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Item 8. Financial Statements and Supplementary Data

2023-03-28 compared with 2022-03-29 · 219 added, 223 removed, 878 unchanged (33% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS

lululemon athletica inc.

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Opinions on the Financial Statements and Internal Control over Financial Reporting

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

and its subsidiaries (together, the Company) as of January 30, 2022 and January 31, 2021, and the related consolidated statements of operations and comprehensive income, of stockholders' equity and of cash flows for the 52-week years ended January 30, 2022, January 31, 2021, and February 2, 2020, including the related notes, appearing under Item 8 and the financial statement schedule appearing under Item15(a)(2) of the Company’s 2021 Annual Report on Form 10-K (collectively referred to as the consolidated financial statements).

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

and its subsidiaries (together, the Company) as of January 29, 2023 and January 30, 2022, and the related consolidated statements of operations and comprehensive income, of stockholders' equity and of cash flows for each of the 52-week years ended January 29, 2023, January 30, 2022, and January 31, 2021, including the related notes (collectively referred to as the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of January 29, 2023, 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 30, 2022 and January 31, 2021, and the results of its operations and its cash flows for the 52-week years ended January 30, 2022, January 31, 2021 and February 2, 2020 in conformity with accounting principles generally accepted in the United States of America.

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 29, 2023 and January 30, 2022, and the results of its operations and its cash flows for each of the 52-week years ended January 29, 2023, January 30, 2022, and January 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

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Inventory Provision

As described in N otes 2 and 3 to t he consolidated financial statements, inventories are 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, inventories are 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.

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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 the significant judgment 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 a high degree of auditor judgment, subjectivity, and effort in performing procedures and 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;

These procedures included testing the effectiveness of controls relating to the review of the inventory 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;

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and (v) corroborating the assumptions with individuals within the product team.

Goodwill Impairment Assessment – MIRROR Reporting Unit

As described in Notes 2 and 7 to th e consolidated financial statements, the Company’s goodwill balance allocated to the MIRROR reporting unit was $362.5 million as of January 30, 2022.

Goodwill Impairment Assessment – lululemon Studio (formerly known as MIRROR) Reporting Unit

As described in Notes 6 and 8 to the consolidated financial statements, the Company recorded a goodwill impairment in the amount of $362.5 million during the year ended January 29, 2023.

Goodwill is tested annually for impairment on the first day of the fourth quarter, or more frequently when an event or circumstance indicates that goodwill might be impaired.

Generally, management 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, management then estimates the fair value of the related reporting unit.

As of November 1, 2021, management performed a quantitative impairment analysis of the MIRROR reporting unit and concluded that the fair value of the MIRROR reporting unit exceeded its carrying value, and no impairment was recognized.

The fair value of the MIRROR reporting unit was estimated by management by using a discounted cash flow model.

The key assumptions used in the discounted cash flow model are the revenue growth rates, operating profit margins, and the discount rate.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the MIRROR reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting unit;

Management determined that there were indicators of impairment and therefore conducted an impairment test as of January 29, 2023.

The fair value of the lululemon Studio reporting unit was estimated by management by using a discounted cash flow model, which resulted in the recognition of a goodwill impairment charge of $362.5 million.

The key assumptions used in the discounted cash flow model were the revenue growth rates, operating profit margins, and the discount rate.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the lululemon Studio reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value of the reporting unit;

(ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s discounted cash flow model including the key assumptions related to the revenue growth rates, operating profit margins, and the discount rate;

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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 management's annual goodwill impairment assessment, including controls over the fair value estimate of the MIRROR reporting unit.

These procedures also included, among others:

(i) testing management's process for developing the

fair value estimate;

(ii) testing the completeness and accuracy of the underlying data used in the discounted cash flow model;

(iii) and evaluating the reasonableness of the key assumptions used by management related to the revenue growth rates, operating profit margins, and the discount rate.

Evaluating the reasonableness of the revenue growth rates and operating profit margins involved considering (i) the current and past performance of the reporting unit;

These procedures included testing the effectiveness of controls relating to management's goodwill impairment assessment, including controls over the fair value estimate of the lululemon Studio reporting unit.

These procedures also included, among others, (i) testing management's process for developing the fair value estimate;

(ii) testing the completeness and accuracy of the underlying data used in the model;

and (iii) evaluating the reasonableness of the key assumptions used by management related to the revenue growth rates, operating profit margins, and the discount rate.

