What changed in this filing

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Item 1. Financial Statements

2021-12-09 compared with 2021-09-08 · 67 added, 67 removed, 479 unchanged (22% of the section changed)

61 unchanged sentences

Amounts in thousands, except per share amounts)

Quarter Ended Two Quarters Ended

2021 August 2,

2020 August 1,

2021 August 2,

Quarter Ended Three Quarters Ended

2021 November 1,

2020 October 31,

2021 November 1,

Net revenue $ 1,450,421 $ 1,117,426 $ 4,127,504 $ 2,672,330

20 unchanged sentences

Amounts in thousands)

Quarter Ended August 1, 2021

Quarter Ended October 31, 2021

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 May 2, 2021 5,203 5,203 $ — 125,069 $ 625 $ 364,743 $ 2,408,006 $ ( 133,519 ) $ 2,639,855

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Net income 187,788 187,788

4 unchanged sentences

Repurchase of common stock ( 583 ) ( 2 ) ( 974 ) ( 235,447 ) ( 236,423 )

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Quarter Ended August 2, 2020

Balance as of October 31, 2021 5,203 5,203 $ — 124,135 $ 621 $ 406,413 $ 2,398,186 $ ( 146,765 ) $ 2,658,455

Quarter Ended November 1, 2020

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 May 3, 2020 5,482 5,482 $ — 124,717 $ 624 $ 334,201 $ 1,786,147 $ ( 285,185 ) $ 1,835,787

Balance as of August 2, 2020 5,393 5,393 $ — 124,917 $ 625 $ 358,414 $ 1,872,948 $ ( 230,885 ) $ 2,001,102

Net income 143,643 143,643

4 unchanged sentences

Shares withheld related to net share settlement of stock-based compensation ( 3 ) ( 1 ) ( 925 ) ( 926 )

Balance as of August 2, 2020 5,393 5,393 $ — 124,917 $ 625 $ 358,414 $ 1,872,948 $ ( 230,885 ) $ 2,001,102

Two Quarters Ended August 1, 2021

Balance as of November 1, 2020 5,216 5,216 $ — 125,121 $ 626 $ 374,352 $ 2,016,591 $ ( 228,616 ) $ 2,162,953

Three Quarters Ended October 31, 2021

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

7 unchanged sentences

Repurchase of common stock ( 1,358 ) ( 6 ) ( 2,270 ) ( 489,060 ) ( 491,336 )

Balance as of August 1, 2021 5,203 5,203 $ — 124,644 $ 623 $ 381,737 $ 2,445,845 $ ( 157,039 ) $ 2,671,166

Two Quarters Ended August 2, 2020

Balance as of October 31, 2021 5,203 5,203 $ — 124,135 $ 621 $ 406,413 $ 2,398,186 $ ( 146,765 ) $ 2,658,455

Three Quarters Ended November 1, 2020

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

8 unchanged sentences

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

Balance as of August 2, 2020 5,393 5,393 $ — 124,917 $ 625 $ 358,414 $ 1,872,948 $ ( 230,885 ) $ 2,001,102

Balance as of November 1, 2020 5,216 5,216 $ — 125,121 $ 626 $ 374,352 $ 2,016,591 $ ( 228,616 ) $ 2,162,953

See accompanying notes to the unaudited interim consolidated financial statements

2 unchanged sentences

Amounts in thousands)

Two Quarters Ended

August 1, 2021 August 2, 2020

Three Quarters Ended

October 31, 2021 November 1, 2020

Cash flows from operating activities

30 unchanged sentences

Effect of foreign currency exchange rate changes on cash and cash equivalents 21,585 620

Increase (decrease) in cash and cash equivalents 19,524 ( 570,507 )

Decrease in cash and cash equivalents ( 156,926 ) ( 611,924 )

Cash and cash equivalents, beginning of period $ 1,150,517 $ 1,093,505

21 unchanged sentences

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

There were 534 and 521 company-operated stores as of August 1, 2021 and January 31, 2021, respectively.

There were 552 and 521 company-operated stores as of October 31, 2021 and January 31, 2021, respectively.

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

3 unchanged sentences

COVID-19 Pandemic

The outbreak of a novel strain of coronavirus ("COVID-19") has caused governments and public health officials to impose restrictions and recommend precautions to mitigate the spread of the virus.

The Company temporarily closed its retail locations for periods of time during the first two quarters of fiscal 2020.

While most of the Company's retail locations were open throughout the first two quarters of fiscal 2021, certain locations were temporarily closed based on government and health authority guidance in those markets, including in parts of Canada, Asia Pacific, and Europe.

