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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-33608

lulu-20220731_g1.jpg
lululemon athletica inc.
(Exact name of registrant as specified in its charter)
Delaware20-3842867
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1818 Cornwall Avenue, Vancouver, British Columbia V6J 1C7
(Address of principal executive offices)

Registrant's telephone number, including area code:
604-732-6124
Former name, former address and former fiscal year, if changed since last report:
N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.005 per shareLULUNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (of for such shorter period that the registrant was required to submit such files).    Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes No ☑
As of August 26, 2022, there were 122,303,352 shares of the registrant's common stock, par value $0.005 per share, outstanding.
Exchangeable and Special Voting Shares:
As of August 26, 2022, there were outstanding 5,203,012 exchangeable shares of Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the registrant. Exchangeable shares are exchangeable for an equal number of shares of the registrant's common stock.
In addition, as of August 26, 2022, the registrant had outstanding 5,203,012 shares of special voting stock, through which the holders of exchangeable shares of Lulu Canadian Holding, Inc. may exercise their voting rights with respect to the registrant. The special voting stock and the registrant's common stock generally vote together as a single class on all matters on which the common stock is entitled to vote.


TABLE OF CONTENTS
 
2

PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
lululemon athletica inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Amounts in thousands, except per share amounts)
July 31,
2022
January 30,
2022
ASSETS
Current assets
Cash and cash equivalents
$498,831 $1,259,871 
Accounts receivable81,784 77,001 
Inventories1,462,076 966,481 
Prepaid and receivable income taxes166,438 118,928 
Prepaid expenses and other current assets177,965 192,572 
2,387,094 2,614,853 
Property and equipment, net1,059,859 927,710 
Right-of-use lease assets867,901 803,543 
Goodwill386,868 386,880 
Intangible assets, net66,908 71,299 
Deferred income tax assets6,025 6,091 
Other non-current assets146,056 132,102 
$4,920,711 $4,942,478 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable$259,927 $289,728 
Accrued liabilities and other345,105 330,800 
Accrued compensation and related expenses153,381 204,921 
Current lease liabilities196,259 188,996 
Current income taxes payable50,815 133,852 
Unredeemed gift card liability172,666 208,195 
Other current liabilities29,057 48,842 
1,207,210 1,405,334 
Non-current lease liabilities757,865 692,056 
Non-current income taxes payable28,555 38,074 
Deferred income tax liabilities53,271 53,352 
Other non-current liabilities16,012 13,616 
2,062,913 2,202,432 
Commitments and contingencies
Stockholders' equity
Undesignated preferred stock, $0.01 par value: 5,000 shares authorized; none issued and outstanding
  
Exchangeable stock, no par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding
  
Special voting stock, $0.000005 par value: 60,000 shares authorized; 5,203 and 5,203 issued and outstanding
  
Common stock, $0.005 par value: 400,000 shares authorized; 122,334 and 123,297 issued and outstanding
612 616 
Additional paid-in capital
433,092 422,507 
Retained earnings
2,636,377 2,512,840 
Accumulated other comprehensive loss
(212,283)(195,917)
2,857,798 2,740,046 
$4,920,711 $4,942,478 
See accompanying notes to the unaudited interim consolidated financial statements
3

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited; Amounts in thousands, except per share amounts)
Quarter EndedTwo Quarters Ended
July 31,
2022
August 1,
2021
July 31,
2022
August 1,
2021
Net revenue$1,868,328 $1,450,618 $3,481,791 $2,677,083 
Cost of goods sold812,852 607,932 1,555,922 1,134,083 
Gross profit1,055,476 842,686 1,925,869 1,543,000 
Selling, general and administrative expenses662,253 541,317 1,270,104 1,037,951 
Amortization of intangible assets2,195 2,195 4,390 4,390 
Acquisition-related expenses 8,143  15,807 
Gain on disposal of assets(10,180) (10,180) 
Income from operations401,208 291,031 661,555 484,852 
Other income (expense), net145 96 123 323 
Income before income tax expense401,353 291,127 661,678 485,175 
Income tax expense111,832 83,053 182,159 132,145 
Net income$289,521 $208,074 $479,519 $353,030 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment$8,715 $(36,014)(17,133)31,227 
Net investment hedge gains (losses)(4,289)12,494 767 (11,111)
Other comprehensive income (loss), net of tax$4,426 $(23,520)$(16,366)$20,116 
Comprehensive income$293,947 $184,554 $463,153 $373,146 
Basic earnings per share$2.27 $1.60 $3.75 $2.71 
Diluted earnings per share$2.26 $1.59 $3.74 $2.70 
Basic weighted-average number of shares outstanding127,619 130,007 127,848 130,187 
Diluted weighted-average number of shares outstanding127,906 130,490 128,224 130,742 
See accompanying notes to the unaudited interim consolidated financial statements
4