Evaluating the reasonableness of the revenue growth rates and operating profit margins involved

considering (i) the current and past performance of the reporting unit;

(ii) the performance of peer companies;

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Cash and cash equivalents $ 1,154,867 $ 1,259,871

Accounts receivable 77,001 62,399

Accounts receivable, net 132,906 77,001

Inventories 1,447,367 966,481

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2023 January 30,

2021 February 2,

2022 January 31,

Net revenue $ 8,110,518 $ 6,256,617 $ 4,401,879

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Amortization of intangible assets 8,752 8,782 5,160

Impairment of goodwill and other assets 407,913 — —

Acquisition-related expenses — 41,394 29,842

Gain on disposal of assets ( 10,180 ) — —

Income from operations 1,328,408 1,333,355 819,986

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(Amounts in thousands)

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

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

Shares Shares Par Value Shares Par Value

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

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

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

Net income 975,322 975,322

Other comprehensive income (loss), net of tax ( 18,762 ) ( 18,762 )

Common stock issued upon exchange of exchangeable shares ( 1,024 ) ( 1,024 ) — 1,024 5 ( 5 ) —

Stock-based compensation expense 69,137 69,137

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Balance as of January 30, 2022 5,203 5,203 $ — 123,297 $ 616 $ 422,507 $ 2,512,840 $ ( 195,917 ) $ 2,740,046

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

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

Shares Shares Par Value Shares Par Value

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Other comprehensive income (loss), net of tax ( 56,667 ) ( 56,667 )

Common stock issued upon exchange of exchangeable shares ( 87 ) ( 87 ) — 87 — — —

Stock-based compensation expense 78,075 78,075

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Shares withheld related to net share settlement of stock-based compensation ( 105 ) — ( 35,158 ) ( 35,158 )

Repurchase of common stock ( 2,202 ) ( 11 ) ( 3,681 ) ( 808,910 ) ( 812,602 )

Repurchase of common stock, including excise tax ( 1,396 ) ( 7 ) ( 2,481 ) ( 441,513 ) ( 444,001 )

Balance as of January 29, 2023 5,116 5,116 $ — 122,205 $ 611 $ 474,645 $ 2,926,127 $ ( 252,584 ) $ 3,148,799

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2023 January 30,

2021 February 2,

2022 January 31,

Cash flows from operating activities

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Depreciation and amortization 291,791 224,206 185,478

Impairment of goodwill and other assets 407,913 — —

Gain on disposal of assets ( 10,180 ) — —

Stock-based compensation expense 78,075 69,137 50,797

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Proceeds from settlement of stock-based compensation 11,704 18,194 15,263

Taxes paid related to net share settlement of stock-based compensation ( 49,809 ) ( 32,388 ) ( 21,944 )

Shares withheld related to net share settlement of stock-based compensation ( 35,158 ) ( 49,809 ) ( 32,388 )

Repurchase of common stock ( 444,001 ) ( 812,602 ) ( 63,663 )

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Effect of foreign currency exchange rate changes on cash and cash equivalents ( 34,043 ) ( 6,876 ) 29,996

Increase in cash and cash equivalents 109,354 57,012 212,185

Increase (decrease) in cash and cash equivalents ( 105,004 ) 109,354 57,012

Cash and cash equivalents, beginning of period $ 1,259,871 $ 1,150,517 $ 1,093,505

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Nature of Operations and Basis of Presentation

Summary of Significant Accounting Policies

Prepaid Expenses and Other Current Assets

Property and Equipment

Intangible Assets

Other Non-Current Assets

Accrued Liabilities and Other

Revolving Credit Facilities

Stockholders' Equity

Stock-Based Compensation and Benefit Plans

Fair Value Measurement

Derivative Financial Instruments

Earnings Per Share

Commitments and Contingencies

Supplemental Cash Flow Information

Segmented Information

Net Revenue by Category and Geography

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 Goodwill

Note 7 Intangible Assets

Note 8 Impairment of Goodwill and Other Assets

Note 9 Acquisition-Related Expenses

Note 10 Other Non-Current Assets

Note 11 Accrued Liabilities and Other

Note 12 Revolving Credit Facilities

Note 13 Stockholders' Equity

Note 14 Stock-Based Compensation and Benefit Plans

Note 15 Fair Value Measurement

Note 16 Derivative Financial Instruments

Note 17 Leases

Note 18 Income Taxes

Note 19 Earnings Per Share

Note 20 Commitments and Contingencies

Note 21 Supplemental Cash Flow Information

Note 22 Segmented Information

Note 23 Net Revenue by Category and Geography

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 and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from pop up locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales.

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

There were 574 , 521 , and 491 company-operated stores in operation as of January 30, 2022, January 31, 2021, and February 2, 2020, 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.

