net revenue in proportion to the gift cards which have been redeemed, under the redemption recognition method.

For 2020, 2019, and 2018, net revenue recognized on unredeemed gift card balances was $ 13.7 million, $ 11.9 million, and $ 6.9 million, respectively.

Cost of goods sold

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• occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities, and depreciation expense for the Company's company-operated store locations;

• hemming costs;

• shrink and inventory provision expense;

• the cost of digital content subscription services, including the costs of content creation, studio overhead, and related production departments.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold or asset impairment and restructuring costs.

The Company's selling, general and administrative expenses include the costs of corporate and retail employee wages and benefits, costs to transport the Company's products from the distribution facilities to the Company's sales locations and e-commerce guests, professional fees, marketing, information technology, human resources, accounting, legal, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.

For the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , the Company incurred outbound transportation costs of $ 106.7 million , $ 79.5 million , and $ 53.8 million , respectively.

Asset impairment and restructuring costs

Asset impairment and restructuring costs consist of the lease termination, impairment of property and equipment, employee related costs, and other restructuring costs recognized in connection with the restructuring of the Company's ivivva operations.

Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold, intangible asset amortization, or acquisition-related expenses.

The Company's selling, general and administrative expenses include the costs of corporate and retail employee wages and benefits, costs to transport the Company's products from the distribution facilities to the Company's retail locations and e-commerce guests, professional fees, marketing, information technology, human resources, accounting, legal, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.

For 2020, 2019, and 2018, the Company incurred costs to transport its products from its distribution facilities to its retail locations and e-commerce guests of $ 232.4 million, $ 106.7 million, and $ 79.5 million, respectively.

Store pre-opening costs

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Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and liabilities, and for tax losses, tax credit carryforwards, and other tax attributes.

Deferred income tax assets and liabilities are measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences are anticipated to reverse.

Deferred income tax assets and liabilities are

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measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences are anticipated to reverse.

The Company has not recognized U.S.

state income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested.

income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested.

Deferred income tax assets are reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The evaluation as to the likelihood of realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of deferred tax liabilities, taxable income forecasts, and tax-planning strategies.

The recognition of a deferred income tax asset is based upon several

assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-operating loss carryforwards, and regulatory reviews of tax filings.

The recognition of a deferred income tax asset is based upon several assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-operating loss carryforwards, and regulatory reviews of tax filings.

The Company evaluates its tax filing positions and recognizes the largest amount of tax benefit that is considered more likely than not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position.

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income tax law.

The United States Securities Exchange Commission ("SEC") issued Staff Accounting Bulletin 118 ("SAB 118") which allowed companies to record provisional estimates of the impacts of U.S.

tax reform within a one year measurement period.

The Company recorded certain provisional amounts in fiscal 2017 and completed the accounting for the income tax effects of U.S.

tax reform during fiscal 2018.

The Company completed the accounting for the income tax effects of U.S.

tax reform during 2018.

tax reform changes and their impact to the Company are outlined in Note 17.

Income Taxes.

The Company treats the global intangible low-taxed income ("GILTI") tax as an in period tax.

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The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.

The Company records accounts receivable, accounts payable, and accrued liabilities at cost.

The Company records cash, accounts receivable, accounts payable, and accrued liabilities at cost.

The carrying values of these instruments approximate their fair value due to their short-term maturities.

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The Company holds certain assets and liabilities that are required to be measured at fair value on a recurring basis, which are outlined in Note 14.

Fair Value Measurement.

Foreign currency

7 unchanged sentences

The Company uses derivative financial instruments to manage its exposure to certain foreign currency exchange rate risks.

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Net investment hedges .

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The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows.

The Company presents its derivative assets and derivative liabilities at their gross fair values within other prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets.

The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets.

However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions.

The Company does not enter into derivative contracts for speculative or trading purposes.

Additional information on the Company's derivative financial instruments is included in Notes 11 and 12 .

Additional information on the Company's derivative financial instruments is included in Note 14.

Fair Value Measurement and Note 15.

Derivative Financial Instruments.

Concentration of credit risk

Accounts receivable are primarily from inventory duty receivables, wholesale accounts, and from license and supply arrangements.

The Company does not require collateral to support the accounts receivable;

however, in certain circumstances, the Company may require parties to provide payment for goods prior to delivery of the goods.

The Company generally does not require collateral to support the accounts receivable;

however, in certain circumstances, the Company may require parties to provide payment for goods prior to delivery of the goods or to provide letters of credit.

The accounts receivable are net of an allowance for doubtful accounts, which is established based on management's assessment of the credit risk of the underlying accounts.

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The Company seeks to minimize its credit risk by entering into transactions with credit worthy and reputable financial institutions and by monitoring the credit standing of the financial institutions with whom it transacts.

It seeks to limit the amount exposure with any one counterparty.

It seeks to limit the amount of exposure with any one counterparty.

The Company's derivative contracts contain certain credit risk-related contingent features.

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The grant date fair value of each stock option granted is estimated on the award date using the Black-Scholes model, and the grant date fair value of restricted shares, performance-based restricted stock units, and restricted stock units is based on the closing price of the Company's common stock on the award date.

Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to fair value at the end of each reporting period until settlement.

Restricted stock units that are settled in cash or common stock at the election of the employee are remeasured to fair value at the end of each reporting period until

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This fair value is based on the closing price of the Company's common stock on the last business day before each period end.

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Recently adopted accounting pronouncements

The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs").

ASUs adopted during 2020 were assessed, and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASC 842, Leases ("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

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There was no cumulative earnings effect adjustment on transition.

In August 2017, the FASB amended ASC 815, Derivatives and Hedging, to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.

It makes more financial and non-financial hedging strategies eligible for hedge accounting.

It also amends the presentation and disclosure requirements and changes how companies assess effectiveness.

The Company adopted this guidance in the first quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB clarified ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software , for certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.

Under the update, an entity expenses costs incurred in the preliminary-project and post-implementation-operation stages.

An entity also capitalizes certain costs incurred during the application-development stage, as well as certain costs related to enhancements.

The ASU does not change the accounting for the service component of a cloud computing arrangement.

This standard is effective beginning in the first quarter of 2020, with early adoption permitted.

The Company adopted this guidance in the first quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606") which supersedes the revenue recognition requirements in ASC 605 Revenue Recognition.

This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that

reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company adopted ASC 606 on January 29, 2018 on a modified retrospective basis.

There were no changes to the consolidated statement of operations as a result of the adoption, and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance.

February 2, 2020

February 3, 2019

Recently issued accounting pronouncements

ASUs recently issued not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.

In December 2019, the FASB issued guidance on ASC 740, Income Taxes.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740.

The amendments also improve consistent application and simplify GAAP for other areas of this topic by clarifying and amending existing guidance.

This Company is evaluating the impact of this update.

