NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of operations
lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sales. The Company operates stores in the United States, Canada, the People's Republic of China ("PRC"), Australia, the United Kingdom, Japan, New Zealand, Germany, South Korea, Singapore, France, Malaysia, Sweden, Ireland, the Netherlands, Norway, and Switzerland. There were 491, 440, and 404 company-operated stores in operation as of February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
During fiscal 2017, the Company restructured its ivivva operations. Please refer to Note 14 for further details regarding the ivivva restructuring.
Please refer to Note 21 for further details on the impact of the COVID-19 coronavirus on the Company's operations subsequent to February 2, 2020.
Basis of presentation
The consolidated financial statements have been presented in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles ("GAAP").
The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but occasionally giving rise to an additional week, resulting in a 53 week year. Fiscal 2019 and fiscal 2017 were each 52 week years. Fiscal 2018 was a 53 week year. Fiscal 2019, 2018, and 2017 ended on February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.
Certain comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of lululemon athletica inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, and short-term deposits with original maturities of three months or less. The Company has not experienced any losses related to these balances, and management believes the Company's credit risk to be minimal.
Accounts receivable
Accounts receivable primarily arise out of inventory duty receivables, sales to wholesale accounts, and license and supply arrangements. The allowance for doubtful accounts represents management's best estimate of probable credit losses in accounts receivable. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. As of February 2, 2020, February 3, 2019, and January 28, 2018, the Company recorded an insignificant allowance for doubtful accounts.
Inventories
Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and net realizable value. Cost is determined using weighted-average costs, and includes all costs incurred to deliver inventory to the Company's distribution centers including freight, non-refundable taxes, duty, and other landing costs.
The Company periodically reviews its inventories and makes a provision as necessary to appropriately value goods that are obsolete, have quality issues, or are damaged. The amount of the provision is equal to the difference between the cost of the inventory and its net realizable value based upon assumptions about product quality, damages, future demand, selling prices, and market conditions. If changes in market conditions result in reductions in the estimated net realizable value of its inventory below its previous estimate, the Company would increase its reserve in the period in which it made such a determination.
In addition, the Company provides for inventory shrinkage based on historical trends from actual physical inventory counts. Inventory shrinkage estimates are made to reduce the inventory value for lost or stolen items. The Company performs physical inventory counts and cycle counts throughout the year and adjusts the shrink reserve accordingly.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Direct internal and external costs related to software used for internal purposes which are incurred during the application development stage or for upgrades that add functionality are capitalized. All other costs related to internal use software are expensed as incurred.
Depreciation commences when an asset is ready for its intended use. Buildings are depreciated on a straight-line basis over the expected useful life of the asset, which is individually assessed, and estimated to be up to 20 years. Leasehold improvements are depreciated on a straight-line basis over the lesser of the length of the lease and the estimated useful life of the improvement, to a maximum of 10 years for stores and 15 years for corporate offices and distribution centers. All other property and equipment are depreciated using the declining balance method as follows:
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Furniture and fixtures
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20%
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Computer hardware and software
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20% - 30%
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Equipment and vehicles
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30%
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Goodwill
Goodwill represents the excess of the aggregate of the consideration transferred, the fair value of any non-controlling interest in the acquiree, and the acquisition-date fair value of the Company's previously held equity interest over the net assets acquired and liabilities assumed. Goodwill is tested annually for impairment or more frequently when an event or circumstance indicates that goodwill might be impaired. The Company's operating segment for goodwill is its company-operated stores.
Impairment of long-lived assets
Long-lived assets, including intangible assets with finite lives, held for use are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition. Impaired assets are recorded at fair value, determined principally by discounting the future cash flows expected from their use and eventual disposition. Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined.
Leased property and equipment
At lease commencement, which is generally when the Company takes possession of the asset, the Company records a lease liability and corresponding right-of-use asset. Lease liabilities represent the present value of minimum lease payments over the expected lease term, which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the lease liability is determined using the Company's incremental collateralized borrowing rate at the lease commencement.
Minimum lease payments include base rent, fixed escalation of rental payments, and rental payments that are adjusted periodically depending on a rate or index. In determining minimum lease payments, the Company does not separate non-lease components for real estate leases. Non-lease components are generally services that the lessor performs for the Company associated with the leased asset, such as common area maintenance.
Right-of-use assets represent the right to control the use of the leased asset during the lease and are initially recognized in an amount equal to the lease liability. In addition, prepaid rent, initial direct costs, and adjustments for lease incentives are components of the right-of-use asset. 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.
Variable lease payments, including contingent rental payments based on sales volume, are recognized when the achievement of the specific target is probable. A right-of-use asset and lease liability are not recognized for leases with an initial term of 12 months or less, and the lease expense is recognized on a straight-line basis over the lease term.
The Company recognizes a liability for the fair value of asset retirement obligations ("AROs") when such obligations are incurred. The Company's AROs are primarily associated with leasehold improvements which, at the end of a lease, the Company is contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, the Company records an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment, including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value over time. The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the consolidated statements of operations.
The Company recognizes a liability for a cost associated with a lease exit or disposal activity when such obligation is incurred. A lease exit or disposal liability is measured initially at its fair value in the period in which the liability is incurred. The Company estimates fair value at the cease-use date of its operating leases as the remaining lease rentals, reduced by estimated sublease rentals that could be reasonably obtained for the property, even where the Company does not intend to enter into a sublease. Estimating the cost of certain lease exit costs involves subjective assumptions, including the time it would take to sublease the leased location and the related potential sublease income. The estimated accruals for these costs could be significantly affected if future experience differs from the assumptions used in the initial estimate.
Revenue recognition
Net revenue is comprised of company-operated store net revenue, direct to consumer net revenue through websites and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the Company's distribution centers, and other net revenue, which includes revenue from outlets, temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue, which consists of royalties as well as sales of the Company's products to licensees. All revenue is reported net of sales taxes collected from customers on behalf of taxing authorities.
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised goods to the Company's customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. Revenue from company-operated stores and other retail locations is recognized at the point of sale. Direct to consumer revenue and sales to wholesale accounts are recognized upon receipt by the customer. In certain arrangements the Company receives payment before the customer receives the promised good. These payments are initially recorded as deferred revenue, and recognized as revenue in the period when control is transferred to the customer.
Revenue is presented net of an allowance for estimated returns, which is based on historic experience. 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.
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. Based on historical experience, and to the extent there is no requirement to remit unclaimed card balances to government agencies, an estimate of the gift card balances that will never be redeemed is recognized as revenue in proportion to gift cards which have been redeemed.
While the Company will continue to honor all gift cards presented for payment, management may determine the likelihood of redemption to be remote for certain card balances due to, among other things, long periods of inactivity. In these circumstances, to the extent management determines there is no requirement for remitting card balances to government agencies under unclaimed property laws, the portion of card balances not expected to be redeemed are recognized in net
revenue in proportion to the gift cards which have been redeemed, under the redemption recognition method. For the years ended February 2, 2020, February 3, 2019, and January 28, 2018, net revenue recognized on unredeemed gift card balances was $11.9 million, $6.9 million, and $6.2 million, respectively.
See Note 19 for disaggregated net revenue by channel, geographic area, and product category.
Cost of goods sold
Cost of goods sold includes:
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•
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the cost of purchased merchandise, which includes acquisition and production costs including raw material and labor, as applicable;
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•
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the cost incurred to deliver inventory to the Company's distribution centers including freight, non-refundable taxes, duty, and other landing costs;
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•
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the cost of the Company's distribution centers, such as labor, rent, utilities, and depreciation;
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•
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the cost of the Company's production, design, research and development, distribution, and merchandising departments including salaries, stock-based compensation and benefits, and other expenses;
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•
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occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities, and depreciation expense for the Company's company-operated store locations;
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•
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shrink and inventory provision expense.
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Selling, general and administrative expenses
Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold or asset impairment and restructuring costs. The Company's selling, general and administrative expenses include the costs of corporate and retail employee wages and benefits, costs to transport the Company's products from the distribution facilities to the Company's sales locations and e-commerce guests, professional fees, marketing, information technology, human resources, accounting, legal, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.
For the years ended February 2, 2020, February 3, 2019, and January 28, 2018, the Company incurred outbound transportation costs of $106.7 million, $79.5 million, and $53.8 million, respectively.