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 technical athletic apparel, footwear, and accessories, which are sold through company-operated stores, direct to consumer through e-commerce, outlets, sales to wholesale accounts, license and supply arrangements, recommerce, and sales from temporary locations.

Recommerce is the sale of repurchased product via the Company's "Like New" program.

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

There were 655 , 574 , and 521 company-operated stores in operation as of January 29, 2023, January 30, 2022, and January 31, 2021, respectively.

The Company also engages in the design and retail of in-home connected fitness equipment and associated content subscriptions through lululemon Studio, which was rebranded from the Company's former MIRROR brand during fiscal 2022.

COVID-19 Pandemic

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 have been open since then, certain locations were temporarily closed based on government and health authority guidance.

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

While most of the Company's retail locations have been open since then, certain locations were temporarily closed based on government and health authority guidance, including certain closures during 2022 in the PRC.

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

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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 Company utilized the grant accounting model and 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.

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 fiscal 2021.

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

The Company did not recognize any payroll subsidies in fiscal 2022 and fiscal 2021.

The COVID-19 pandemic 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.

A resurgence of the pandemic 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 2022, fiscal 2021, and fiscal 2020 were each 52-week years.

Fiscal 2021, 2020, and 2019 ended on January 30, 2022, January 31, 2021, and February 2, 2020, respectively, and are referred to as "2021," "2020," and "2019," respectively.

Fiscal 2022, 2021, and 2020 ended on January 29, 2023, January 30, 2022, and January 31, 2021, respectively, and are referred to as "2022," "2021," and "2020," respectively.

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

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

As of January 30, 2022, January 31, 2021, and February 2, 2020, the Company recorded an insignificant allowance for doubtful accounts.

As of January 29, 2023, January 30, 2022, and January 31, 2021, 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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All other costs related to internal use software are expensed as incurred.

Property and equipment carrying values are reviewed for impairment when events or circumstances indicate that the asset group to which the property and equipment belong might be impaired.

Depreciation commences when an asset is ready for its intended use.

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Cloud Computing Arrangements

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

The Company incurs costs to implement cloud computing arrangements hosted by third party vendors.

Costs incurred to implement cloud computing service arrangements are capitalized when incurred during the application development phase, and recognized as other non-current assets.

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

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Over the lease term the lease expense is amortized on a straight-line basis beginning on the lease commencement date.

Right-of-use assets are assessed for impairment as part of the impairment of long-lived assets, which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Right-of-use assets are assessed for impairment as part of the impairment of long-lived

assets, which is performed whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

Variable lease payments, including contingent rental payments based on sales volume, are recognized when the achievement of the specific target is probable.

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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 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.

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, sales to wholesale accounts, license and supply arrangement net revenue, which consists of royalties as well as sales of the Company's products to licensees, recommerce revenue, revenue from temporary locations, and lululemon Studio revenue.

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.

lululemon Studio 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.

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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.

The Company's liability for sales return refunds is recognized within accrued liabilities and other, 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.

As of January 29, 2023 and January 30, 2022, the sales return allowance was $ 55.5 million and $ 41.7 million, respectively.

Shipping fees billed to customers are recorded as revenue, and shipping costs are recognized within selling, general and administrative expenses in the same period the related revenue is recognized.

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.

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.

recognition method.

For 2022, 2021, and 2020, net revenue recognized on unredeemed gift card balances was $ 23.3 million, $ 18.7 million, and $ 13.7 million, respectively.

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For 2022, 2021, and 2020, the Company incurred costs to transport its products from its distribution facilities to its retail locations and e-commerce guests of $ 353.7 million, $ 270.8 million, and $ 232.4 million, respectively.

Advertising and Marketing Costs

Advertising costs, including the costs to produce advertising, are expensed as incurred.

Advertising expenses were $ 328.6 million, $ 297.5 million, and $ 216.0 million for 2022, 2021, and 2020, respectively, and are included within selling, general and administrative expenses.

Store pre-opening costs

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The Company has not recognized U.S.

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

state 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 expense is adjusted in the period in which an uncertain tax position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new information becomes available.

The Company's policy is to recognize interest expense and penalties related to income

tax matters as part of other income (expense), net.

The Company's policy is to recognize interest expense and penalties related to income tax matters as part of other income (expense), net.

Accrued interest and penalties are included within the related tax liability on the Company's consolidated balance sheets.

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Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

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.

The Company holds certain assets and liabilities that are required to be measured at fair value on a recurring basis, and performs certain valuations on a non-recurring basis, which are outlined in Note 15.

Fair Value Measurement.

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The Company has not experienced any losses related to these items, and it believes credit risk to be minimal.

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.