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January 31, 2021 February 2, 2020

(In thousands)

Finished goods

Inventories, at cost $ 678,200 $ 540,580

Provision to reduce inventories to net realizable value ( 30,970 ) ( 22,067 )

The Company had net write-offs of $ 28.6 million , $ 25.3 million , and $ 16.4 million of inventory in fiscal 2019 , fiscal 2018 , and fiscal 2017 , respectively for goods that were obsolete, had quality issues, or were damaged.

Inventories $ 647,230 $ 518,513

The Company had net write-offs of $ 20.5 million, $ 28.6 million, and $ 25.3 million of inventory in 2020, 2019, and 2018, respectively for goods that were obsolete, had quality issues, or were damaged.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

January 31, 2021 February 2, 2020

(In thousands)

Prepaid expenses $ 82,164 $ 64,568

Forward currency contract assets 17,364 1,735

Government payroll subsidy receivables 13,309 —

Other current assets 12,270 4,239

Prepaid expenses and other current assets $ 125,107 $ 70,542

PROPERTY AND EQUIPMENT

February 2, 2020

February 3, 2019

January 31, 2021 February 2, 2020

(In thousands)

Land $ 74,261 $ 71,829

Buildings 30,870 30,187

Leasehold improvements 583,305 489,202

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Property and equipment, net $ 745,687 $ 671,693

Included in the cost of computer software are capitalized costs of $ 20.7 million and $ 13.2 million as of February 2, 2020 and February 3, 2019 , respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $ 161.8 million , $ 122.4 million , and $ 108.0 million for the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , respectively.

See Note 14 for information on the impairment of long-lived assets the Company recognized as part of the restructuring of its ivivva operations.

Included in the cost of computer software are capitalized costs of $ 23.5 million and $ 20.7 million as of January 31, 2021 and February 2, 2020, respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $ 180.1 million, $ 161.8 million, and $ 122.4 million for 2020, 2019, and 2018, respectively.

On July 7, 2020, the Company acquired all of the outstanding shares of MIRROR, an in-home fitness company with an interactive workout platform that features live and on-demand classes.

The results of operations, financial position, and cash flows of MIRROR have been included in the Company's consolidated financial statements since the date of acquisition.

The following table summarizes the fair value of the consideration transferred at the date of acquisition, as well as the calculation of goodwill based on the excess of consideration over the provisional fair value of net assets acquired.

As part of the transaction, the Company assumed $ 30.1 million of MIRROR's outstanding debt.

This included $ 15.1 million of external debt that was settled as part of the transaction and $ 15.0 million of debt previously owed by MIRROR to the Company, which

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represents the effective settlement of a preexisting relationship.

The debt was determined to be at market terms and was recognized as a component of the consideration transferred, and no gain or loss was recorded on settlement.

(in thousands)

Fair value of consideration transferred:

Cash paid to shareholders $ 428,261

Employee options attributed to pre-combination vesting

Acquired debt settled on acquisition 30,122

Fair value of existing lululemon investment 1,782

Less cash and cash equivalents acquired ( 12,153 )

Fair value of consideration transferred, net of cash and cash equivalents acquired $ 452,581

Less net assets acquired:

Assets acquired:

Inventories $ 16,734

Prepaid expenses and other current assets 3,492

Intangible assets 85,000

Other non-current assets 5,648

February 2, 2020

February 3, 2019

Liabilities assumed:

Current liabilities $ ( 13,465 )

Current and non-current lease liabilities ( 3,246 )

Net deferred income tax liability ( 4,074 )

Net assets acquired $ 90,089

Goodwill $ 362,492

Goodwill relates to benefits expected as a result of the acquisition to MIRROR's business and has been allocated to the MIRROR reporting unit which is included within Other in the Company's segment disclosures.

None of the goodwill is expected to be deductible for income tax purposes.

The Company assigned a fair value to and estimated useful lives for the intangible assets acquired as part of the MIRROR business combination.

The fair value of the separately identifiable intangible assets, and their estimated useful lives as of the acquisition date were as follows:

Estimated Fair Value Estimated Useful Life

(In thousands)

Intangible assets:

Brand $ 26,500 20.0 years

Customer relationships 28,000 10.0 years

Technology 25,500 7.5 years

Content 5,000 5.0 years

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Accounting for business combinations requires estimates and assumptions to derive the fair value of acquired assets and liabilities, and in the case of MIRROR, this is with specific reference to acquired intangible assets.

The fair value of intangible assets was based upon widely-accepted valuation techniques, including discounted cash flows and relief from royalty and replacement cost methods, depending on the nature of the assets acquired or liabilities assumed.

Inherent in each valuation technique are critical assumptions, including future revenue growth rates, royalty rates, and the discount rate.

The recognition of deferred tax assets in relation to the historic net operating losses of MIRROR relied on assumptions and estimates of the future profitability of the Company's U.S.

The Company has not disclosed pro forma information of the combined business as the transaction is not material to revenue or net earnings.

Acquisition-related expenses

In connection with the acquisition, the Company recognized certain acquisition-related expenses which are expensed as incurred.

These expenses are recognized within acquisition-related expenses in the consolidated statements of operations include the following amounts:

• transaction and integration costs, including fees for advisory and professional services incurred as part of the acquisition and integration costs subsequent to the acquisition;

• acquisition-related compensation, including the partial acceleration of vesting of certain stock options, and amounts due to selling shareholders that are contingent upon continuing employment;

• gain recognized on the Company's existing investment in the acquiree as of the acquisition date.

The following table summarizes the acquisition-related expenses recognized during 2020:

(in thousands)

Acquisition-related expenses:

Transaction and integration costs $ 10,548

Gain on existing investment ( 782 )

Acquisition-related compensation 20,076

Income tax effects of acquisition-related expenses $ ( 3,133 )

In 2020, the Company recognized $ 17.2 million related to deferred consideration, and recognized an expense of $ 2.9 million for the partial acceleration of vesting of certain stock options held by MIRROR employees.

The Company will recognize a total expense of $ 57.1 million for deferred consideration which is due to certain continuing MIRROR employees, subject to the continued employment of those individuals through various vesting dates up to three years from the acquisition date.

This acquisition-related compensation is expensed over the vesting periods as service is provided, and consists of cash payments, which are included within accrued compensation and related expenses until payments are made, and stock-based compensation awards that have been granted under the Company's 2014 Equity Incentive Plan to replace certain unvested options as of the acquisition date.

The changes in the carrying amounts of goodwill were as follows:

(In thousands)

Balance as of February 2, 2020 $ 24,182

MIRROR acquisition 362,492

Effect of foreign currency translation 203

Balance as of January 31, 2021 $ 386,877

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Of the Company's goodwill, $ 362.5 million relates to the MIRROR reporting unit that is included within Other in the Company's segment disclosures.

The remaining $ 24.4 million relates to the company-operated stores segment.