Asset impairment and restructuring costs
Asset impairment and restructuring costs consist of the lease termination, impairment of property and equipment, employee related costs, and other restructuring costs recognized in connection with the restructuring of the Company's ivivva operations.
Store pre-opening costs
Operating costs incurred prior to the opening of new stores are expensed as incurred as selling, general and administrative expenses.
Income taxes
The Company follows the liability method with respect to accounting for income taxes. Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and liabilities, and for tax losses, tax credit carryforwards, and other tax attributes. Deferred income tax assets and liabilities are measured using enacted tax rates, for the appropriate tax jurisdiction, that are expected to be in effect when these differences are anticipated to reverse.
The Company has not recognized U.S. state income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested.
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 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. This determination requires the use of significant judgment. 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. Accrued interest and penalties are included within the related tax liability on the Company's consolidated balance sheets.
The U.S. Tax Cuts and Jobs Act ("U.S. tax reform") was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. The United States Securities Exchange Commission ("SEC") issued Staff Accounting Bulletin 118 ("SAB 118") which allowed companies to record provisional estimates of the impacts of U.S. tax reform within a one year measurement period. The Company recorded certain provisional amounts in fiscal 2017 and completed the accounting for the income tax effects of U.S. tax reform during fiscal 2018. U.S. tax reform changes and their impact to the Company are outlined in Note 15. The Company treats the global intangible low-taxed income ("GILTI") tax as an in period tax.
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are made using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
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Level 1 - defined as observable inputs such as quoted prices in active markets;
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•
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Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
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•
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Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
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The fair value measurement is categorized in its entirety by reference to its lowest level of significant input.
The Company records accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. 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 11.
Foreign currency
The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency. Assets and liabilities of each foreign entity are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Net revenue and expenses are translated at the average rate in effect during the period. Unrealized translation gains and losses are recorded as a foreign currency translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in stockholders' equity.
Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional currency with any resulting gains and losses recognized in selling, general and administrative expenses, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are recorded as a foreign currency translation adjustment in other comprehensive income or loss.
Derivative financial instruments
The Company uses derivative financial instruments to manage its exposure to certain foreign currency exchange rate risks.
Net investment hedges. The Company enters into certain forward currency contracts that are designated as net investment hedges. The effective portions of the hedges are reported in accumulated other comprehensive income or loss, net of tax, and will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially liquidated. Hedge effectiveness is measured using a method based on changes in forward exchange rates. The Company classifies the cash flows at settlement of its net investment hedges within investing activities in the consolidated statements of cash flows.
Derivatives not designated as hedging instruments. The Company also enters into certain forward currency contracts that are not designated as net investment hedges. They are designed to economically hedge the foreign exchange revaluation gains and losses of certain monetary assets and liabilities. 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. The Company classifies the cash flows at settlement of its forward currency contracts which are not designated in hedging relationships within operating activities in the consolidated statements of cash flows.
The Company presents its derivative assets and derivative liabilities at their gross fair values within other prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions.
The Company does not enter into derivative contracts for speculative or trading purposes. Additional information on the Company's derivative financial instruments is included in Notes 11 and 12.
Concentration of credit risk
Accounts receivable are primarily from inventory duty receivables, wholesale accounts, and from license and supply arrangements. The Company does not require collateral to support the accounts receivable; however, in certain circumstances, the Company may require parties to provide payment for goods prior to delivery of the goods. The accounts receivable are net of an allowance for doubtful accounts, which is established based on management's assessment of the credit risk of the underlying accounts.
Cash and cash equivalents are held with high quality financial institutions. The amount of cash and cash equivalents held with certain financial institutions exceeds government-insured limits. The Company is also exposed to credit-related losses in the event of nonperformance by the counterparties to the forward currency contracts. The credit risk amount is the Company's unrealized gains on its derivative instruments, based on foreign currency rates at the time of nonperformance. 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. It seeks to limit the amount exposure with any one counterparty.
The Company's derivative contracts contain certain credit risk-related contingent features. Under certain circumstances, including an event of default, bankruptcy, termination, and cross default under the Company's North American revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method. The fair value of awards granted is estimated at the date of grant. Awards 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. The employee compensation expense is recognized on a straight-line basis over the requisite service period with the offsetting credit to additional paid-in capital for awards that are settled in common shares, and with the offsetting credit to accrued compensation and related expenses for awards that are settled in cash or common stock at the election of the employee.
For awards with service and/or performance conditions, the amount of compensation expense recognized is based on the number of awards expected to vest, reflecting estimated expected forfeitures, and is adjusted to reflect those awards that do ultimately vest. For awards with performance conditions, the Company recognizes the compensation expense if and when the Company concludes that it is probable that the performance condition will be achieved. 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. 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. This fair value is based on the closing price of the Company's common stock on the last business day before each period end.
Earnings per share
Earnings per share is calculated using the weighted-average number of common and exchangeable shares outstanding during the period. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have in effect the same rights and share equally in undistributed net income. Diluted earnings per share is calculated by dividing net income available to stockholders for the period by the diluted weighted-average number of shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, performance-based restricted stock units that have satisfied their performance factor, restricted shares, and restricted stock units using the treasury stock method.
Contingencies
In the ordinary course of business, the Company is involved in legal proceedings regarding contractual and employment relationships and a variety of other matters. The Company records contingent liabilities resulting from claims against us, when a loss is assessed to be probable and the amount of the loss is reasonably estimable.
Use of estimates
The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASC 842, Leases ("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. 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 August 2017, the FASB amended ASC 815, Derivatives and Hedging, to more closely align hedge accounting with companies' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. It makes more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The Company adopted this guidance in the first quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB clarified ASC 350-40, Intangibles - Goodwill and Other - Internal-Use Software, for certain aspects of accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under the update, an entity expenses costs incurred in the preliminary-project and post-implementation-operation stages. An entity also capitalizes certain costs incurred during the application-development stage, as well as certain costs related to enhancements. The ASU does not change the accounting for the service component of a cloud computing arrangement. This standard is effective beginning in the first quarter of 2020, with early adoption permitted. The Company adopted this guidance in the first quarter of fiscal 2019, and it did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASC 606") which supersedes the revenue recognition requirements in ASC 605 Revenue Recognition. This ASU requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 on January 29, 2018 on a modified retrospective basis. There were no changes to the consolidated statement of operations as a result of the adoption, and the timing and amount of its revenue recognition remained substantially unchanged under this new guidance.
NOTE 3. INVENTORIES
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February 2, 2020
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February 3, 2019
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(In thousands)
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Finished goods
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$
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540,580
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|
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$
|
420,931
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Provision to reduce inventories to net realizable value
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(22,067
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)
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(16,089
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)
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Inventories
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$
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518,513
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$
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404,842
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The Company had net write-offs of $28.6 million, $25.3 million, and $16.4 million of inventory in fiscal 2019, fiscal 2018, and fiscal 2017, respectively for goods that were obsolete, had quality issues, or were damaged.
NOTE 4. PROPERTY AND EQUIPMENT
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February 2, 2020
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February 3, 2019
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(In thousands)
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Land
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$
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71,829
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$
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78,636
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Buildings
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30,187
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38,030
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Leasehold improvements
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489,202
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362,571
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Furniture and fixtures
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109,533
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103,733
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Computer hardware
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95,399
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69,542
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Computer software
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336,768
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230,689
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Equipment and vehicles
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19,521
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15,009
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Work in progress
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40,930
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74,271
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Property and equipment, gross
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1,193,369
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972,481
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Accumulated depreciation
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(521,676
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)
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(405,244
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)
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Property and equipment, net
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$
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671,693
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$
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567,237
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Included in the cost of computer software are capitalized costs of $20.7 million and $13.2 million as of February 2, 2020 and February 3, 2019, respectively, associated with internally developed software.
Depreciation expense related to property and equipment was $161.8 million, $122.4 million, and $108.0 million for the years ended February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
See Note 14 for information on the impairment of long-lived assets the Company recognized as part of the restructuring of its ivivva operations.