The Company seeks to minimize its credit risk by entering into transactions with investment grade 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 of exposure with any one counterparty.

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The Company reassesses the probability of achieving the performance condition at each reporting date.

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.

The grant date fair value of each stock option granted is estimated on the grant 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 grant 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.

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ASUs adopted during 2022 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 make simplifications in other areas of this topic by clarifying and amending existing guidance.

The Company adopted this update during the first quarter of 2021 and it did not have a material impact on the Company's consolidated financial statements.

In February 2016, the 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.

Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet.

The Company adopted ASC 842 on February 4, 2019 using the modified retrospective approach with no restatement of comparative periods.

The Company has chosen to apply the transition package of three practical expedients which allow companies not to reassess whether agreements contain leases, the classification of leases, and the capitalization of initial direct costs.

The Company did not elect the practical expedient to use hindsight when determining the lease term.

The primary financial statement impact upon adoption was the recognition, on a discounted basis, of the Company's minimum payments under noncancelable operating leases as right-of-use assets and obligations on the consolidated balance sheets.

As of February 4, 2019, right-of-use assets and lease liabilities were $ 619.6 million and $ 651.1 million, respectively.

Pre-existing lease balances of $ 34.8 million from current assets, $ 9.3 million from non-current assets, and $ 75.5 million from non-current liabilities were reclassified to right-of-use assets and lease liabilities as part of the adoption of the new standard.

There was no cumulative earnings effect adjustment on transition.

In November 2021, the FASB issued ASC 832, Government Assistance to require annual disclosures about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions.

The Company adopted this update prospectively during the first quarter of 2022 and it did not have a material impact on the Company's consolidated financial statements.

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.

The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted.

The Company does not expect the adoption to have a material impact to its consolidated financial statements.

In September 2022, the FASB issued ASC 405-50, Liabilities - Supplier Finance Programs, to require annual and interim disclosures about the key terms of supplier finance programs used in connection with the purchase of goods and services along with information about the obligations under these programs, including the amount outstanding at the end of each reporting period and a rollforward of those obligations.

The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods in those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.

January 29, 2023 January 30, 2022

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Provision to reduce inventories to net realizable value:

Obsolescence provision ( 84,231 ) ( 11,325 )

Damages provision ( 38,996 ) ( 24,404 )

Shrink provision ( 1,387 ) ( 2,316 )

( 124,614 ) ( 38,045 )

Inventories $ 1,447,367 $ 966,481

The Company had write-offs of $ 27.5 million, $ 20.5 million, and $ 28.6 million of inventory in 2021, 2020, and 2019, respectively for goods that were obsolete, had quality issues, or were damaged.

The obsolescence provision as of January 29, 2023 included $ 62.9 million related to lululemon Studio hardware recognized during the fourth quarter of 2022.

Please refer to Note 8.

Impairment of Goodwill and Other Assets for further details.

Prepaid Expenses and Other Current Assets

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Depreciation expense related to property and equipment was $ 282.7 million, $ 215.3 million, and $ 180.1 million for 2022, 2021, and 2020, 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 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

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

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 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 (Years)

(In thousands)

Intangible assets:

Brand $ 26,500 20.0

Customer relationships 28,000 10.0

Technology 25,500 7.5

Content 5,000 5.0

$ 85,000 12.1

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:

• acquisition-related compensation, including the partial acceleration of vesting of certain stock options, and 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;

• 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 2021 and 2020:

(in thousands)

Acquisition-related expenses:

Transaction and integration costs $ 2,989 $ 10,548

Gain on existing investment — ( 782 )

Acquisition-related compensation 38,405 20,076

$ 41,394 $ 29,842

Income tax effects of acquisition-related expenses $ ( 1,417 ) $ ( 3,133 )

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 date, subject to the continued employment of the recipients through various vesting dates.

The acquisition-related compensation was expensed over the vesting periods as service was provided, and consisted 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.

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 was accelerated and recognized in full during the third quarter of 2021.

Gain on Disposal of Assets

During the second quarter of 2022, the Company completed the sale of an administrative office building, which resulted in a pre-tax gain of $ 10.2 million.

The income tax effect of the gain on disposal of assets was an expense of $ 1.7 million.

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

(In thousands)

Balance as of February 2, 2020

MIRROR acquisition 362,492

Balance as of January 31, 2021

Effect of foreign currency translation 3

Balance as of January 30, 2022

Impairment of goodwill ( 362,492 )

Effect of foreign currency translation ( 244 )

Balance as of January 29, 2023

Of the Company's goodwill as of January 30, 2022, $ 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.