INTANGIBLE ASSETS

The carrying value of intangible assets, and their estimated remaining useful lives as of January 31, 2021 were as follows:

January 31, 2021 February 02, 2020 Remaining Useful Life

(In thousands)

Intangible assets, net:

Brand $ 25,727 $ — 19.4 years

Customer relationships 26,308 — 9.4 years

Technology 23,478 — 6.9 years

Content 4,417 — 4.4 years

Other 150 241 1.7 years

$ 80,080 $ 241

OTHER NON-CURRENT ASSETS

January 31, 2021 February 02, 2020

(In thousands)

Cloud computing arrangement implementation costs $ 74,631 $ 24,648

Security deposits 23,154 19,901

Deferred lease assets

Other 8,841 11,652

Other non-current assets $ 106,626 $ 56,201

OTHER CURRENT LIABILITIES

February 2, 2020

February 3, 2019

OTHER ACCRUED LIABILITIES

January 31, 2021 February 02, 2020

(In thousands)

Accrued duty, freight, and other operating expenses

Accrued freight and other operating expenses $ 97,335 $ 43,225

Accrued duty 17,404 16,178

Sales tax collected 15,246 17,370

Deferred revenue

Sales return allowances 32,560 12,897

Accrued rent 8,559 8,356

Accrued capital expenditures 8,653 5,457

Forward currency contract liabilities 18,766 1,920

Lease termination liabilities

Other current liabilities

OTHER NON-CURRENT LIABILITIES

February 2, 2020

February 3, 2019

(In thousands)

Tenant inducements

Deferred lease liabilities

Other non-current liabilities

LONG-TERM DEBT AND CREDIT FACILITIES

Other 13,388 7,238

Other accrued liabilities $ 211,911 $ 112,641

REVOLVING CREDIT FACILITIES

North America revolving credit facility

On December 15, 2016, the Company entered into a $ 150.0 million committed and unsecured revolving credit facility.

Any amounts outstanding under the revolving credit facility will be due and payable in full on December 15, 2021, subject to provisions that permit the Company to request a limited number of one year extensions annually.

Up to $ 35.0 million of the revolving credit facility is available for the issuance of letters of credit and up to $ 25.0 million is available for swing line loans.

Commitments under the revolving credit facility may be increased by up to $ 200.0 million , subject to certain conditions, including the approval of the lenders.

Borrowings under the revolving credit facility may be made in U.S.

Dollars, Euros, Canadian Dollars, and in other currencies, subject to the approval of the administrative agent and the lenders.

Borrowings under the agreement may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).

Borrowings made under the revolving credit facility bear interest at a variable rate per annum equal to, at the Company's option, either (a) LIBOR or (b) an alternate base rate, plus, in each case, an applicable margin.

The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.00 % - 1.75 % for LIBOR loans and 0.00 % - 0.75 % for alternate base rate loans.

Additionally, a commitment fee of between 0.125 % - 0.200 % , also determined by reference to the pricing grid, is payable on the average daily unused amounts under the revolving credit facility.

During 2016, the Company obtained a $ 150.0 million committed and unsecured five-year revolving credit facility with major financial institutions.

During 2018, the Company amended the credit agreement to provide for:

an increase in the aggregate commitments under the revolving credit facility to $ 400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $ 50.0 million for each;

an increase in the option, subject to certain conditions, to request increases in commitments from $ 400.0 million to $ 600.0 million;

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an extension in the maturity of the facility from December 15, 2021 to June 6, 2023.

Borrowings under the facility may be made in U.S.

Dollars, Euros, Canadian Dollars, and in other currencies, subject to the lenders' approval.

As of January 31, 2021, aside from letters of credit of $ 2.4 million, there were no other borrowings outstanding under this facility.

Borrowings under the facility bear interest at a rate equal to, at the Company's option, either (a) based on the rates applicable for deposits on the interbank market for U.S.

Dollars or the applicable currency in which the borrowings are made ("LIBOR") or (b) an alternate base rate, plus, an applicable margin determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.00 %- 1.50 % for LIBOR loans and 0.00 %- 0.50 % for alternate base rate loans.

Additionally, a commitment fee of between 0.10 %- 0.20 % is payable on the average unused amounts under the revolving credit facility, and fees of 1.00 %- 1.50 % are payable on unused letters of credit.

The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.

The Company is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50 :1.00 and it is not permitted to allow the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) to be less than 2.00 :1.00.

The Company is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.5 :1 and to maintain the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) below 2 :1.

The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control).

As of February 2, 2020 , the Company was in compliance with all applicable covenants.

On June 6, 2018, the Company entered into Amendment No.

1 to the credit agreement.

The Amendment amends the credit agreement to provide for (i) an increase in the aggregate commitments under the unsecured five -year revolving credit facility to $ 400.0 million , with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $ 50.0 million for each, (ii) an increase in the option, subject to certain conditions as set forth in the credit agreement, to request increases in commitments under the revolving facility from $ 400.0 million to $ 600.0 million and (iii) an extension in the maturity of the revolving facility from December 15, 2021 to June 6, 2023.

In addition, the Amendment decreases the applicable margins for LIBOR loans from 1.00 % - 1.75 % to 1.00 % - 1.50 % and for alternate base rate loans from 0.00 % - 0.75 % to 0.00 % - 0.50 % , reduces the commitment fee on average daily unused amounts under the revolving facility from 0.125 % - 0.200 % to 0.10 % - 0.20 % , and reduces fees for unused letters of credit from 1.00 % - 1.75 % to 1.00 % - 1.50 % .

As of February 2, 2020 , aside from letters of credit of $ 1.8 million , there were no other borrowings outstanding under this credit facility.

As of January 31, 2021, the Company was in compliance with the covenants of the credit facility.

Mainland China revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility.

The terms are reviewed on an annual basis.

The facility includes a revolving loan of up to 100.0 million Chinese Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency.

Loans are available in Chinese Yuan for a period not to exceed 12 months , and interest accrues on them at a rate equal to 105 % of the applicable PBOC Benchmark Lending Rate.

Guarantees have a commission equal to 1 % per annum of the outstanding amount.

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility with terms that are reviewed on an annual basis.

The credit facility was increased to 230.0 million Chinese Yuan during 2020.

It comprises of a revolving loan of up to 200.0 million Chinese Yuan and a financial guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency.

Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175 %.

The Company is required to follow certain covenants.

As of February 2, 2020 , there were no borrowings outstanding under this credit facility.

As of January 31, 2021, the Company was in compliance with the covenant and there were no borrowings or guarantees outstanding under this credit facility.

364-Day revolving credit facility

In June 2020, the Company obtained a 364-day $ 300.0 million committed and unsecured revolving credit facility.

In December 2020, the Company elected to terminate this credit facility.

STOCKHOLDERS' EQUITY

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The Company has the right to convert the exchangeable shares into common shares of the Company at any time after the earliest of July 26, 2047, the date on which fewer than 4.2 million exchangeable shares are outstanding, or in the event of certain events such as a change in control.

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STOCK-BASED COMPENSATION AND BENEFIT PLANS

Stock-based compensation plans

The Company's eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.

The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company.

In June 2014, the Company's stockholders approved the adoption of the lululemon athletica inc.

5 unchanged sentences

Stock options granted to date generally have a four-year vesting period and vest at a rate of 25 % each year on the anniversary date of the grant.