NOTE 5. OTHER NON-CURRENT ASSETS
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February 2, 2020
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February 3, 2019
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(In thousands)
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Cloud computing arrangement implementation costs
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$
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24,648
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$
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2,395
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Security deposits
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19,901
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15,793
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Deferred lease assets
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—
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9,286
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Other
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11,652
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9,930
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Other non-current assets
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$
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56,201
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$
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37,404
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NOTE 6. OTHER CURRENT LIABILITIES
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February 2, 2020
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February 3, 2019
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(In thousands)
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Accrued duty, freight, and other operating expenses
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$
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59,403
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$
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49,945
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Sales tax collected
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17,370
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16,091
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Deferred revenue
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12,705
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8,045
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Sales return allowances
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12,897
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|
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11,318
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Accrued rent
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8,356
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|
|
7,331
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Accrued capital expenditures
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|
5,457
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|
|
11,295
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Forward currency contract liabilities
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|
1,920
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|
|
1,042
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Lease termination liabilities
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|
182
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|
|
2,293
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|
Other
|
|
6,753
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|
|
5,338
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Other current liabilities
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|
$
|
125,043
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|
|
$
|
112,698
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NOTE 7. OTHER NON-CURRENT LIABILITIES
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|
|
|
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
|
(In thousands)
|
Tenant inducements
|
|
$
|
—
|
|
|
$
|
42,138
|
|
Deferred lease liabilities
|
|
—
|
|
|
33,406
|
|
Other
|
|
5,596
|
|
|
6,367
|
|
Other non-current liabilities
|
|
$
|
5,596
|
|
|
$
|
81,911
|
|
NOTE 8. LONG-TERM DEBT AND CREDIT FACILITIES
North America revolving credit facility
On December 15, 2016, the Company entered into a $150.0 million committed and unsecured revolving credit facility. Any amounts outstanding under the revolving credit facility will be due and payable in full on December 15, 2021, subject to provisions that permit the Company to request a limited number of one year extensions annually.
Up to $35.0 million of the revolving credit facility is available for the issuance of letters of credit and up to $25.0 million is available for swing line loans. Commitments under the revolving credit facility may be increased by up to $200.0 million, subject to certain conditions, including the approval of the lenders.
Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Canadian Dollars, and in other currencies, subject to the approval of the administrative agent and the lenders. Borrowings under the agreement may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).
Borrowings made under the revolving credit facility bear interest at a variable rate per annum equal to, at the Company's option, either (a) LIBOR or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax, depreciation, amortization, and rent ("EBITDAR") and ranges between 1.00%-1.75% for LIBOR loans and 0.00%-0.75% for alternate base rate loans. Additionally, a commitment fee of between 0.125%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the revolving credit facility.
The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.
The Company is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50:1.00 and it is not permitted to allow the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) to be less than 2.00:1.00. The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control). As of February 2, 2020, the Company was in compliance with all applicable covenants.
On June 6, 2018, the Company entered into Amendment No. 1 to the credit agreement. The Amendment amends the credit agreement to provide for (i) an increase in the aggregate commitments under the unsecured five-year revolving credit facility to $400.0 million, with an increase of the sub-limits for the issuance of letters of credit and extensions of swing line loans to $50.0 million for each, (ii) an increase in the option, subject to certain conditions as set forth in the credit agreement, to request increases in commitments under the revolving facility from $400.0 million to $600.0 million and (iii) an extension in the maturity of the revolving facility from December 15, 2021 to June 6, 2023.
In addition, the Amendment decreases the applicable margins for LIBOR loans from 1.00%-1.75% to 1.00%-1.50% and for alternate base rate loans from 0.00%-0.75% to 0.00%-0.50%, reduces the commitment fee on average daily unused amounts under the revolving facility from 0.125%-0.200% to 0.10%-0.20%, and reduces fees for unused letters of credit from 1.00%-1.75% to 1.00%-1.50%.
As of February 2, 2020, aside from letters of credit of $1.8 million, there were no other borrowings outstanding under this credit facility.
Mainland China revolving credit facility
In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan revolving credit facility. The terms are reviewed on an annual basis. The facility includes a revolving loan of up to 100.0 million Chinese Yuan as well as a financial bank guarantee facility of up to 30.0 million Chinese Yuan, or its equivalent in another currency. Loans are available in Chinese Yuan for a period not to exceed 12 months, and interest accrues on them at a rate equal to 105% of the applicable PBOC Benchmark Lending Rate. Guarantees have a commission equal to 1% per annum of the outstanding amount. The Company is required to follow certain covenants. As of February 2, 2020, there were no borrowings outstanding under this credit facility.
NOTE 9. STOCKHOLDERS' EQUITY
Special voting stock and exchangeable shares
The holders of the special voting stock are entitled to one vote for each share held. The special voting shares are not entitled to receive dividends or distributions or receive any consideration in the event of a liquidation, dissolution, or wind-up. To the extent that exchangeable shares as described below are exchanged for common stock, a corresponding number of special voting shares will be cancelled without consideration.
The holders of the exchangeable shares have dividend and liquidation rights equivalent to those of holders of the common shares of the Company. The exchangeable shares can be converted on a one for one basis by the holder at any time into common shares of the Company plus a cash payment for any accrued and unpaid dividends. Holders of exchangeable shares are entitled to the same or economically equivalent dividend as declared on the common stock of the Company. The exchangeable shares are non-voting. The Company has the right to convert the exchangeable shares into common shares of the Company at any time after the earliest of July 26, 2047, the date on which fewer than 4.2 million exchangeable shares are outstanding, or in the event of certain events such as a change in control.
NOTE 10. STOCK-BASED COMPENSATION AND BENEFIT PLANS
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, which are provided by the Company directly.
In June 2014, the Company's stockholders approved the adoption of the lululemon athletica inc. 2014 Equity Incentive Plan ("2014 Plan"). The 2014 Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock purchase rights, restricted share bonuses, restricted stock units, performance shares, performance-based restricted stock units, cash-based awards, other stock-based awards, and deferred compensation awards to employees (including officers and directors who are also employees), consultants, and directors of the Company.
The awards granted under the 2007 Equity Incentive Plan ("2007 Plan") remain outstanding and continue to vest under their original conditions. No further awards will be granted under the 2007 Plan.
The Company has granted stock options, performance-based restricted stock units, restricted stock units, and restricted shares. Stock options granted to date generally have a four-year vesting period and vest at a rate of 25% each year on the anniversary date of the grant. Stock options generally expire on the earlier of seven years from the date of grant, or a specified period of time following termination, in accordance with the 2014 Plan and the related grant agreement. Performance-based restricted stock units issued generally vest three years from the grant date and restricted shares generally vest one year from the
grant date. Restricted stock units granted generally have a three-year vesting period and vest at a certain percentage each year on the anniversary date of the grant.
The Company issues previously unissued shares upon the exercise of Company options, vesting of performance-based restricted stock units or restricted stock units that are settled in common stock, and granting of restricted shares.
Stock-based compensation expense charged to income for the plans was $46.1 million, $29.6 million, and $17.6 million for the years ended February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
Total unrecognized compensation cost for all stock-based compensation plans was $63.4 million as of February 2, 2020, which is expected to be recognized over a weighted-average period of 2.0 years, and was $55.6 million as of February 3, 2019 over a weighted-average period of 2.1 years.