The Company performed its annual goodwill impairment analysis for the MIRROR and company-operated stores reporting units, using an income approach to estimate fair value, and determined there was no impairment loss for the year as of January 30, 2022.

The Company recognized an impairment of $ 362.5 million related to the lululemon Studio reporting unit as of January 29, 2023 on the goodwill that arose from the acquisition of MIRROR.

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

Please refer to Note 8.

Impairment of Goodwill and Other Assets for further information.

All of the Company's $ 24.1 million of goodwill as of January 29, 2023 relates to the company-operated stores segment.

Intangible Assets

1 unchanged sentence

January 29, 2023 January 30, 2022

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Useful Life (Years)

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Remaining Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Remaining Useful Life (Years)

(In thousands, except in years)

Intangible assets:

Brand $ 26,500 $ ( 2,098 ) $ 24,402 18.4 $ 26,500 $ ( 773 ) $ 25,727 19.4

Customer relationships 28,000 ( 4,592 ) 23,408 8.4 28,000 ( 1,692 ) 26,308 9.4

MIRROR brand $ 26,500 $ ( 3,423 ) $ ( 20,077 ) $ 3,000 3.0 $ 26,500 $ ( 2,098 ) $ 24,402 18.4

Customer relationships 28,000 ( 7,492 ) ( 20,508 ) — n/a 28,000 ( 4,592 ) 23,408 8.4

Technology 25,500 ( 8,956 ) — 16,544 3.0 25,500 ( 5,489 ) 20,011 5.9

Content 5,000 ( 2,583 ) — 2,417 2.4 5,000 ( 1,583 ) 3,417 3.4

Other 270 ( 209 ) 61 0.7 270 ( 120 ) 150 1.7

$ 85,270 $ ( 13,971 ) $ 71,299 10.9 $ 85,270 $ ( 5,190 ) $ 80,080 11.6

Amortization of intangible assets was $ 8.8 million, $ 5.2 million, and $ 29.0 thousand in 2021, 2020, and 2019, respectively.

Other 270 ( 270 ) — — n/a 270 ( 209 ) 61 0.7

Intangible assets $ 85,270 $ ( 22,724 ) $ ( 40,585 ) $ 21,961 2.9 $ 85,270 $ ( 13,971 ) $ 71,299 10.9

Amortization of intangible assets was $ 8.8 million, $ 8.8 million, and $ 5.2 million in 2022, 2021, and 2020, respectively.

As of January 29, 2023, the Company recorded an impairment charge of $ 40.6 million related to the intangible assets in the lululemon Studio reporting unit.

Please refer to Note 8.

Impairment of Goodwill and Other Assets for further information.

There were no impairment charges in 2021 and 2020.

2 unchanged sentences

(In thousands)

Thereafter 29,363

Total estimated future amortization expense $ 21,961

Impairment of Goodwill and Other Assets

Events as of January 29, 2023 indicated the Company should conduct an impairment test for the goodwill, intangible assets, and property and equipment related to lululemon Studio (formerly MIRROR).

Sales of hardware units did not meet the

Company's fourth quarter expectations and the Company revised its short and long term forecasts for lululemon Studio, with an adverse impact on expected cash flows.

As a result, the Company updated its strategy for the lululemon Studio reporting unit.

During the fourth quarter of 2022, the Company recorded impairment of goodwill and other assets related to the lululemon Studio business unit.

The following table summarizes the amounts recognized:

(In thousands)

Costs recorded in cost of goods sold:

Obsolescence provision $ 62,928

Costs recorded in operating expenses:

Impairment of goodwill $ 362,492

Impairment of intangible assets 40,585

Impairment of property and equipment 4,836

Impairment of goodwill and other assets 407,913

Total pre-tax charges $ 470,841

Income tax effects of charges $ ( 28,171 )

Total after-tax charges $ 442,670

To perform the goodwill impairment test on January 29, 2023, the Company used a discounted cash flow model to estimate the fair value of the lululemon Studio reporting unit based on the updated strategic plans, supplemented by market comparable analysis, which indicated the fair value of lululemon Studio was lower than its carrying value, and led to a recognition of an impairment of goodwill of $ 362.5 million.

The key assumptions used to estimate the fair value of the lululemon Studio reporting unit were the revenue growth rates, operating profit margins, and the discount rate.

The fair value of the lululemon Studio reporting unit is a Level 3 fair value measurement.

Intangible assets

Undiscounted cash flows of the lululemon Studio asset group to which the intangible assets belong were less than their carrying value, and therefore the Company calculated the fair value of the asset group, which was also less than its carrying value.

This resulted in impairments of $ 40.6 million relating to the MIRROR brand, which is associated with in-home hardware, and to the customer relationship intangible assets that were recognized as part of the acquisition.