Stock options generally expire on the earlier of seven years from the date of grant, or a specified period of time following termination, in accordance with the 2014 Plan and the related grant agreement.

Performance-based restricted stock units issued generally vest three years from the grant date and restricted shares generally vest one year from the

Stock options generally expire on the earlier of seven years from the date of grant, or a specified period of time following termination.

Performance-based restricted stock units issued generally vest three years from the grant date and restricted shares generally vest one year from the grant date.

Restricted stock units granted generally have a three-year vesting period and vest at a certain percentage each year on the anniversary date of the grant.

The Company issues previously unissued shares upon the exercise of Company options, vesting of performance-based restricted stock units or restricted stock units that are settled in common stock, and granting of restricted shares.

Stock-based compensation expense charged to income for the plans was $ 46.1 million , $ 29.6 million , and $ 17.6 million for the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 63.4 million as of February 2, 2020 , which is expected to be recognized over a weighted-average period of 2.0 years , and was $ 55.6 million as of February 3, 2019 over a weighted-average period of 2.1 years .

A summary of the balances of the Company's stock-based compensation plans as of February 2, 2020 , February 3, 2019 , and January 28, 2018 , and changes during the fiscal years then ended is presented below:

Stock Options

Performance-Based Restricted Stock Units

Restricted Shares

Restricted Stock Units

Stock-based compensation expense charged to income for the plans was $ 56.6 million, $ 46.1 million, and $ 29.6 million for 2020, 2019, and 2018, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 75.7 million as of January 31, 2021, which is expected to be recognized over a weighted-average period of 1.9 years, and was $ 63.4 million as of February 2, 2020 over a weighted-average period of 2.0 years.

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A summary of the balances of the Company's stock-based compensation plans as of January 31, 2021, February 2, 2020, and February 3, 2019, and changes during the fiscal years then ended is presented below:

Stock Options Performance-Based Restricted Stock Units Restricted Shares Restricted Stock Units Restricted Stock Units

(Liability Accounting)

Weighted-Average Exercise Price

Weighted-Average Grant Date Fair Value

Weighted-Average Fair Value

Number Weighted-Average Exercise Price Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value Number Weighted-Average Fair Value

(In thousands, except per share amounts)

Balance at January 29, 2017

Balance as of January 28, 2018 1,117 $ 56.44 329 $ 60.42 21 $ 52.45 427 $ 57.54 — $ —

Granted 388 96.96 123 102.49 6 124.19 257 88.75 44 136.67

Exercised/vested 316 56.29 39 63.04 21 52.45 174 58.94 — —

Forfeited/expired 319 59.76 133 61.71 — — 70 66.90 — —

Balance at January 28, 2018

Balance as of February 3, 2019 870 $ 73.34 280 $ 78.01 6 $ 124.19 440 $ 73.73 44 $ 146.12

Granted 325 168.14 93 142.33 7 175.82 124 170.15 — —

Exercised/vested 299 60.75 97 72.04 6 124.19 186 70.69 15 179.67

Forfeited/expired 120 102.37 38 91.03 — — 45 95.46 — —

Balance at February 3, 2019

Balance as of February 2, 2020 776 $ 113.41 238 $ 103.52 7 $ 175.82 333 $ 108.44 29 $ 239.39

Granted 241 182.78 140 122.21 4 299.09 130 208.35 — —

Exercised/vested 182 83.89 171 63.03 7 175.82 175 87.31 14 366.42

Forfeited/expired 31 155.33 8 155.08 — — 13 162.60 — —

Balance at February 2, 2020

Balance as of January 31, 2021 804 $ 139.27 199 $ 149.20 4 $ 299.09 275 $ 166.50 15 $ 328.68

A total of 12.9 million shares of the Company's common stock have been authorized for future issuance under the Company's 2014 Equity Incentive Plan.

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Treasury yield curve for the period corresponding with the expected term of the options.

The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted in fiscal 2019 , 2018 , and 2017 :

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

Expected term

The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted in 2020, 2019, and 2018:

2020 2019 2018

Expected term 3.61 years 3.75 years 3.75 years

Expected volatility 40.01 % 38.43 % 36.87 %

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Dividend yield — % — % — %

The following table summarizes information about stock options outstanding and exercisable as of February 2, 2020 :

Range of Exercise Prices

Number of Options

Weighted-Average Exercise Price

Weighted-Average Remaining Life (Years)

Number of Options

Weighted-Average Exercise Price

Weighted-Average Remaining Life (Years)

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The following table summarizes information about stock options outstanding and exercisable as of January 31, 2021:

Outstanding Exercisable

Range of Exercise Prices Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Life (Years) Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Life (Years)

(In thousands, except per share amounts and years)

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$ 136.67 -$ 155.97

73 137.22 4.6 36 137.09 4.6

$ 167.54 -$ 167.54

230 167.54 5.2 40 167.54 5.2

$ 174.52 -$ 356.93

226 194.03 6.1 2 182.81 5.4

804 $ 139.27 4.9 165 $ 109.79 4.1

Intrinsic value $ 152,342 $ 36,081

As of February 2, 2020 , the unrecognized compensation cost related to these options was $ 17.1 million , which is expected to be recognized over a weighted-average period of 2.8 years .

The weighted-average grant date fair value of options granted during the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 was $ 54.09 , $ 30.30 , and $ 16.88 , respectively.

The following table summarizes the intrinsic value of options exercised and awards that vested during fiscal 2019 , 2018 , and 2017 :

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

As of January 31, 2021, the unrecognized compensation cost related to these options was $ 23.1 million, which is expected to be recognized over a weighted-average period of 2.4 years.

The weighted-average grant date fair value of options granted during 2020, 2019, and 2018 was $ 74.91 , $ 54.09 , and $ 30.30 , respectively.

The following table summarizes the intrinsic value of options exercised and awards that vested during 2020, 2019, and 2018:

2020 2019 2018

(In thousands)

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Restricted stock units (liability accounting) 5,309 2,603 —

$ 114,621 $ 87,142 $ 40,423

Employee share purchase plan

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Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution.

The maximum number of shares authorized to be purchased under the ESPP is 6.0

million shares.

The maximum number of shares authorized to be purchased under the ESPP is 6.0 million shares.

All shares purchased under the ESPP are purchased in the open market.

During the year ended February 2, 2020 , there were 0.1 million shares purchased.

During 2020, there were 0.1 million shares purchased.

Defined contribution pension plans

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The Company matches 50 % to 75 % of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period.

The Company's net expense for the defined contribution plans was $ 8.5 million , $ 6.4 million , and $ 5.2 million for the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , respectively.

The Company's net expense for the defined contribution plans was $ 9.2 million, $ 8.5 million, and $ 6.4 million during 2020, 2019, and 2018, respectively.