A summary of the balances of the Company's stock-based compensation plans as of February 2, 2020, February 3, 2019, and January 28, 2018, and changes during the fiscal years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Performance-Based Restricted Stock Units
|
|
Restricted Shares
|
|
Restricted Stock Units
|
|
Restricted Stock Units
(Liability Accounting)
|
|
|
Number
|
|
Weighted-Average Exercise Price
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
Number
|
|
Weighted-Average Grant Date Fair Value
|
|
Number
|
|
Weighted-Average Fair Value
|
|
|
(In thousands, except per share amounts)
|
Balance at January 29, 2017
|
|
918
|
|
|
$
|
59.20
|
|
|
390
|
|
|
$
|
61.05
|
|
|
14
|
|
|
$
|
70.54
|
|
|
360
|
|
|
$
|
62.99
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
619
|
|
|
52.34
|
|
|
192
|
|
|
52.38
|
|
|
24
|
|
|
52.38
|
|
|
336
|
|
|
52.83
|
|
|
—
|
|
|
—
|
|
Exercised/vested
|
|
109
|
|
|
51.62
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
70.29
|
|
|
135
|
|
|
60.64
|
|
|
—
|
|
|
—
|
|
Forfeited/expired
|
|
311
|
|
|
58.09
|
|
|
253
|
|
|
55.30
|
|
|
3
|
|
|
51.72
|
|
|
134
|
|
|
57.28
|
|
|
—
|
|
|
—
|
|
Balance at January 28, 2018
|
|
1,117
|
|
|
$
|
56.44
|
|
|
329
|
|
|
$
|
60.42
|
|
|
21
|
|
|
$
|
52.45
|
|
|
427
|
|
|
$
|
57.54
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
388
|
|
|
96.96
|
|
|
123
|
|
|
102.49
|
|
|
6
|
|
|
124.19
|
|
|
257
|
|
|
88.75
|
|
|
44
|
|
|
136.67
|
|
Exercised/vested
|
|
316
|
|
|
56.29
|
|
|
39
|
|
|
63.04
|
|
|
21
|
|
|
52.45
|
|
|
174
|
|
|
58.94
|
|
|
—
|
|
|
—
|
|
Forfeited/expired
|
|
319
|
|
|
59.76
|
|
|
133
|
|
|
61.71
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
66.90
|
|
|
—
|
|
|
—
|
|
Balance at February 3, 2019
|
|
870
|
|
|
$
|
73.34
|
|
|
280
|
|
|
$
|
78.01
|
|
|
6
|
|
|
$
|
124.19
|
|
|
440
|
|
|
$
|
73.73
|
|
|
44
|
|
|
$
|
146.12
|
|
Granted
|
|
325
|
|
|
168.14
|
|
|
93
|
|
|
142.33
|
|
|
7
|
|
|
175.82
|
|
|
124
|
|
|
170.15
|
|
|
—
|
|
|
—
|
|
Exercised/vested
|
|
299
|
|
|
60.75
|
|
|
97
|
|
|
72.04
|
|
|
6
|
|
|
124.19
|
|
|
186
|
|
|
70.69
|
|
|
15
|
|
|
179.67
|
|
Forfeited/expired
|
|
120
|
|
|
102.37
|
|
|
38
|
|
|
91.03
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
95.46
|
|
|
—
|
|
|
—
|
|
Balance at February 2, 2020
|
|
776
|
|
|
$
|
113.41
|
|
|
238
|
|
|
$
|
103.52
|
|
|
7
|
|
|
$
|
175.82
|
|
|
333
|
|
|
$
|
108.44
|
|
|
29
|
|
|
$
|
239.39
|
|
A total of 13.3 million shares of the Company's common stock have been authorized for future issuance under the Company's 2014 Equity Incentive Plan.
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. The fair value of performance-based restricted stock units is based on the closing price of the Company's common stock on the award date. 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. 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. This fair value is based on the closing price of the Company's common stock on the last business day before each period end.
The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes 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. 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. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The following are weighted averages of the assumptions that were used in calculating the fair value of stock options granted in fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
Expected term
|
|
3.75 years
|
|
|
3.75 years
|
|
|
4.00 years
|
|
Expected volatility
|
|
38.43
|
%
|
|
36.87
|
%
|
|
38.28
|
%
|
Risk-free interest rate
|
|
2.19
|
%
|
|
2.46
|
%
|
|
1.72
|
%
|
Dividend yield
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
The following table summarizes information about stock options outstanding and exercisable as of February 2, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Range of Exercise Prices
|
|
Number of Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Life (Years)
|
|
Number of Options
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Life (Years)
|
|
|
(In thousands, except per share amounts and years)
|
$38.25 - $59.75
|
|
155
|
|
|
$
|
51.91
|
|
|
4.0
|
|
40
|
|
|
$
|
51.88
|
|
|
3.5
|
$60.30 - $81.22
|
|
82
|
|
|
70.95
|
|
|
3.8
|
|
28
|
|
|
70.53
|
|
|
3.6
|
$85.96 - $124.19
|
|
180
|
|
|
88.86
|
|
|
5.2
|
|
18
|
|
|
92.25
|
|
|
5.2
|
$136.67 - $155.97
|
|
73
|
|
|
137.35
|
|
|
5.5
|
|
18
|
|
|
137.35
|
|
|
5.5
|
$167.54 - $239.39
|
|
286
|
|
|
168.22
|
|
|
6.2
|
|
—
|
|
|
—
|
|
|
0.0
|
|
|
776
|
|
|
$
|
113.41
|
|
|
5.2
|
|
104
|
|
|
$
|
78.94
|
|
|
4.2
|
Intrinsic value
|
|
$
|
97,775
|
|
|
|
|
|
|
$
|
16,704
|
|
|
|
|
|
As of February 2, 2020, the unrecognized compensation cost related to these options was $17.1 million, which is expected to be recognized over a weighted-average period of 2.8 years. The weighted-average grant date fair value of options granted during the years ended February 2, 2020, February 3, 2019, and January 28, 2018 was $54.09, $30.30, and $16.88, respectively.
The following table summarizes the intrinsic value of options exercised and awards that vested during fiscal 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Stock options
|
|
$
|
36,188
|
|
|
$
|
17,268
|
|
|
$
|
1,856
|
|
Performance-based restricted stock units
|
|
16,003
|
|
|
3,413
|
|
|
—
|
|
Restricted shares
|
|
1,048
|
|
|
2,600
|
|
|
743
|
|
Restricted stock units
|
|
31,300
|
|
|
17,142
|
|
|
7,447
|
|
Restricted stock units (liability accounting)
|
|
2,603
|
|
|
—
|
|
|
—
|
|
|
|
$
|
87,142
|
|
|
$
|
40,423
|
|
|
$
|
10,046
|
|
Employee share purchase plan
The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007. Contributions are made by eligible employees, subject to certain limits defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares authorized to be purchased under the ESPP is 6.0
million shares. All shares purchased under the ESPP are purchased in the open market. During the year ended February 2, 2020, there were 0.1 million shares purchased.
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 $8.5 million, $6.4 million, and $5.2 million for the years ended February 2, 2020, February 3, 2019, and January 28, 2018, respectively.
NOTE 11. FAIR VALUE MEASUREMENT
Assets and liabilities measured at fair value on a recurring basis
As of February 2, 2020 and February 3, 2019, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance Sheet Classification
|
|
|
(In thousands)
|
|
|
Money market funds
|
|
$
|
610,800
|
|
|
$
|
610,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Term deposits
|
|
203,360
|
|
|
—
|
|
|
203,360
|
|
|
—
|
|
|
Cash and cash equivalents
|
Forward currency contract assets
|
|
1,735
|
|
|
—
|
|
|
1,735
|
|
|
—
|
|
|
Other prepaid expenses and other current assets
|
Forward currency contract liabilities
|
|
1,920
|
|
|
—
|
|
|
1,920
|
|
|
—
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance Sheet Classification
|
|
|
(In thousands)
|
|
|
Money market funds
|
|
$
|
471,888
|
|
|
$
|
471,888
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
Treasury bills
|
|
99,958
|
|
|
99,958
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
Term deposits
|
|
63,522
|
|
|
—
|
|
|
63,522
|
|
|
—
|
|
|
Cash and cash equivalents
|
Forward currency contract assets
|
|
516
|
|
|
—
|
|
|
516
|
|
|
—
|
|
|
Other prepaid expenses and other current assets
|
Forward currency contract liabilities
|
|
1,042
|
|
|
—
|
|
|
1,042
|
|
|
—
|
|
|
Other current liabilities
|
The Company records accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds, Treasury bills, and term deposits. The Company records cash equivalents at their original purchase prices plus interest that has accrued at the stated rate.
The fair values of the forward currency contract assets and liabilities are determined using observable Level 2 inputs, including foreign currency spot exchange rates, forward pricing curves, and interest rates. The fair values consider the credit risk of the Company and its counterparties. The Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. However, the Company records all derivatives on its consolidated balance sheets at fair value and does not offset derivative assets and liabilities.
Assets and liabilities measured at fair value on a non-recurring basis
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company has impaired certain long-lived assets and recorded them at their estimated fair value on a non-recurring basis. The fair value of these long-lived assets was determined using Level 3 inputs, principally the present value of the estimated future cash flows expected from their
use and eventual disposition. Please refer to Note 14 for further details regarding the impairment of long-lived assets as a result of the ivivva restructuring.
The Company has also recorded lease termination liabilities at fair value on a non-recurring basis, determined using Level 3 inputs based on remaining lease rentals and reduced by estimated sublease income.
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company currently hedges against changes in the Canadian dollar to U.S. dollar exchange rate and changes in the Chinese Yuan to U.S. dollar exchange rate using forward currency contracts.