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited; Amounts in thousands)
Quarter Ended July 31, 2022
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of May 1, 20225,203 5,203 $ 122,732 $614 $412,713 $2,471,432 $(216,709)$2,668,050 
Net income289,521 289,521 
Other comprehensive income (loss), net of tax4,426 4,426 
Stock-based compensation expense20,817 20,817 
Common stock issued upon settlement of stock-based compensation24 — 1,043 1,043 
Shares withheld related to net share settlement of stock-based compensation(2)— (719)(719)
Repurchase of common stock(420)(2)(762)(124,576)(125,340)
Balance as of July 31, 20225,203 5,203 $ 122,334 $612 $433,092 $2,636,377 $(212,283)$2,857,798 

Quarter Ended August 1, 2021
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of May 2, 20215,203 5,203 $ 125,069 $625 $364,743 $2,408,006 $(133,519)$2,639,855 
Net income208,074 208,074 
Other comprehensive income (loss), net of tax(23,520)(23,520)
Stock-based compensation expense15,289 15,289 
Common stock issued upon settlement of stock-based compensation88 — 5,218 5,218 
Shares withheld related to net share settlement of stock-based compensation(8)— (2,668)(2,668)
Repurchase of common stock(505)(2)(845)(170,235)(171,082)
Balance as of August 1, 20215,203 5,203 $ 124,644 $623 $381,737 $2,445,845 $(157,039)$2,671,166 
5

Two Quarters Ended July 31, 2022
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of January 30, 20225,203 5,203 $ 123,297 $616 $422,507 $2,512,840 $(195,917)$2,740,046 
Net income479,519 479,519 
Other comprehensive income (loss), net of tax(16,366)(16,366)
Stock-based compensation expense39,175 39,175 
Common stock issued upon settlement of stock-based compensation263 2 6,184 6,186 
Shares withheld related to net share settlement of stock-based compensation(98)— (32,778)(32,778)
Repurchase of common stock(1,128)(6)(1,996)(355,982)(357,984)
Balance as of July 31, 20225,203 5,203 $ 122,334 $612 $433,092 $2,636,377 $(212,283)$2,857,798 

Two Quarters Ended August 1, 2021
 Exchangeable StockSpecial Voting StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal
 SharesSharesPar ValueSharesPar Value
Balance as of January 31, 20215,203 5,203 $ 125,150 $626 $388,667 $2,346,428 $(177,155)$2,558,566 
Net income353,030 353,030 
Other comprehensive income (loss), net of tax20,116 20,116 
Stock-based compensation expense30,221 30,221 
Common stock issued upon settlement of stock-based compensation412 2 9,711 9,713 
Shares withheld related to net share settlement of stock-based compensation(143)(1)(45,566)(45,567)
Repurchase of common stock(775)(4)(1,296)(253,613)(254,913)
Balance as of August 1, 20215,203 5,203 $ 124,644 $623 $381,737 $2,445,845 $(157,039)$2,671,166 
See accompanying notes to the unaudited interim consolidated financial statements
6

lululemon athletica inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Amounts in thousands)
Two Quarters Ended
July 31,
2022
August 1,
2021
Cash flows from operating activities
Net income$479,519 $353,030 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization132,441 104,123 
Gain on disposal of assets(10,180) 
Stock-based compensation expense39,175 30,221 
Settlement of derivatives not designated in a hedging relationship(8,055)45,010 
Changes in operating assets and liabilities:
Inventories(510,567)(137,364)
Prepaid and receivable income taxes(47,510)21,763 
Prepaid expenses and other current assets1,618 (8,337)
Other non-current assets(15,046)(5,487)
Accounts payable(28,249)28,232 
Accrued liabilities and other6,082 65,494 
Accrued compensation and related expenses(50,187)19,260 
Current and non-current income taxes payable(91,874)456 
Unredeemed gift card liability(35,099)(19,377)
Right-of-use lease assets and current and non-current lease liabilities8,775 1,265 
Other current and non-current liabilities(16,461)1,483 
Net cash provided by (used in) operating activities(145,618)499,772 
Cash flows from investing activities
Purchase of property and equipment(256,070)(144,494)
Settlement of net investment hedges15,469 (46,999)
Other investing activities15,657 (10,000)
Net cash used in investing activities(224,944)(201,493)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation6,186 9,713 
Shares withheld related to net share settlement of stock-based compensation(32,778)(45,567)
Repurchase of common stock(357,984)(254,913)
Net cash used in financing activities(384,576)(290,767)
Effect of foreign currency exchange rate changes on cash and cash equivalents(5,902)12,012 
Increase (decrease) in cash and cash equivalents(761,040)19,524 
Cash and cash equivalents, beginning of period$1,259,871 $1,150,517 
Cash and cash equivalents, end of period$498,831 $1,170,041 
See accompanying notes to the unaudited interim consolidated financial statements