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FAIR VALUE MEASUREMENT

Assets and liabilities measured at fair value on a recurring basis

As of February 2, 2020 and February 3, 2019 , the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

February 2, 2020

Balance Sheet Classification

As of January 31, 2021 and February 2, 2020, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

January 31, 2021 Level 1 Level 2 Level 3 Balance Sheet Classification

(In thousands)

Money market funds

Cash and cash equivalents

Term deposits

Cash and cash equivalents

Forward currency contract assets

Other prepaid expenses and other current assets

Forward currency contract liabilities

Other current liabilities

February 3, 2019

Balance Sheet Classification

Money market funds $ 671,817 $ 671,817 $ — $ — Cash and cash equivalents

Term deposits 183,015 — 183,015 — Cash and cash equivalents

Forward currency contract assets 17,364 — 17,364 — Prepaid expenses and other current assets

Forward currency contract liabilities 18,767 — 18,767 — Other current liabilities

February 2, 2020 Level 1 Level 2 Level 3 Balance Sheet Classification

(In thousands)

Money market funds

Cash and cash equivalents

Treasury bills

Cash and cash equivalents

Term deposits

Cash and cash equivalents

Forward currency contract assets

Other prepaid expenses and other current assets

Forward currency contract liabilities

Other current liabilities

The Company records accounts receivable, accounts payable, and accrued liabilities at cost.

The carrying values of these instruments approximate their fair value due to their short-term maturities.

Money market funds $ 610,800 $ 610,800 $ — $ — Cash and cash equivalents

Term deposits 203,360 — 203,360 — Cash and cash equivalents

Forward currency contract assets 1,735 — 1,735 — Prepaid expenses and other current assets

Forward currency contract liabilities 1,920 — 1,920 — Other current liabilities

The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds, Treasury bills, and term deposits.

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Assets and liabilities measured at fair value on a non-recurring basis

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company has impaired certain long-lived assets and recorded them at their estimated fair value on a non-recurring basis.

The fair value of these long-lived assets was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their

use and eventual disposition.

Please refer to Note 14 for further details regarding the impairment of long-lived assets as a result of the ivivva restructuring.

The Company has also recorded lease termination liabilities at fair value on a non-recurring basis, determined using Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income.

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Net investment hedges

The Company holds a significant portion of its assets in Canada and during the year ended February 2, 2020 , it entered into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S.

The Company is exposed to foreign exchange gains and losses which arise on translation of its foreign subsidiaries' balance sheets into U.S.

These gains and losses are recorded as a foreign currency translation adjustment in accumulated other comprehensive income or loss within stockholders' equity.

The Company holds a significant portion of its assets in Canada and during 2020, it entered into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S.

These forward currency contracts are designated as net investment hedges.

The Company assesses hedge effectiveness based on changes in forward rates.

The Company recorded no ineffectiveness from net investment hedges for the year ended February 2, 2020 .

The Company recorded no ineffectiveness from net investment hedges during 2020.

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Derivatives not designated as hedging instruments

During the year ended February 2, 2020 the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S.

During 2020, the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S.

dollar denominated monetary assets and liabilities.

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The notional amounts and fair values of forward currency contracts were as follows:

February 2, 2020

February 3, 2019

Gross Notional

January 31, 2021 February 2, 2020

Gross Notional Assets Liabilities Gross Notional Assets Liabilities

(In thousands)

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Forward currency contracts $ 17,364 $ 18,767 $ 1,735 $ 1,920

As of February 2, 2020 , there were derivative assets of $ 1.7 million and derivative liabilities of $ 1.9 million subject to enforceable netting arrangements.

The forward currency contracts designated as net investment hedges mature on different dates between February 2020 and August 2020.

The forward currency contracts not designated in a hedging relationship mature on different dates between February 2020 and August 2020.

As of January 31, 2021, there were derivative assets of $ 17.4 million and derivative liabilities of $ 18.8 million subject to enforceable netting arrangements.

The forward currency contracts designated as net investment hedges mature on different dates between February 2021 and September 2021.

The forward currency contracts not designated in a hedging relationship mature on different dates between February 2021 and September 2021.

The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive income are as follows:

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands)

3 unchanged sentences

The pre-tax net foreign exchange and derivative gains and losses recorded in the consolidated statement of operations are as follows:

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands)

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The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment.

As of February 2, 2020 , the lease terms of the various leases range from two to fifteen years .

As of January 31, 2021, the lease terms of the various leases range from two to fifteen years .

The majority of the Company's leases include renewal options at the sole discretion of the Company.

In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.

In general, it is not reasonably certain

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that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term.

The following table details the Company's net lease expense.

2 unchanged sentences

The variable lease expenses disclosed below include contingent rent payments and other non-fixed lease related costs, including common area maintenance, property taxes, and landlord's insurance.

Fiscal Year Ended

February 2, 2020

(In thousands)

3 unchanged sentences

Variable lease expense 60,991 70,957

$ 266,210 $ 256,682

The following table presents future minimum lease payments and the impact of discounting.

February 2, 2020

January 31, 2021

(In thousands)

2021 $ 189,907

After 2026 155,619

Future minimum lease payments $ 874,517

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The weighted-average remaining lease term and weighted-average discount rate were as follows:

February 2, 2020

Weighted-average remaining lease term

January 31, 2021

Weighted-average remaining lease term 5.59 years

Weighted-average discount rate 3.42 %

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Disclosures related to periods prior to adoption of ASC 842

The following table details the Company's total rent expense prior to the adoption of ASC 842 as well as the property taxes for leased locations.

Fiscal Year Ended

February 3, 2019

January 28, 2018

(in thousands)

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Property taxes for leased locations $ 17,826

The table below summarizes the Company's contractual arrangements as of February 3, 2019, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods.

Minimum annual basic rent payments excluding other executory operating costs, pursuant to lease agreements are approximately as laid out in the table below.

These amounts include commitments in respect of lease agreements that have been executed, but have not yet commenced.

Payments Due by Fiscal Year

(In thousands)

Operating leases (minimum rent)

ASSET IMPAIRMENT AND RESTRUCTURING

During fiscal 2017, the Company restructured its ivivva operations.

On August 20, 2017 , the Company closed 48 of its 55 ivivva branded company-operated stores and all other ivivva branded temporary locations.

As a result of this restructuring, the Company recognized aggregate pre-tax charges of $ 47.2 million during fiscal 2017.

A summary of the pre-tax charges recognized in connection with the Company's restructuring of its ivivva operations is as follows:

Fiscal Year Ended

January 28, 2018

(In thousands)

Costs recorded in cost of goods sold:

Provision to reduce inventories to net realizable value

Accelerated depreciation

Costs recorded in operating expenses:

Lease termination costs

Impairment of property and equipment

Employee related costs

Other restructuring costs

Asset impairment and restructuring costs

Restructuring and related costs

Income tax recoveries of $ 12.7 million were recorded on the above items in fiscal 2017.

These income tax recoveries are based on the annual tax rate of the applicable tax jurisdictions.

Costs recorded in cost of goods sold

During fiscal 2017, the Company recognized expenses of $ 8.7 million in cost of goods sold as a result of the restructuring of its ivivva operations.