In accordance with relevant government and health authority guidance, the Company continues to operate with necessary precautionary measures in place at its retail locations and distribution centers.

During the second quarter and first two quarters of fiscal 2020, the Company recognized $ 21.2 million and $ 35.5 million, respectively, of government payroll subsidies as a reduction in selling, general, and administrative expenses.

The outbreak of a novel strain of coronavirus ("COVID-19") caused governments and public health officials to impose restrictions and recommend precautions to mitigate the spread of the virus.

The Company temporarily closed almost all of its retail locations for a significant portion of the first two quarters of fiscal 2020.

While most of the Company's retail locations were open throughout the first three quarters of fiscal 2021, certain locations were temporarily closed based on government and health authority guidance.

During the third quarter and first three quarters of fiscal 2020, the Company recognized $ 1.4 million and $ 37.0 million, respectively, of government payroll subsidies as a reduction in selling, general, and administrative expenses.

These subsidies partially offset the wages paid to employees while its retail locations were temporarily closed due to COVID-19.

The Company did not recognize any payroll subsidies in the first two quarters of fiscal 2021.

The Company did not recognize any payroll subsidies in the first three quarters of fiscal 2021.

Basis of presentation

The unaudited interim consolidated financial statements as of August 1, 2021 and for the quarters and two quarters ended August 1, 2021 and August 2, 2020 are presented in U.S.

The unaudited interim consolidated financial statements as of October 31, 2021 and for the quarters and three quarters ended October 31, 2021 and November 1, 2020 are presented in U.S.

dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC").

8 unchanged sentences

Fiscal 2021 and fiscal 2020 are referred to as "2021," and "2020," respectively.

The first two quarters of 2021 and 2020 ended on August 1, 2021 and August 2, 2020, respectively.

The first three quarters of 2021 and 2020 ended on October 31, 2021 and November 1, 2020, respectively.

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

17 unchanged sentences

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

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

• 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:

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

6 unchanged sentences

Income tax effects of acquisition-related expenses $ ( 611 ) $ ( 896 ) $ ( 1,417 ) $ ( 2,862 )

In connection with the acquisition, $ 2.9 million was recognized on the acquisition date for the partial acceleration of vesting of certain stock options held by MIRROR employees, and $ 57.1 million of consideration was deferred up to three years from the acquisition, subject to the continued employment of the recipients through various vesting dates.

This acquisition-related compensation is expensed over the vesting periods as service is provided.

In September 2021, MIRROR's Chief Executive Officer transitioned into an advisory role with the Company.

The remaining deferred consideration payable to this individual will be paid in July 2022.

Due to the reduction in this individual's responsibilities, the compensation expense has been accelerated and was recognized in full during the third quarter of 2021.

Revolving Credit Facilities

7 unchanged sentences

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

As of August 1, 2021, aside from letters of credit of $ 2.8 million, there were no other borrowings outstanding under this facility.

As of October 31, 2021, aside from letters of credit of $ 3.1 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) rates based on deposits on the interbank market for U.S.

4 unchanged sentences

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 August 1, 2021, the Company was in compliance with the covenants of the credit facility.

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

Mainland China revolving credit facility

4 unchanged sentences

The Company is required to follow certain covenants.

As of August 1, 2021, the Company was in compliance with the covenant and, aside from letters of credit of 1.3 million Chinese Yuan, there were no borrowings or guarantees outstanding under this credit facility.

As of October 31, 2021, the Company was in compliance with the covenants and, aside from letters of credit of 3.5 million Chinese Yuan, there were no borrowings or guarantees outstanding under this credit facility.

Stock-Based Compensation and Benefit Plans

1 unchanged sentence

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

Stock-based compensation expense charged to income for the plans was $ 33.6 million and $ 24.9 million for the first two quarters of 2021 and 2020, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 117.1 million as of August 1, 2021, which is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the balances of the Company's stock-based compensation plans as of August 1, 2021, and changes during the first two quarters then ended, is presented below:

Stock-based compensation expense charged to income for the plans was $ 49.6 million and $ 41.9 million for the first three quarters of 2021 and 2020, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $ 108.9 million as of October 31, 2021, which is expected to be recognized over a weighted-average period of 2.1 years.

A summary of the balances of the Company's stock-based compensation plans as of October 31, 2021, and changes during the first three quarters then ended, is presented below:

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

6 unchanged sentences

Forfeited/expired 28 195.67 5 212.34 — — 17 231.34 — —

Balance as of August 1, 2021 868 $ 180.00 165 $ 222.30 4 $ 327.22 221 $ 244.47 15 $ 400.17

Exercisable as of August 1, 2021 301 $ 124.41

Balance as of October 31, 2021 798 $ 185.23 164 $ 222.98 4 $ 327.22 236 $ 260.76 — $ —

Exercisable as of October 31, 2021 258 $ 126.62

The Company's performance-based restricted stock units are awarded to eligible employees and entitle the grantee to receive a maximum of two shares of common stock per performance-based restricted stock unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period.