Net investment hedges
The Company holds a significant portion of its assets in Canada and during the year ended February 2, 2020, it entered into forward currency contracts designed to hedge a portion of the foreign currency exposure that arises on translation of a Canadian subsidiary into U.S. dollars. These forward currency contracts are designated as net investment hedges. The Company assesses hedge effectiveness based on changes in forward rates. The Company recorded no ineffectiveness from net investment hedges for the year ended February 2, 2020.
Derivatives not designated as hedging instruments
During the year ended February 2, 2020 the Company entered into certain forward currency contracts designed to economically hedge the foreign exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on U.S. dollar denominated monetary assets and liabilities.
Quantitative disclosures about derivative financial instruments
The notional amounts and fair values of forward currency contracts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
|
Gross Notional
|
|
Assets
|
|
Liabilities
|
|
Gross Notional
|
|
Assets
|
|
Liabilities
|
|
|
(In thousands)
|
Derivatives designated as net investment hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
$
|
417,000
|
|
|
$
|
1,583
|
|
|
$
|
—
|
|
|
$
|
328,000
|
|
|
$
|
—
|
|
|
$
|
1,042
|
|
Derivatives not designated in a hedging relationship:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
460,000
|
|
|
152
|
|
|
1,920
|
|
|
309,000
|
|
|
516
|
|
|
—
|
|
Net derivatives recognized on consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts
|
|
|
|
$
|
1,735
|
|
|
$
|
1,920
|
|
|
|
|
$
|
516
|
|
|
$
|
1,042
|
|
As of February 2, 2020, there were derivative assets of $1.7 million and derivative liabilities of $1.9 million subject to enforceable netting arrangements.
The forward currency contracts designated as net investment hedges mature on different dates between February 2020 and August 2020.
The forward currency contracts not designated in a hedging relationship mature on different dates between February 2020 and August 2020.
The pre-tax gains and losses on foreign exchange forward contracts recorded in accumulated other comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Gains (losses) recognized in foreign currency translation adjustment:
|
|
|
|
|
|
|
Derivatives designated as net investment hedges
|
|
$
|
2,972
|
|
|
$
|
23,946
|
|
|
$
|
(15,974
|
)
|
No gains or losses have been reclassified from accumulated other comprehensive income into net income for derivative financial instruments in a net investment hedging relationship, as the Company has not sold or liquidated (or substantially liquidated) its hedged subsidiary.
The pre-tax net foreign exchange and derivative gains and losses recorded in the consolidated statement of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Gains (losses) recognized in selling, general and administrative expenses:
|
|
|
|
|
|
|
Foreign exchange gains (losses)
|
|
$
|
2,701
|
|
|
$
|
23,642
|
|
|
$
|
(6,798
|
)
|
Derivatives not designated in a hedging relationship
|
|
(4,209
|
)
|
|
(22,249
|
)
|
|
14,115
|
|
Net foreign exchange and derivative gains (losses)
|
|
$
|
(1,508
|
)
|
|
$
|
1,393
|
|
|
$
|
7,317
|
|
NOTE 13. LEASES
The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment. As of February 2, 2020, the lease terms of the various leases range from two to fifteen years. 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 following table details the Company's net lease expense. Certain of the Company's leases include rent escalation clauses, rent holidays, and leasehold rental incentives. The majority of the Company's leases for store premises also include contingent rental payments based on sales volume. The variable lease expenses disclosed below include contingent rent payments and other non-fixed lease related costs, including common area maintenance, property taxes, and landlord's insurance.
|
|
|
|
|
|
|
|
Fiscal Year Ended
February 2, 2020
|
|
|
(In thousands)
|
Net lease expense:
|
|
|
Operating lease expense
|
|
$
|
176,367
|
|
Short-term lease expense
|
|
9,358
|
|
Variable lease expense
|
|
70,957
|
|
|
|
$
|
256,682
|
|
The following table presents future minimum lease payments and the impact of discounting.
|
|
|
|
|
|
|
|
February 2, 2020
|
|
|
(In thousands)
|
2020
|
|
$
|
152,440
|
|
2021
|
|
161,519
|
|
2022
|
|
138,188
|
|
2023
|
|
111,877
|
|
2024
|
|
87,275
|
|
After 2025
|
|
174,797
|
|
Future minimum lease payments
|
|
$
|
826,096
|
|
Impact of discounting
|
|
(86,135
|
)
|
Present value of lease liabilities
|
|
$
|
739,961
|
|
|
|
|
Balance sheet classification:
|
|
|
Current lease liabilities
|
|
$
|
128,497
|
|
Non-current lease liabilities
|
|
611,464
|
|
|
|
$
|
739,961
|
|
The weighted-average remaining lease term and weighted-average discount rate were as follows:
|
|
|
|
|
|
|
February 2, 2020
|
Weighted-average remaining lease term
|
|
6.07 years
|
|
Weighted-average discount rate
|
|
3.57
|
%
|
Disclosures related to periods prior to adoption of ASC 842
The following table details the Company's total rent expense prior to the adoption of ASC 842 as well as the property taxes for leased locations.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Total rent expense:
|
|
|
|
|
Minimum rent expense
|
|
$
|
161,847
|
|
|
$
|
135,879
|
|
Common area expenses
|
|
23,269
|
|
|
20,016
|
|
Rent contingent on sales
|
|
12,846
|
|
|
11,433
|
|
|
|
$
|
197,962
|
|
|
$
|
167,328
|
|
|
|
|
|
|
Property taxes for leased locations
|
|
$
|
17,826
|
|
|
$
|
15,766
|
|
The table below summarizes the Company's contractual arrangements as of February 3, 2019, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods. Minimum annual basic rent payments excluding other executory operating costs, pursuant to lease agreements are approximately as laid out in the table below. These amounts include commitments in respect of lease agreements that have been executed, but have not yet commenced.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year
|
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
|
(In thousands)
|
Operating leases (minimum rent)
|
|
$
|
783,913
|
|
|
$
|
169,822
|
|
|
$
|
147,541
|
|
|
$
|
123,032
|
|
|
$
|
99,471
|
|
|
$
|
73,213
|
|
|
$
|
170,834
|
|
NOTE 14. ASSET IMPAIRMENT AND RESTRUCTURING
During fiscal 2017, the Company restructured its ivivva operations. On August 20, 2017, the Company closed 48 of its 55 ivivva branded company-operated stores and all other ivivva branded temporary locations. As a result of this restructuring, the Company recognized aggregate pre-tax charges of $47.2 million during fiscal 2017.
A summary of the pre-tax charges recognized in connection with the Company's restructuring of its ivivva operations is as follows:
|
|
|
|
|
|
|
|
Fiscal Year Ended
January 28, 2018
|
|
|
(In thousands)
|
Costs recorded in cost of goods sold:
|
|
|
Provision to reduce inventories to net realizable value
|
|
$
|
4,945
|
|
Accelerated depreciation
|
|
3,753
|
|
|
|
8,698
|
|
Costs recorded in operating expenses:
|
|
|
Lease termination costs
|
|
21,069
|
|
Impairment of property and equipment
|
|
11,593
|
|
Employee related costs
|
|
4,226
|
|
Other restructuring costs
|
|
1,637
|
|
Asset impairment and restructuring costs
|
|
38,525
|
|
Restructuring and related costs
|
|
$
|
47,223
|
|
Income tax recoveries of $12.7 million were recorded on the above items in fiscal 2017. These income tax recoveries are based on the annual tax rate of the applicable tax jurisdictions.
Costs recorded in cost of goods sold
During fiscal 2017, the Company recognized expenses of $8.7 million in cost of goods sold as a result of the restructuring of its ivivva operations. This included $4.9 million to reduce inventories to their estimated net realizable value, and $3.8 million in accelerated depreciation primarily related to leasehold improvements and furniture and fixtures for stores that were closed on August 20, 2017.
Costs recorded in operating expenses
The Company recognized asset impairment and restructuring costs of $38.5 million during fiscal 2017 as a result of the restructuring of its ivivva operations.
As a result of the plan to close the majority of the ivivva branded locations, the long-lived assets of each ivivva branded location were tested for impairment as of April 30, 2017. For impaired locations, a loss was recognized representing the difference between the net book value of the long-lived assets and their estimated fair value. Impairment losses totaling $11.6 million were recognized during the first quarter of fiscal 2017. These losses primarily relate to leasehold improvements and furniture and fixtures of the company-operated stores segment. These assets were retired during fiscal 2017 in conjunction with the closures of the company-operated stores.