The carrying value of individual long-lived assets was not reduced to lower than their fair value.

The fair values of the brand and the customer relationships were based on a relief from royalty method and a discounted cash flow model respectively, and are Level 3 fair value measurements.

The change in strategy related to lululemon Studio to focus on digital app-based services means the Company no longer expects to be able to sell all of the lululemon Studio hardware inventory above cost and it recognized an obsolescence provision of $ 62.9 million as of January 29, 2023.

The net realizable value was determined based on hardware sales forecasts and assumptions regarding liquidation value.

If the Company does not achieve its hardware sales forecasts, has to sell the hardware at prices lower than forecast, or is unable to liquidate excess inventory this could result in additional expense in the period in which such a determination is made.

Acquisition-Related Expenses

In connection with the acquisition of MIRROR, the Company recognized certain expenses which were recognized within acquisition-related expenses in the consolidated statements of operations.

These amounts included acquisition-related compensation, transaction and integration costs, and a gain on the Company's existing investment in MIRROR.

The amounts recognized were $ 41.4 million and $ 29.8 million in 2021 and 2020, respectively.

There were no acquisition-related expenses recognized in 2022.

Other Non-Current Assets

12 unchanged sentences

Sales return allowances 55,528 41,690

Accrued duty 27,182 17,404

Forward currency contract liabilities 25,625 18,985

Accrued duty 21,046 27,182

Sales tax collected 20,183 13,540

Accrued rent 11,254 8,559

Accrued capital expenditures 19,365 9,616

Accrued rent 12,223 11,254

Accrued inventory liabilities 4,345 4,005

11 unchanged sentences

The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs").

The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and its performance against certain targets measured on an annual basis could result in positive or negative

sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.

The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's performance against certain targets measured on an annual basis could result in positive or

negative sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.

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.

3 unchanged sentences

As of January 29, 2023, the Company was in compliance with the covenants of the credit facility.

Mainland China revolving credit facility

China Mainland revolving credit facility

In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan ($ 19.2 million) revolving credit facility with terms that are reviewed on an annual basis.

The credit facility was increased to 230.0 million Chinese Yuan ($ 33.9 million) during 2020.

It comprises a revolving loan of up to 200.0 million Chinese Yuan ($ 31.4 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($ 4.7 million), or its equivalent in another currency.

It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($ 29.5 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($ 4.4 million), 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 January 30, 2022, the Company was in compliance with the covenant and, aside from letters of credit of 6.1 million Chinese Yuan ($ 1.0 million), there were no other borrowings or guarantees outstanding under this credit facility.

As of January 29, 2023, the Company was in compliance with the covenants and, aside from letters of credit of 14.3 million Chinese Yuan ($ 2.1 million), there were no other borrowings or guarantees outstanding under this credit facility.

364-Day revolving credit facility

25 unchanged sentences

Total unrecognized compensation cost for all stock-based compensation plans was $ 118.0 million as of January 29, 2023, which is expected to be recognized over a weighted-average period of 2.1 years, and was $ 96.7 million as of January 30, 2022 over a weighted-average period of 2.0 years.

A summary of the balances of the Company's stock-based compensation plans as of January 30, 2022, January 31, 2021, and February 2, 2020, and changes during the fiscal years then ended is presented below:

A summary of the balances of the Company's stock-based compensation plans as of January 29, 2023, January 30, 2022, and January 31, 2021, 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

6 unchanged sentences

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

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

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

Granted 194 310.29 139 185.37 4 326.70 129 331.42 — —

10 unchanged sentences

Expense for performance-based restricted stock units is recognized when it is probable that the performance goal will be achieved.

The grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the award date.

The grant date fair value of the restricted shares and restricted stock units is based on the closing price of the Company's common stock on the grant 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.

1 unchanged sentence

The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model.

The closing price of the Company's common stock on the award date is used in the model.

The closing price of the Company's common stock on the grant date is used in the model.

The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience.

The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee behavior.

The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee exercise behavior.

Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options.

74 unchanged sentences

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.

As of January 29, 2023, the Company recorded impairment charges for goodwill, intangible assets, and property and equipment, as disclosed in Note 8.

Impairment of Goodwill and Other Assets.

That note includes details on the discounted cash flow model used to estimate fair value, which is a Level 3 valuation technique.

Derivative Financial Instruments

24 unchanged sentences

The forward currency contracts designated as net investment hedges outstanding as of January 29, 2023 mature on different dates between February 2023 and August 2023.

The forward currency contracts not designated in a hedging relationship outstanding as of January 30, 2022 mature on different dates between February 2022 and July 2022.