This included $ 4.9 million to reduce inventories to their estimated net realizable value, and $ 3.8 million in accelerated depreciation primarily related to leasehold improvements and furniture and fixtures for stores that were closed on August 20, 2017 .

Costs recorded in operating expenses

The Company recognized asset impairment and restructuring costs of $ 38.5 million during fiscal 2017 as a result of the restructuring of its ivivva operations.

As a result of the plan to close the majority of the ivivva branded locations, the long-lived assets of each ivivva branded location were tested for impairment as of April 30, 2017.

For impaired locations, a loss was recognized representing the difference between the net book value of the long-lived assets and their estimated fair value.

Impairment losses totaling $ 11.6 million were recognized during the first quarter of fiscal 2017.

These losses primarily relate to leasehold improvements and furniture and fixtures of the company-operated stores segment.

These assets were retired during fiscal 2017 in conjunction with the closures of the company-operated stores.

During fiscal 2017, the Company recognized lease termination costs of $ 21.1 million , employee related expenses as a result of the restructuring of $ 4.2 million as well as other restructuring costs of $ 1.6 million .

The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources are as follows:

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands)

Income before income tax expense

Domestic $ 122,573 $ 180,043 $ 132,563

Foreign 696,777 717,350 582,687

$ 819,350 $ 897,393 $ 715,250

Current income tax expense

Federal $ 70 $ 45,765 $ 73,213

State 10,439 11,480 16,153

Foreign 185,803 170,158 123,129

$ 196,312 $ 227,403 $ 212,495

Deferred income tax expense (recovery)

Federal $ 19,754 $ ( 5,683 ) $ ( 13,068 )

State 5,923 ( 150 ) ( 8,566 )

Foreign 8,448 30,227 40,588

$ 34,125 $ 24,394 $ 18,954

Income tax expense $ 230,437 $ 251,797 $ 231,449

The Company's income tax expense for fiscal 2018 and fiscal 2017 included certain discrete tax amounts, as follows:

Fiscal Year Ended

February 3, 2019

January 28, 2018

The Company's income tax expense for 2018 included certain discrete tax amounts, as follows:

(In thousands)

One-time transition tax $ 7,464

Deferred income tax effects

Tax on repatriation from foreign subsidiaries 23,714

Tax recovery on ivivva restructuring costs

Total discrete amounts $ 31,178

tax reform enacted on December 22, 2017 introduced significant changes to the U.S.

tax reforms enacted in December 2017 introduced significant changes to the U.S.

income tax laws, including reduction in the U.S.

1 unchanged sentence

tax, and the imposition of a mandatory one-time transition tax on the accumulated undistributed earnings of foreign subsidiaries.

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One-time transition tax .

3 unchanged sentences

The one-time transition tax is payable over eight years.

During fiscal 2017, the Company recognized a provisional amount of $ 58.9 million for the mandatory one-time transition tax on the deemed repatriation of accumulated undistributed earnings of foreign subsidiaries.

As a result of completing its fiscal 2017 U.S.

tax returns and incorporating newly issued guidance into its calculations the Company recognized an additional current tax expense of $ 7.5 million during fiscal 2018 for the mandatory one-time transition tax.

Deferred income tax effects.

tax reform reduced the U.S.

federal income tax rate from 35% to 21%.

Accordingly, the Company remeasured its deferred income tax assets and liabilities to reflect the reduced rate that is expected to apply in future

periods when these balances reverse.

The Company recognized a provisional deferred income tax expense of $ 0.4 million during fiscal 2017 to reflect the reduced U.S.

tax rate and other effects of U.S.

There were no adjustments to this provisional amount in fiscal 2018.

tax returns and incorporating newly issued guidance into its calculations the Company recognized an additional current tax expense of $ 7.5 million during 2018 for the mandatory one-time transition tax.

The Company completed the accounting for the income tax effects of U.S.

tax reform in fiscal 2018.

tax reform in 2018.

Tax on repatriation from foreign subsidiaries

3 unchanged sentences

tax reform did not eliminate foreign withholding taxes, or certain state income taxes.

During fiscal 2018, the Company completed its evaluation of the impact that U.S.

During 2018, the Company completed its evaluation of the impact that U.S.

tax reform has upon repatriation taxes, its reinvestment plans, and the most efficient means of deploying its capital resources.

As a result of these evaluations, the Company repatriated $ 778.9 million from a Canadian subsidiary to the U.S.

parent entity in fiscal 2018.

A net tax current expense of $ 23.7 million was recognized in fiscal 2018 on this distribution.

As at February 2, 2020 , the Company's net investment in its Canadian subsidiaries was $ 1.3 billion , of which $ 0.8 billion was determined to be indefinitely reinvested.

A deferred tax liability of $ 1.5 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, principally representing the U.S.

parent entity in 2018.

A net current tax expense of $ 23.7 million was recognized in 2018 on this distribution.

As of January 31, 2021, the Company's net investment in its Canadian subsidiaries was $ 1.8 billion, of which $ 0.8 billion was determined to be indefinitely reinvested.

A deferred income tax liability of $ 3.0 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, principally representing the U.S.

state income taxes which would be due upon repatriation.

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No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company's other foreign subsidiaries as these earnings are permanently reinvested outside of the United States.

Excluding its Canadian subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of February 2, 2020 were $ 52.1 million .

As of February 2, 2020 , the Company had cash and cash equivalents of $ 387.4 million outside of the United States.

Tax recovery on ivivva restructuring costs

As outlined in Note 14 , the Company restructured its ivivva operations during fiscal 2017.

Income tax recoveries of $ 12.7 million were recorded on total restructuring costs of $ 47.2 million in fiscal 2017.

These income tax recoveries are based on the tax rate of the applicable tax jurisdictions.

Excluding its Canadian subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of January 31, 2021 were $ 89.7 million.

As of January 31, 2021, the Company had cash and cash equivalents of $ 508.7 million outside of the United States.

A summary reconciliation of the effective tax rate is as follows:

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(Percentages)

1 unchanged sentence

Foreign tax rate differentials 4.6 4.6 4.7

state taxes 0.8 1.0 0.9

Non-deductible compensation expense 1.3 0.6 0.8

Permanent and other 0.4 0.9 0.6

tax reform — — 1.1

Tax on repatriation from foreign subsidiaries — — 3.3

Effective tax rate 28.1 % 28.1 % 32.4 %

The Company's U.S.

federal income tax rate of 33.9 % for the year ended January 28, 2018 was a blended rate that includes the rate decrease which became effective on January 1, 2018.