During fiscal 2017, the Company recognized lease termination costs of $21.1 million, employee related expenses as a result of the restructuring of $4.2 million as well as other restructuring costs of $1.6 million.
NOTE 15. INCOME TAXES
The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Income before income tax expense
|
|
|
|
|
|
|
Domestic
|
|
$
|
180,043
|
|
|
$
|
132,563
|
|
|
$
|
123,942
|
|
Foreign
|
|
717,350
|
|
|
582,687
|
|
|
336,056
|
|
|
|
$
|
897,393
|
|
|
$
|
715,250
|
|
|
$
|
459,998
|
|
Current income tax expense
|
|
|
|
|
|
|
Federal
|
|
$
|
45,765
|
|
|
$
|
73,213
|
|
|
$
|
79,724
|
|
State
|
|
11,480
|
|
|
16,153
|
|
|
11,573
|
|
Foreign
|
|
170,158
|
|
|
123,129
|
|
|
109,322
|
|
|
|
$
|
227,403
|
|
|
$
|
212,495
|
|
|
$
|
200,619
|
|
Deferred income tax expense (recovery)
|
|
|
|
|
|
|
Federal
|
|
$
|
(5,683
|
)
|
|
$
|
(13,068
|
)
|
|
$
|
14,443
|
|
State
|
|
(150
|
)
|
|
(8,566
|
)
|
|
3,988
|
|
Foreign
|
|
30,227
|
|
|
40,588
|
|
|
(17,714
|
)
|
|
|
24,394
|
|
|
18,954
|
|
|
717
|
|
Income tax expense
|
|
$
|
251,797
|
|
|
$
|
231,449
|
|
|
$
|
201,336
|
|
The Company's income tax expense for fiscal 2018 and fiscal 2017 included certain discrete tax amounts, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
U.S. tax reform:
|
|
|
|
|
One-time transition tax
|
|
$
|
7,464
|
|
|
$
|
58,896
|
|
Deferred income tax effects
|
|
—
|
|
|
398
|
|
Tax on repatriation from foreign subsidiaries
|
|
23,714
|
|
|
—
|
|
Tax recovery on ivivva restructuring costs
|
|
—
|
|
|
(12,741
|
)
|
Total discrete amounts
|
|
$
|
31,178
|
|
|
$
|
46,553
|
|
U.S. tax reform
The U.S. tax reform enacted on December 22, 2017 introduced significant changes to the U.S. income tax laws, including reduction in the U.S. federal income tax rate from 35% to 21%, a shift to a territorial tax system which changed how foreign earnings are subject to U.S. tax, and the imposition of a mandatory one-time transition tax on the accumulated undistributed earnings of foreign subsidiaries.
One-time transition tax. U.S. tax reform required the Company to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% on cash and cash equivalents and 8% on the remaining earnings, net of foreign tax credits. The one-time transition tax is payable over eight years.
During fiscal 2017, the Company recognized a provisional amount of $58.9 million for the mandatory one-time transition tax on the deemed repatriation of accumulated undistributed earnings of foreign subsidiaries. As a result of completing its fiscal 2017 U.S. tax returns and incorporating newly issued guidance into its calculations the Company recognized an additional current tax expense of $7.5 million during fiscal 2018 for the mandatory one-time transition tax.
Deferred income tax effects. U.S. tax reform reduced the U.S. federal income tax rate from 35% to 21%. Accordingly, the Company remeasured its deferred income tax assets and liabilities to reflect the reduced rate that is expected to apply in future
periods when these balances reverse. The Company recognized a provisional deferred income tax expense of $0.4 million during fiscal 2017 to reflect the reduced U.S. tax rate and other effects of U.S. tax reform. There were no adjustments to this provisional amount in fiscal 2018.
The Company completed the accounting for the income tax effects of U.S. tax reform in fiscal 2018.
Tax on repatriation from foreign subsidiaries
U.S. tax reform and the shift to a territorial tax system in fiscal 2017 eliminated U.S. federal income taxes upon the repatriation of foreign earnings. However, U.S. tax reform did not eliminate foreign withholding taxes, or certain state income taxes.
During fiscal 2018, the Company completed its evaluation of the impact that U.S. tax reform has upon repatriation taxes, its reinvestment plans, and the most efficient means of deploying its capital resources. As a result of these evaluations, the Company repatriated $778.9 million from a Canadian subsidiary to the U.S. parent entity in fiscal 2018. A net tax current expense of $23.7 million was recognized in fiscal 2018 on this distribution.
As at February 2, 2020, the Company's net investment in its Canadian subsidiaries was $1.3 billion, of which $0.8 billion was determined to be indefinitely reinvested. A deferred tax liability of $1.5 million has been recognized in relation to the portion of the Company's net investment in its Canadian subsidiaries that is not indefinitely reinvested, principally representing the U.S. state income taxes which would be due upon repatriation. This deferred tax liability has been recorded on the basis that the Company would choose to make the repatriation transactions in the most tax efficient manner. Specifically, to the extent that the Canadian subsidiaries have sufficient paid-up-capital, any such distributions would be characterized as a return of capital for Canadian tax purposes, and therefore not subject to Canadian withholding tax. The unrecognized deferred tax liability on the indefinitely reinvested amount is approximately $2.3 million.
No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company's other foreign subsidiaries as these earnings are permanently reinvested outside of the United States. Excluding its Canadian subsidiaries, cumulative undistributed earnings of the Company's foreign subsidiaries as of February 2, 2020 were $52.1 million.
As of February 2, 2020, the Company had cash and cash equivalents of $387.4 million outside of the United States.
Tax recovery on ivivva restructuring costs
As outlined in Note 14, the Company restructured its ivivva operations during fiscal 2017. Income tax recoveries of $12.7 million were recorded on total restructuring costs of $47.2 million in fiscal 2017. These income tax recoveries are based on the tax rate of the applicable tax jurisdictions.
A summary reconciliation of the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(Percentages)
|
Federal income tax at statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
33.9
|
%
|
Foreign tax rate differentials
|
|
4.6
|
|
|
4.7
|
|
|
(5.9
|
)
|
U.S. state taxes
|
|
1.0
|
|
|
0.9
|
|
|
1.5
|
|
Non-deductible compensation expense
|
|
0.6
|
|
|
0.8
|
|
|
0.9
|
|
Permanent and other
|
|
0.9
|
|
|
0.6
|
|
|
0.5
|
|
U.S. tax reform
|
|
—
|
|
|
1.1
|
|
|
12.9
|
|
Tax on repatriation from foreign subsidiaries
|
|
—
|
|
|
3.3
|
|
|
—
|
|
Effective tax rate
|
|
28.1
|
%
|
|
32.4
|
%
|
|
43.8
|
%
|
The Company's U.S. federal income tax rate of 33.9% for the year ended January 28, 2018 was a blended rate that includes the rate decrease which became effective on January 1, 2018.
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of February 2, 2020 and February 3, 2019 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
|
(In thousands)
|
Deferred income tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,354
|
|
|
$
|
3,163
|
|
Inventories
|
|
8,763
|
|
|
8,684
|
|
Property and equipment, net
|
|
5,444
|
|
|
—
|
|
Non-current lease liabilities
|
|
144,412
|
|
|
—
|
|
Deferred lease liabilities
|
|
—
|
|
|
8,206
|
|
Tenant inducements
|
|
—
|
|
|
10,444
|
|
Stock-based compensation
|
|
4,961
|
|
|
2,440
|
|
Accrued bonuses
|
|
3,509
|
|
|
3,265
|
|
Unredeemed gift card liability
|
|
6,815
|
|
|
5,015
|
|
Foreign tax credits
|
|
4,827
|
|
|
—
|
|
Other
|
|
2,759
|
|
|
4,813
|
|
Deferred income tax assets
|
|
183,844
|
|
|
46,030
|
|
Valuation allowance
|
|
(5,655
|
)
|
|
(507
|
)
|
Deferred income tax assets, net of valuation allowance
|
|
$
|
178,189
|
|
|
$
|
45,523
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property and equipment, net
|
|
$
|
(57,280
|
)
|
|
$
|
(33,055
|
)
|
Right-of-use lease assets
|
|
(132,059
|
)
|
|
—
|
|
Other
|
|
(847
|
)
|
|
(168
|
)
|
Deferred income tax liabilities
|
|
(190,186
|
)
|
|
(33,223
|
)
|
Net deferred income tax (liabilities) assets
|
|
$
|
(11,997
|
)
|
|
$
|
12,300
|
|
|
|
|
|
|
Balance sheet classification:
|
|
|
|
|
Deferred income tax assets
|
|
$
|
31,435
|
|
|
$
|
26,549
|
|
Deferred income tax liabilities
|
|
(43,432
|
)
|
|
(14,249
|
)
|
Net deferred income tax (liabilities) assets
|
|
$
|
(11,997
|
)
|
|
$
|
12,300
|
|
As of February 2, 2020, the Company had net operating loss carryforwards of $9.7 million. The majority of the net operating loss carryforwards expire, if unused, between fiscal 2026 and fiscal 2039.