The forward currency contracts not designated in a hedging relationship outstanding as of January 29, 2023 mature on different dates between February 2023 and August 2023.

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

12 unchanged sentences

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

As of January 30, 2022, the lease terms of the various leases range from two to fifteen years .

As of January 29, 2023, the initial lease terms of the various leases generally range from two to 15 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.

The lease term includes options to extend or terminate the lease when it is reasonably certain those options will be exercised.

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

20 unchanged sentences

Non-current lease liabilities 862,362

As of January 30, 2022, the Company's minimum lease commitment for distribution center operating leases signed but not yet commenced was $ 379.7 million, which is not reflected in the table above.

As of January 29, 2023, the Company's minimum lease commitment for distribution center operating leases which have been committed to, but not yet commenced, was $ 632.0 million, which is not reflected in the table above.

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

5 unchanged sentences

(In thousands)

Income before income tax expense

Income (loss) before income tax expense

$ ( 98,764 ) $ 204,350 $ 122,573

13 unchanged sentences

$ 477,771 $ 358,547 $ 230,437

The Company's income tax expense for 2022, 2021, and 2020 include certain discrete tax amounts, as follows:

2022 2021 2020

(In thousands)

Impairment of goodwill and other assets $ ( 28,171 ) $ — $ —

Gain on disposal of assets 1,661 — —

Acquisition-related expenses — ( 1,417 ) ( 3,133 )

Total tax adjustments $ ( 26,510 ) $ ( 1,417 ) $ ( 3,133 )

Please refer to Note 5.

Property and Equipment, Note 8.

Impairment of Goodwill and Other Assets, and Note 9.

Acquisition-Related Expenses for further information.

tax reforms enacted in December 2017 required the Company to pay U.S.

2 unchanged sentences

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

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law.

The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum income tax for tax years beginning after December 31, 2022.

It also assesses a 1% excise tax on repurchases of corporate stock.

While this is not expected to have a material adverse effect on the Company's results of operations going forward, the Company will continue to evaluate its impact as further information becomes available.

As of January 29, 2023, the Company's net investment in its Canadian subsidiaries was $ 2.4 billion, of which $ 1.3 billion was determined to be indefinitely reinvested.

A deferred income tax liability of $ 3.8 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, representing the U.S.

A deferred income tax liability of $ 20.2 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, representing the Canadian withholding taxes and U.S.

state income taxes which would be due upon repatriation.

4 unchanged sentences

Excluding its Canadian subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of January 29, 2023 were $ 323.0 million.

As of January 30, 2022, the Company had cash and cash equivalents of $ 1.1 billion outside of the United States.

As of January 29, 2023, the Company had cash and cash equivalents of $ 470.6 million outside of the United States.

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

6 unchanged sentences

Excess tax benefits from stock-based compensation ( 0.5 ) ( 0.9 ) ( 0.8 )

Impairment of goodwill and other assets and gain on disposal of assets 7.8 — —

Permanent and other 0.5 0.3 0.4

6 unchanged sentences

Inventories 43,471 16,326

Property and equipment, net — 2,715

Intangible assets, net 778 873

21 unchanged sentences

The majority of the net operating loss carryforwards expire, if unused, between fiscal 2030 and fiscal 2040.

There was a $ 2.1 million net decrease in the valuation allowance in 2022, compared to a $ 3.7 million net decrease in 2021, and a $ 0.8 million net increase in 2020.

The Company files income tax returns in the U.S., Canada, and various foreign, state, and provincial jurisdictions.

4 unchanged sentences

The 2016 to 2021 tax years remain subject to examination by tax authorities in certain foreign jurisdictions.

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.

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.

Earnings Per Share

12 unchanged sentences

For 2022, 2021, and 2020, 43.5 thousand, 36.0 thousand, and 30.8 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 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, and on October 1, 2021, it approved an increase in the remaining authorization from $ 141.2 million to $ 641.2 million.

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 December 1, 2020, it approved an increase in the remaining authorization 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.

During the first quarter of 2022, the Company completed the remaining stock repurchases under this program.

On March 23, 2022, the Company's board of directors approved a stock repurchase program for up to $ 1.0 billion of the Company's common shares on the open market or in privately negotiated transactions.

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 January 30, 2022, the remaining authorized value of shares available to be repurchased under this program was $ 187.4 million.

During 2021, 2020, and 2019, 2.2 million, 0.4 million, and 1.1 million shares, respectively, were repurchased under the programs at a total cost of $ 812.6 million, $ 63.7 million, and $ 173.4 million, respectively.