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of February 2, 2020 and February 3, 2019 are presented below:

February 2, 2020

February 3, 2019

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The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of January 31, 2021 and February 2, 2020 are presented below:

January 31, 2021 February 2, 2020

(In thousands)

1 unchanged sentence

Net operating loss carryforwards $ 14,149 $ 2,354

Inventories 14,093 8,763

Property and equipment, net 2,715 5,444

Intangible assets, net 937 975

Non-current lease liabilities 160,015 144,412

Deferred lease liabilities

Tenant inducements

Stock-based compensation 7,266 4,961

2 unchanged sentences

Foreign tax credits 4,829 4,827

Other 8,640 1,784

Deferred income tax assets 221,221 183,844

3 unchanged sentences

Property and equipment, net $ ( 97,717 ) $ ( 57,280 )

Intangible assets, net ( 21,556 ) ( 611 )

Right-of-use lease assets ( 134,245 ) ( 132,059 )

Other ( 13,263 ) ( 236 )

Deferred income tax liabilities ( 266,781 ) ( 190,186 )

4 unchanged sentences

Net deferred income tax (liabilities) assets $ ( 52,024 ) $ ( 11,997 )

As of February 2, 2020 , the Company had net operating loss carryforwards of $ 9.7 million .

As of January 31, 2021, the Company had net operating loss carryforwards of $ 59.1 million.

The majority of the net operating loss carryforwards expire, if unused, between fiscal 2026 and fiscal 2039.

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The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.

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EARNINGS PER SHARE

The details of the computation of basic and diluted earnings per share are as follows:

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands, except per share amounts)

Net income $ 588,913 $ 645,596 $ 483,801

Basic weighted-average number of shares outstanding 130,289 130,393 133,413

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All classes of stock have in effect the same rights and share equally in undistributed net income.

For the fiscal years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , 48.0 thousand , 32.2 thousand , and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

On December 1, 2016, the Company's board of directors approved a program to repurchase shares of the Company's common stock up to an aggregate value of $ 100.0 million .

This stock repurchase program was completed during the third quarter of fiscal 2017.

For 2020, 2019, and 2018, 30.8 thousand, 48.0 thousand, and 32.2 thousand stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

On November 29, 2017, the Company's board of directors approved a stock repurchase program for up to $ 200.0 million and on June 6, 2018, the board of directors approved an increase to this stock repurchase program, authorizing the repurchase of up to a total of $ 600.0 million of the Company's common shares.

These programs were completed during the first quarter of fiscal 2019.

These programs were completed during the first quarter of 2019.

On January 31, 2019, the Company's board of directors approved a stock repurchase program for up to $ 500.0 million of the Company's common shares on the open market or in privately negotiated transactions.

On December 1, 2020, the Company's board of directors approved an increase in the remaining authorization of the existing stock repurchase program from $ 263.6 million to $ 500.0 million.

The repurchase plan has no time limit and does not require the repurchase of any minimum number of shares.

Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934.

The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements, and the repurchase program is expected to be completed by January 2021.

As of February 2, 2020 , the remaining value of shares available to be repurchased under this program was $ 327.3 million .

During the fiscal years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 , 1.1 million , 4.9 million , and 1.9 million shares, respectively, were repurchased under the programs at a total cost of $ 173.4 million , $ 598.3 million , and $ 100.3 million , respectively.

Subsequent to February 2, 2020 , and up to March 20, 2020 , 0.2 million shares were repurchased at a total cost of $ 33.8 million .

As of January 31, 2021, the remaining value of shares available to be repurchased under this program was $ 500.0 million.

During 2020, 2019, and 2018, 0.4 million, 1.1 million, and 4.9 million shares, respectively, were repurchased under the programs at a total cost of $ 63.7 million, $ 173.4 million, and $ 598.3 million, respectively.

Subsequent to January 31, 2021, and up to March 24, 2021, no shares were repurchased.

COMMITMENTS AND CONTINGENCIES

The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment.

Please refer to Note 13 for further details regarding lease commitments and the timing of future minimum lease payments.

Please refer to Note 16.

Leases for further details regarding lease commitments and the timing of future minimum lease payments.

License and supply arrangements .

2 unchanged sentences

Under these arrangements, the Company supplies the partners with lululemon products, training, and other support.

The initial term of the agreement for the Middle East expired in January 2020 and the Company currently intends to stay in the market.

An extension to the initial term of the agreement for the Middle East was signed in 2020 and it extends the arrangement to December 2024.

The initial term of the agreement for Mexico expires in November 2026.

As of February 2, 2020 , there were four licensed retail locations in Mexico , three in the United Arab Emirates , and one in Qatar .

One-time transition tax .

As outlined in Note 15 , U.S.

tax reform imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S.

The one-time transition tax is payable over eight years beginning in fiscal 2018.

The Company recognized a provisional income tax expense of $ 58.9 million in fiscal

2017 and an additional expense of $ 7.5 million during fiscal 2018 for the mandatory transition tax.

The one-time transition tax payable is net of foreign tax credits, and the table below outlines the expected payments due by fiscal year.

The following table summarizes the Company's contractual arrangements as of February 2, 2020 , and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods:

As of January 31, 2021, there were four licensed retail locations in Mexico, three in the United Arab Emirates, and one in Qatar.

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The following table summarizes the Company's contractual arrangements as of January 31, 2021, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods:

Payments Due by Fiscal Year

Total 2021 2022 2023 2024 2025 Thereafter

(In thousands)

Deferred consideration $ 49,544 $ 25,194 $ 24,341 $ 9 $ — $ — $ —

One-time transition tax payable $ 48,226 $ 5,076 $ 5,076 $ 9,518 $ 12,691 $ 15,865 $ —

Deferred consideration.

The amounts listed for deferred consideration in the table above represent expected future cash payments for certain continuing MIRROR employees, subject to the continued employment of those individuals up to three years from the acquisition date as outlined in Note 6.

One-time transition tax .

As outlined in Note 17.

Income Taxes, U.S.

tax reform imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S.

The one-time transition tax is payable over eight years beginning in 2018.

The one-time transition tax payable is net of foreign tax credits, and the table above outlines the expected payments due by fiscal year.

Contingencies

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The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.

On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit in the Supreme Court of New York entitled Rebecca Gathmann-Landini et al v.

lululemon USA inc.

On December 2, 2015, the case was moved to the United States District Court for the Eastern District of New York.

The lawsuit alleges that the Company violated various New York labor codes by failing to pay all earned wages, including overtime compensation.

The plaintiffs are seeking an unspecified amount of damages.

The Company has recognized immaterial provisions related to the expected outcome of legal proceedings.

In March 2020, a former retail employee filed a representative action in the Los Angeles Superior Court alleging violation of the Private Attorney General Act ("PAGA") based on purported California labor code violations including failure to pay wages, failure to pay overtime, failure to provide accurate itemized statements, and failure to provide meal and rest periods.

The plaintiff is seeking to recover civil penalties under PAGA.

The Company intends to vigorously defend this matter.

On November 21, 2018, plaintiff David Shabbouei filed in the Delaware Court of Chancery a derivative lawsuit on behalf of the Company against certain of the Company's current and former directors and officers, captioned David Shabbouei v.

Laurent Potdevin, et al., 2018-0847-JRS.

Plaintiff claims that the defendants breached their fiduciary duties to the Company by allegedly failing to address alleged sexual harassment, gender discrimination, and related conduct at the Company.