The Company files income tax returns in the U.S., Canada, and various foreign, state, and provincial jurisdictions. The 2016 to 2018 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2013 tax year is still open for certain state tax authorities. The 2010 to 2018 tax years remain subject to examination by Canadian tax authorities. The 2012 to 2018 tax years remain subject to examination by tax authorities in certain foreign jurisdictions. 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.
NOTE 16. EARNINGS PER SHARE
The details of the computation of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands, except per share amounts)
|
Net income
|
|
$
|
645,596
|
|
|
$
|
483,801
|
|
|
$
|
258,662
|
|
Basic weighted-average number of shares outstanding
|
|
130,393
|
|
|
133,413
|
|
|
135,988
|
|
Assumed conversion of dilutive stock options and awards
|
|
562
|
|
|
558
|
|
|
210
|
|
Diluted weighted-average number of shares outstanding
|
|
130,955
|
|
|
133,971
|
|
|
136,198
|
|
Basic earnings per share
|
|
$
|
4.95
|
|
|
$
|
3.63
|
|
|
$
|
1.90
|
|
Diluted earnings per share
|
|
$
|
4.93
|
|
|
$
|
3.61
|
|
|
$
|
1.90
|
|
The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have in effect the same rights and share equally in undistributed net income. For the fiscal years ended February 2, 2020, February 3, 2019, and January 28, 2018, 48.0 thousand, 32.2 thousand, and 0.1 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.
On December 1, 2016, the Company's board of directors approved a program to repurchase shares of the Company's common stock up to an aggregate value of $100.0 million. This stock repurchase program was completed during the third quarter of fiscal 2017. On November 29, 2017, the Company's board of directors approved a stock repurchase program for up to $200.0 million and on June 6, 2018, the board of directors approved an increase to this stock repurchase program, authorizing the repurchase of up to a total of $600.0 million of the Company's common shares. These programs were completed during the first quarter of fiscal 2019.
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. Common shares repurchased on the open market are at prevailing market prices, including under plans complying with the provisions of Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934. The timing and actual number of common shares to be repurchased will depend upon market conditions, eligibility to trade, and other factors, in accordance with Securities and Exchange Commission requirements, and the repurchase program is expected to be completed by January 2021. As of February 2, 2020, the remaining value of shares available to be repurchased under this program was $327.3 million.
During the fiscal years ended February 2, 2020, February 3, 2019, and January 28, 2018, 1.1 million, 4.9 million, and 1.9 million shares, respectively, were repurchased under the programs at a total cost of $173.4 million, $598.3 million, and $100.3 million, respectively.
Subsequent to February 2, 2020, and up to March 20, 2020, 0.2 million shares were repurchased at a total cost of $33.8 million.
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
Leases. The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment. Please refer to Note 13 for further details regarding lease commitments and the timing of future minimum lease payments.
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. The initial term of the agreement for the Middle East expired in January 2020 and the Company currently intends to stay in the market. The initial term of the agreement for Mexico expires in November 2026. As of February 2, 2020, there were four licensed retail locations in Mexico, three in the United Arab Emirates, and one in Qatar.
One-time transition tax. As outlined in Note 15, U.S. tax reform imposed a mandatory transition tax on accumulated foreign subsidiary earnings which have not previously been subject to U.S. income tax. The one-time transition tax is payable over eight years beginning in fiscal 2018. The Company recognized a provisional income tax expense of $58.9 million in fiscal
2017 and an additional expense of $7.5 million during fiscal 2018 for the mandatory transition tax. The one-time transition tax payable is net of foreign tax credits, and the table below outlines the expected payments due by fiscal year.
The following table summarizes the Company's contractual arrangements as of February 2, 2020, and the timing and effect that such commitments are expected to have on its liquidity and cash flows in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Year
|
|
|
Total
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
|
(In thousands)
|
One-time transition tax payable
|
|
$
|
53,302
|
|
|
$
|
5,076
|
|
|
$
|
5,076
|
|
|
$
|
5,076
|
|
|
$
|
9,518
|
|
|
$
|
12,691
|
|
|
$
|
15,865
|
|
Contingencies
Legal proceedings. In addition to the legal proceedings described below, the Company is, from time to time, involved in routine legal matters, and audits and inspections by governmental agencies and other third parties which are incidental to the conduct of its business. This includes legal matters such as initiation and defense of proceedings to protect intellectual property rights, personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such legal proceedings, audits, and inspections will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.
On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit in the Supreme Court of New York entitled Rebecca Gathmann-Landini et al v. lululemon USA inc. On December 2, 2015, the case was moved to the United States District Court for the Eastern District of New York. The lawsuit alleges that the Company violated various New York labor codes by failing to pay all earned wages, including overtime compensation. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend this matter.
On November 21, 2018, plaintiff David Shabbouei filed in the Delaware Court of Chancery a derivative lawsuit on behalf of the Company against certain of the Company's current and former directors and officers, captioned David Shabbouei v. Laurent Potdevin, et al., 2018-0847-JRS. Plaintiff claims that the defendants breached their fiduciary duties to the Company by allegedly failing to address alleged sexual harassment, gender discrimination, and related conduct at the Company. Plaintiff also claims that the defendants breached their fiduciary duties to the Company and wasted corporate assets with respect to the separation agreement entered into by the Company and Laurent Potdevin in connection with his departure from the Company in February 2018. Plaintiff also further brings an unjust enrichment claim against Mr. Potdevin with respect to the separation agreement. Plaintiff seeks unspecified money damages for the Company for the defendants' alleged breaches of fiduciary duty, waste and unjust enrichment, disgorgement of all profits, benefits and other compensation Mr. Potdevin received as a result of defendants' alleged conduct for the Company, an order directing the Company to implement corporate governance and internal procedures, and an award of plaintiff's attorneys' fees, costs and expenses. The defendants and the Company have moved to dismiss the action.
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Cash paid for income taxes
|
|
$
|
305,493
|
|
|
$
|
177,040
|
|
|
$
|
137,826
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
177,144
|
|
|
—
|
|
|
—
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
|
222,448
|
|
|
—
|
|
|
—
|
|
Interest paid
|
|
325
|
|
|
1,394
|
|
|
8
|
|
NOTE 19. SEGMENTED INFORMATION AND DISAGGREGATED NET REVENUE
The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportable segments for its financial statement disclosure. The Company reports segments based on the financial information it uses in managing its business. The Company's reportable segments are comprised of company-operated stores and direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites and mobile apps. Outlets, temporary locations, sales to wholesale accounts, license and supply arrangements, and warehouse sale net revenue have been combined into other. During the first quarter of fiscal 2018, the Company reviewed its general corporate expenses and determined certain costs which were previously classified as general corporate expense are more appropriately classified within the direct to consumer segment. Accordingly, comparative figures have been reclassified to conform to the financial presentation adopted for the current year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Net revenue:
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
2,501,067
|
|
|
$
|
2,126,363
|
|
|
$
|
1,837,065
|
|
Direct to consumer
|
|
1,137,822
|
|
|
858,856
|
|
|
577,590
|
|
Other
|
|
340,407
|
|
|
303,100
|
|
|
234,526
|
|
|
|
$
|
3,979,296
|
|
|
$
|
3,288,319
|
|
|
$
|
2,649,181
|
|
Segmented income from operations:
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
689,339
|
|
|
$
|
575,536
|
|
|
$
|
464,321
|
|
Direct to consumer
|
|
482,368
|
|
|
354,107
|
|
|
224,076
|
|
Other
|
|
72,559
|
|
|
62,558
|
|
|
35,580
|
|
|
|
1,244,266
|
|
|
992,201
|
|
|
723,977
|
|
General corporate expenses
|
|
355,156
|
|
|
286,365
|
|
|
220,753
|
|
Restructuring and related costs
|
|
—
|
|
|
—
|
|
|
47,223
|
|
Income from operations
|
|
889,110
|
|
|
705,836
|
|
|
456,001
|
|
Other income (expense), net
|
|
8,283
|
|
|
9,414
|
|
|
3,997
|
|
Income before income tax expense
|
|
$
|
897,393
|
|
|
$
|
715,250
|
|
|
$
|
459,998
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
171,496
|
|
|
$
|
129,155
|
|
|
$
|
80,240
|
|
Direct to consumer
|
|
15,813
|
|
|
6,420
|
|
|
19,928
|
|
Corporate and other
|
|
95,739
|
|
|
90,232
|
|
|
57,696
|
|
|
|
$
|
283,048
|
|
|
$
|
225,807
|
|
|
$
|
157,864
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Company-operated stores
|
|
$
|
97,896
|
|
|
$
|
76,303
|
|
|
$
|
64,870
|
|
Direct to consumer
|
|
12,469
|
|
|
10,018
|
|
|
12,997
|
|
Corporate and other
|
|
51,568
|
|
|
36,163
|
|
|
30,368
|
|
|
|
$
|
161,933
|
|
|
$
|
122,484
|
|
|
$
|
108,235
|
|
The accelerated depreciation related to the restructuring of the ivivva operations is included in corporate and other in the above breakdown of depreciation and amortization.