Subsequent to January 30, 2022, and up to March 23, 2022, 0.6 million shares were repurchased at a total cost of $ 187.5 million, completing the existing stock repurchase program.

The authorized value of shares available to be repurchased under this program excludes the cost of commissions and excise taxes and as of January 29, 2023, the remaining authorized value was $ 743.8 million.

During 2022, 2021, and 2020, 1.4 million, 2.2 million, and 0.4 million shares, respectively, were repurchased under the programs at a total cost including commissions and excise taxes of $ 444.0 million, $ 812.6 million, and $ 63.7 million, respectively.

Subsequent to January 29, 2023, and up to March 22, 2023, 0.2 million shares were repurchased at a total cost including commissions and excise taxes of $ 49.6 million .

Commitments and Contingencies

3 unchanged sentences

License and supply arrangements .

The Company has entered into license and supply arrangements with partners in the Middle East and Mexico which grant them the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, and Mexico.

The Company retains the rights to sell lululemon products through its e-commerce websites in these countries.

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

1 unchanged sentence

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

As of January 30, 2022, there were 14 licensed locations, including six in Mexico, six in the United Arab Emirates, one in Kuwait, and one in Qatar.

As of January 29, 2023, there were 26 licensed locations, including 12 in Mexico, seven in the United Arab Emirates, three in Qatar, three in Saudi Arabia, and one in Kuwait.

There was also an e-commerce website operated through the license and supply arrangements.

The following table summarizes the Company's contractual arrangements as of January 29, 2023, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods:

2 unchanged sentences

(In thousands)

Deferred consideration $ 24,306 $ 24,298 $ 8 $ — $ — $ — $ —

One-time transition tax payable $ 38,073 $ 9,518 $ 12,691 $ 15,864 $ — $ — $ —

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 payable .

8 unchanged sentences

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

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 obtained summary judgment that the Company did not infringe upon any of the plaintiff's rights and the district court entered judgment in the Company's favor on all claims.

The plaintiff has filed a Notice of Appeal with the United States Court of Appeals for the Ninth Circuit.

The Company intends to defend its win at the appellate level.

In April 2021, DISH Technologies L.L.C., and Sling TV L.L.C.

2 unchanged sentences

In the District of Delaware complaint, DISH is seeking an order permanently enjoining the Company from infringing the asserted patents, an award of damages for the infringement of the asserted patents, and an award of damages for lost sales.

The ITC investigation is ongoing and the Delaware litigation remains stayed pending resolution to the ITC investigation.

The Company intends to vigorously defend this matter.

In the ITC investigation, an Administrative Law Judge issued an Initial Determination recommending an Exclusion Order and Cease and Desist Order be entered against the Company.

In February 2023, the parties finalized the details of a settlement agreement resolving all litigation between DISH and the Company for an immaterial amount.

Supplemental Cash Flow Information

8 unchanged sentences

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

The remainder of its operations which includes outlets, temporary locations, MIRROR, sales to wholesale accounts, and license and supply arrangements 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 prior year.

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

2022 2021 2020

10 unchanged sentences

General corporate expenses 862,867 637,983 397,208

lululemon Studio obsolescence provision 62,928 — —

Amortization of intangible assets 8,752 8,782 5,160

Impairment of goodwill and other assets 407,913 — —

Acquisition-related expenses — 41,394 29,842

Gain on disposal of assets ( 10,180 ) — —

Income from operations 1,328,408 1,333,355 819,986

12 unchanged sentences

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

The amortization of intangible assets in the above table includes $ 8.7 million and $ 5.1 million related to MIRROR for 2021 and 2020, respectively.

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

The amortization of intangible assets in the above table includes $ 8.7 million, $ 8.7 million, and $ 5.2 million related to lululemon Studio for 2022, 2021, and 2020, respectively.

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

Property and equipment, net by geographic area as of January 29, 2023 and January 30, 2022 were as follows:

6 unchanged sentences

Net Revenue by Category and Geography

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

In addition to the disaggregation of net revenue by reportable segment in Note 22.

Segmented Information, the following table disaggregates the Company's net revenue by geographic area.

2022 2021 2020

2 unchanged sentences

Canada 1,163,111 954,219 672,607

Outside of North America 956,711 624,139 475,818

People's Republic of China 681,633 520,372 297,690

Rest of world 611,431 436,339 326,449

$ 8,110,518 $ 6,256,617 $ 4,401,879

In addition to the disaggregation of net revenue by reportable segment, 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 current presentation.

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

Other categories is primarily composed of accessories, lululemon Studio, and footwear.

2022 2021 2020

5 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-K

Item 8. Financial Statements and Supplementary Data