Plaintiff also claims that the defendants breached their fiduciary duties to the Company and wasted corporate assets with respect to the separation agreement entered into by the Company and Laurent Potdevin in connection with his departure from the Company in February 2018.

Plaintiff also further brings an unjust enrichment claim against Mr.

Potdevin with respect to the separation agreement.

Plaintiff seeks unspecified money damages for the Company for the defendants' alleged breaches of fiduciary duty, waste and unjust enrichment, disgorgement of all profits, benefits and other compensation Mr.

Potdevin received as a result of defendants' alleged conduct for the Company, an order directing the Company to implement corporate governance and internal procedures, and an award of plaintiff's attorneys' fees, costs and expenses.

The defendants and the Company have moved to dismiss the action.

In April 2020, Aliign Activation Wear, LLC filed a lawsuit in the United States District Court for the Central District of California alleging federal trademark infringement, false designation of origin and unfair competition.

The plaintiff is seeking injunctive relief, monetary damages and declaratory relief.

The Company intends to vigorously defend this matter.

SUPPLEMENTAL CASH FLOW INFORMATION

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands)

3 unchanged sentences

Interest paid 110 325 1,394

SEGMENTED INFORMATION AND DISAGGREGATED NET REVENUE

The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportable segments for its financial statement disclosure.

The Company reports segments based on the financial information it uses in managing its business.

The Company's reportable segments are comprised of company-operated stores and direct to consumer.

Direct to consumer represents sales from the Company's e-commerce websites and mobile apps.

Outlets, temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sale net revenue have been combined into other.

During the first quarter of fiscal 2018, the Company reviewed its general corporate expenses and determined certain costs which were previously classified as general corporate expense are more appropriately classified within the direct to consumer segment.

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SEGMENTED INFORMATION

The Company's segments are based on the financial information it uses in managing its business and comprise two reportable segments:

(i) company-operated stores and (ii) direct to consumer.

The remainder of its operations which includes outlets, temporary locations, sales to wholesale accounts, license and supply arrangements, and MIRROR are included within Other.

During the first quarter of 2020, the Company reviewed its segment and general corporate expenses and determined certain costs that are more appropriately classified in different categories.

Accordingly, comparative figures have been reclassified to conform to the financial presentation adopted for the current year.

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

2020 2019 2018

(In thousands)

1 unchanged sentence

Direct to consumer 2,284,068 1,137,822 858,856

Other 459,004 340,407 303,100

$ 4,401,879 $ 3,979,296 $ 3,288,319

Segmented income from operations:

1 unchanged sentence

Direct to consumer 1,029,102 484,146 357,489

Other 10,502 72,013 62,336

1,252,196 1,245,498 995,348

General corporate expenses 397,208 356,359 289,440

Restructuring and related costs

Amortization of intangible assets 5,160 29 72

Acquisition-related expenses 29,842 — —

Income from operations 819,986 889,110 705,836

5 unchanged sentences

Corporate and other 57,778 95,739 90,232

$ 229,226 $ 283,048 $ 225,807

Depreciation and amortization:

2 unchanged sentences

Corporate and other 69,855 51,568 36,163

The accelerated depreciation related to the restructuring of the ivivva operations is included in corporate and other in the above breakdown of depreciation and amortization.

$ 185,478 $ 161,933 $ 122,484

Intercompany amounts are excluded from the above table as they are not included in the materials reviewed by the chief operating decision maker.

The Company's goodwill relates to the reporting segment consisting of company-operated stores.

The following table disaggregates the Company's net revenue by geographic area for the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 .

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

The amortization of intangible assets for 2020 in the above table includes $ 5.1 million related to MIRROR.

MIRROR is included within Other in the Company's segment disclosures.

Table o f Contents

Property and equipment, net by geographic area as of January 31, 2021 and February 2, 2020 were as follows:

January 31, 2021 February 2, 2020

(In thousands)

United States $ 267,328 $ 259,485

Canada 394,861 346,305

Outside of North America 83,498 65,903

Property and equipment, net by geographic area as of February 2, 2020 and February 3, 2019 were as follows:

February 2, 2020

February 3, 2019

$ 745,687 $ 671,693

NET REVENUE BY CATEGORY AND GEOGRAPHY

The following table disaggregates the Company's net revenue by geographic area.

2020 2019 2018

(In thousands)

United States $ 3,105,133 $ 2,854,364 $ 2,363,374

Canada 672,607 649,114 565,105

Outside of North America 624,139 475,818 359,840

The following table disaggregates the Company's net revenue by category for the years ended February 2, 2020 , February 3, 2019 , and January 28, 2018 .

Fiscal Year Ended

February 2, 2020

February 3, 2019

January 28, 2018

$ 4,401,879 $ 3,979,296 $ 3,288,319

The following table disaggregates the Company's net revenue by category.

During the fourth quarter of 2020, the Company determined that a portion of certain sales returns which had been recorded within Other categories were more appropriately classified within Women's product and Men's product.

Accordingly, comparative figures have been reclassified to conform to the presentation adopted for the current year.

2020 2019 2018

(In thousands)

2 unchanged sentences

Other categories 398,790 284,230 263,207

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables present the Company's unaudited quarterly results of operations and comprehensive income for each of the quarters in the fiscal years ended February 2, 2020 and February 3, 2019 .

The following tables should be read in conjunction with the Company's audited consolidated financial statements and related notes.

The Company has prepared the information below on a basis consistent with its audited consolidated financial statements and has included all adjustments, consisting of normal recurring adjustments, which, in the opinion of the Company's management, are necessary to fairly present its operating results for the quarters presented.

The Company's historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.

Amounts in thousands, except per share amounts)

Cost of goods sold

Selling, general and administrative expenses

Income from operations

Other income (expense), net

Income before income tax expense

Income tax expense

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

Comprehensive income

Basic earnings per share

Diluted earnings per share

The Company's quarterly results of operations have varied in the past and are likely to do so again in the future.

As such, the Company believes that comparisons of its quarterly results of operations should not be relied upon as an indication of the Company's future performance.

SUBSEQUENT EVENTS

The Company evaluates events or transactions that occur after the balance sheet date through to the date which the financial statements are issued, for potential recognition or disclosure in its consolidated financial statements in accordance with ASC Topic 855, Subsequent Events.

The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization and continues to spread in the United States, Canada, and in many other countries globally.

Subsequent to February 2, 2020, in line with recommendations by public health officials and in accordance with governmental authority orders, the Company has taken actions to close certain retail locations and to reduce operating hours.

In February 2020, the Company temporarily closed all of its retail locations in Mainland China.

All but one of these locations have since reopened.

In March 2020, the Company temporarily closed all of its retail locations in North America, Europe, Malaysia, New Zealand, and it temporarily closed its distribution center in Sumner, WA.

These locations currently remain closed.

The Company cannot reasonably estimate the length or severity of this pandemic, but currently anticipates a material adverse impact on its consolidated financial position, results of operations, and cash flows in fiscal 2020.

$ 4,401,879 $ 3,979,296 $ 3,288,319

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data