Intercompany amounts are excluded from the above table as they are not included in the materials reviewed by the chief operating decision maker.
The Company's goodwill relates to the reporting segment consisting of company-operated stores.
The following table disaggregates the Company's net revenue by geographic area for the years ended February 2, 2020, February 3, 2019, and January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
United States
|
|
$
|
2,854,364
|
|
|
$
|
2,363,374
|
|
|
$
|
1,911,763
|
|
Canada
|
|
649,114
|
|
|
565,105
|
|
|
491,779
|
|
Outside of North America
|
|
475,818
|
|
|
359,840
|
|
|
245,639
|
|
|
|
$
|
3,979,296
|
|
|
$
|
3,288,319
|
|
|
$
|
2,649,181
|
|
Property and equipment, net by geographic area as of February 2, 2020 and February 3, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
|
(In thousands)
|
United States
|
|
$
|
259,485
|
|
|
$
|
217,874
|
|
Canada
|
|
346,305
|
|
|
303,061
|
|
Outside of North America
|
|
65,903
|
|
|
46,302
|
|
|
|
$
|
671,693
|
|
|
$
|
567,237
|
|
The following table disaggregates the Company's net revenue by category for the years ended February 2, 2020, February 3, 2019, and January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
February 2, 2020
|
|
February 3, 2019
|
|
January 28, 2018
|
|
|
(In thousands)
|
Women's product
|
|
$
|
2,790,997
|
|
|
$
|
2,352,788
|
|
|
$
|
1,892,624
|
|
Men's product
|
|
933,767
|
|
|
694,921
|
|
|
526,535
|
|
Other categories
|
|
254,532
|
|
|
240,610
|
|
|
230,022
|
|
|
|
$
|
3,979,296
|
|
|
$
|
3,288,319
|
|
|
$
|
2,649,181
|
|
NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables present the Company's unaudited quarterly results of operations and comprehensive income for each of the quarters in the fiscal years ended February 2, 2020 and February 3, 2019. The following tables should be read in conjunction with the Company's audited consolidated financial statements and related notes. The Company has prepared the information below on a basis consistent with its audited consolidated financial statements and has included all adjustments, consisting of normal recurring adjustments, which, in the opinion of the Company's management, are necessary to fairly present its operating results for the quarters presented. The Company's historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019
|
|
Fiscal 2018
|
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
|
|
(Unaudited; Amounts in thousands, except per share amounts)
|
Net revenue
|
|
$
|
1,397,491
|
|
|
$
|
916,138
|
|
|
$
|
883,352
|
|
|
$
|
782,315
|
|
|
$
|
1,167,458
|
|
|
$
|
747,655
|
|
|
$
|
723,500
|
|
|
$
|
649,706
|
|
Cost of goods sold
|
|
586,665
|
|
|
411,094
|
|
|
397,556
|
|
|
360,595
|
|
|
498,875
|
|
|
340,878
|
|
|
327,306
|
|
|
304,973
|
|
Gross profit
|
|
810,826
|
|
|
505,044
|
|
|
485,796
|
|
|
421,720
|
|
|
668,583
|
|
|
406,777
|
|
|
396,194
|
|
|
344,733
|
|
Selling, general and administrative expenses
|
|
394,339
|
|
|
329,215
|
|
|
317,814
|
|
|
292,908
|
|
|
337,163
|
|
|
270,874
|
|
|
261,986
|
|
|
240,428
|
|
Income from operations
|
|
416,487
|
|
|
175,829
|
|
|
167,982
|
|
|
128,812
|
|
|
331,420
|
|
|
135,903
|
|
|
134,208
|
|
|
104,305
|
|
Other income (expense), net
|
|
2,129
|
|
|
1,925
|
|
|
1,850
|
|
|
2,379
|
|
|
2,861
|
|
|
2,044
|
|
|
1,591
|
|
|
2,918
|
|
Income before income tax expense
|
|
418,616
|
|
|
177,754
|
|
|
169,832
|
|
|
131,191
|
|
|
334,281
|
|
|
137,947
|
|
|
135,799
|
|
|
107,223
|
|
Income tax expense
|
|
120,595
|
|
|
51,772
|
|
|
44,842
|
|
|
34,588
|
|
|
115,816
|
|
|
43,534
|
|
|
40,029
|
|
|
32,070
|
|
Net income
|
|
$
|
298,021
|
|
|
$
|
125,982
|
|
|
$
|
124,990
|
|
|
$
|
96,603
|
|
|
$
|
218,465
|
|
|
$
|
94,413
|
|
|
$
|
95,770
|
|
|
$
|
75,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(6,444
|
)
|
|
9,880
|
|
|
4,514
|
|
|
(15,723
|
)
|
|
(5,346
|
)
|
|
(7,318
|
)
|
|
(18,249
|
)
|
|
(42,972
|
)
|
Comprehensive income
|
|
$
|
291,577
|
|
|
$
|
135,862
|
|
|
$
|
129,504
|
|
|
$
|
80,880
|
|
|
$
|
213,119
|
|
|
$
|
87,095
|
|
|
$
|
77,521
|
|
|
$
|
32,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.29
|
|
|
$
|
0.97
|
|
|
$
|
0.96
|
|
|
$
|
0.74
|
|
|
$
|
1.66
|
|
|
$
|
0.71
|
|
|
$
|
0.71
|
|
|
$
|
0.55
|
|
Diluted earnings per share
|
|
$
|
2.28
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
$
|
0.74
|
|
|
$
|
1.65
|
|
|
$
|
0.71
|
|
|
$
|
0.71
|
|
|
$
|
0.55
|
|
The Company's quarterly results of operations have varied in the past and are likely to do so again in the future. As such, the Company believes that comparisons of its quarterly results of operations should not be relied upon as an indication of the Company's future performance.
NOTE 21. SUBSEQUENT EVENTS
The Company evaluates events or transactions that occur after the balance sheet date through to the date which the financial statements are issued, for potential recognition or disclosure in its consolidated financial statements in accordance with ASC Topic 855, Subsequent Events.
The outbreak of the COVID-19 coronavirus has been declared a pandemic by the World Health Organization and continues to spread in the United States, Canada, and in many other countries globally. Subsequent to February 2, 2020, in line with recommendations by public health officials and in accordance with governmental authority orders, the Company has taken actions to close certain retail locations and to reduce operating hours.
In February 2020, the Company temporarily closed all of its retail locations in Mainland China. All but one of these locations have since reopened. In March 2020, the Company temporarily closed all of its retail locations in North America, Europe, Malaysia, New Zealand, and it temporarily closed its distribution center in Sumner, WA. These locations currently remain closed.
The Company cannot reasonably estimate the length or severity of this pandemic, but currently anticipates a material adverse impact on its consolidated financial position, results of operations, and cash flows in fiscal 2020.