10 unchanged sentences

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 during the first two quarters of 2021:

First Two Quarters

The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted during the first three quarters of 2021:

First Three Quarters

Expected term 3.75 years

7 unchanged sentences

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

During the second quarter of 2021, there were 16.2 thousand shares purchased.

During the third quarter of 2021, there were 16.1 thousand shares purchased.

Defined contribution pension plans

The Company offers defined contribution pension plans to its eligible employees.

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

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 $ 5.8 million and $ 4.5 million in the first two quarters of 2021 and 2020, respectively.

Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to

exceed the dollar amounts set by applicable laws.

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 $ 8.8 million and $ 6.7 million in the first three quarters of 2021 and 2020, respectively.

Fair Value Measurement

6 unchanged sentences

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

As of August 1, 2021 and January 31, 2021, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:

August 1, 2021 Level 1 Level 2 Level 3 Balance Sheet Classification

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

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

(In thousands)

29 unchanged sentences

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

The Company recorded no ineffectiveness from net investment hedges during the first two quarters of 2021.

The Company recorded no ineffectiveness from net investment hedges during the first three quarters of 2021.

The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.

4 unchanged sentences

The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.

During the first two quarters of 2021, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity.

During the first three quarters of 2021, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity.

The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.

3 unchanged sentences

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

As of August 1, 2021, there were derivative assets of $ 14.0 million and derivative liabilities of $ 16.2 million subject to enforceable netting arrangements.

As of October 31, 2021, there were derivative assets of $ 6.4 million and derivative liabilities of $ 7.9 million subject to enforceable netting arrangements.

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

August 1, 2021 January 31, 2021

October 31, 2021 January 31, 2021

Gross Notional Assets Liabilities Gross Notional Assets Liabilities

6 unchanged sentences

Forward currency contracts $ 6,429 $ 7,869 $ 17,364 $ 18,767

The forward currency contracts designated as net investment hedges outstanding as of August 1, 2021 mature on different dates between August 2021 and March 2022.

The forward currency contracts not designated in a hedging relationship outstanding as of August 1, 2021 mature on different dates between August 2021 and March 2022.

The forward currency contracts designated as net investment hedges outstanding as of October 31, 2021 mature on different dates between November 2021 and May 2022.

The forward currency contracts not designated in a hedging relationship outstanding as of October 31, 2021 mature on different dates between November 2021 and May 2022.

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

4 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

11 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

9 unchanged sentences

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

For each of the first two quarters of 2021 and 2020, 0.1 million stock options and awards were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

For the first three quarters of 2021 and 2020, 48.0 thousand and 40.2 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 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.

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, and on October 1, 2021, it approved an increase in the remaining authorization from $ 141.2 million to $ 641.2 million.

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

1 unchanged sentence

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.

As of August 1, 2021, the remaining value of shares available to be repurchased under this program was $ 245.1 million.

During the first two quarters of 2021 and 2020, 0.8 million and 0.4 million shares, respectively, were repurchased under the program at a total cost of $ 254.9 million and $ 63.7 million, respectively.

Subsequent to August 1, 2021, and up to September 1, 2021, 48.0 thousand shares were repurchased at a total cost of $ 19.4 million.

As of October 31, 2021, the remaining authorized value of shares available to be repurchased under this program was $ 508.7 million.

During the first three quarters of 2021 and 2020, 1.4 million and 0.4 million shares, respectively, were repurchased under the program at a total cost of $ 491.3 million and $ 63.7 million, respectively.

Subsequent to October 31, 2021, and up to December 2, 2021, 46.5 thousand shares were repurchased at a total cost of $ 21.5 million.

Supplementary Financial Information

43 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

4 unchanged sentences

$ 1,450,421 $ 1,117,426 $ 4,127,504 $ 2,672,330

Segmented income (loss) from operations:

Segmented income from operations:

Company-operated stores $ 180,700 $ 111,780 $ 464,844 $ 76,333

20 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

8 unchanged sentences

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

Second Quarter First Two Quarters

Third Quarter First Three Quarters

2021 2020 2021 2020

9 unchanged sentences

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 denied all allegations.

The parties have agreed in principle to resolve the matter and are working to finalize the resolution and 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.

10 unchanged sentences

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-Q

Item 1. Financial Statements