7

lululemon athletica inc.
INDEX FOR NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS

8

lululemon athletica inc.
NOTES TO THE UNAUDITED INTERIM 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 technical athletic apparel, footwear, and accessories, which are sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, sales from temporary locations, sales to wholesale accounts, license and supply arrangements, and recommerce. Recommerce is the sale of repurchased product via the Company's "Like New" program. The Company operates stores in the United States, the People's Republic of China ("PRC"), Canada, Australia, the United Kingdom, South Korea, Germany, New Zealand, Singapore, Japan, Ireland, France, Malaysia, Sweden, the Netherlands, Norway, and Switzerland. There were 600 and 574 company-operated stores as of July 31, 2022 and January 30, 2022, respectively. The Company also engages in the design and retail of in-home fitness equipment and associated content subscriptions through its MIRROR brand.
COVID-19 pandemic
The outbreak of a novel strain of coronavirus ("COVID-19") caused governments and public health officials to impose restrictions and recommend precautions to mitigate the spread of the virus. While most of the Company's retail locations were open throughout the first two quarters of fiscal 2022 and 2021, certain locations were temporarily closed based on government and health authority guidance. Certain stores and the Company's third party distribution center in the PRC experienced temporary closures during the first quarter of 2022. Almost all PRC stores reopened in the second quarter of 2022, with certain localized closures dependent on COVID-19 resurgences. The pandemic has impacted the Company's suppliers and its distribution and logistics providers, including in the PRC. There has been disruption in transportation, port congestion, and an increase in freight costs, and the Company has increased its use of air freight.
Basis of presentation
The unaudited interim consolidated financial statements as of July 31, 2022 and for the quarters and two quarters ended July 31, 2022 and August 1, 2021 are presented in U.S. dollars and have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial information is presented in accordance with United States generally accepted accounting principles ("GAAP") for interim financial information and, accordingly, does not include all of the information and footnotes required by GAAP for complete financial statements. The financial information as of January 30, 2022 is derived from the Company's audited consolidated financial statements and related notes for the fiscal year ended January 30, 2022, which are included in Item 8 in the Company's fiscal 2021 Annual Report on Form 10-K filed with the SEC on March 29, 2022. These unaudited interim consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related notes included in Item 8 in the Company's fiscal 2021 Annual Report on Form 10-K. Note 2. Recent Accounting Pronouncements sets out the impact of recent accounting pronouncements.
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 2022 will end on January 29, 2023 and will be a 52-week year. Fiscal 2021 was a 52-week year and ended on January 30, 2022. Fiscal 2022 and fiscal 2021 are referred to as "2022," and "2021," respectively. The first two quarters of 2022 and 2021 ended on July 31, 2022 and August 1, 2021, 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.
Note 2. Recent Accounting Pronouncements
Recently adopted accounting pronouncements
The Company considers the applicability and impact of all Accounting Standard Updates ("ASUs"). ASUs adopted by the Company during the first two quarters of 2022 not listed below were assessed, and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.
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In November 2021, the FASB issued ASC 832, Government Assistance to require annual disclosures about the nature of certain government assistance received, the accounting policy used to account for the transactions, the location in the financial statements where such transactions were recorded and significant terms and conditions associated with such transactions. The Company adopted this update prospectively during the first quarter of 2022 and it did not have a material impact on the Company's consolidated financial statements.
Recently issued accounting pronouncements
ASUs recently issued were assessed and determined to be either not applicable or are expected to have minimal impact on its consolidated financial position or results of operations.
Note 3. Acquisition-Related Expenses
On July 7, 2020, the Company acquired all of the outstanding shares of MIRROR, an in-home fitness company with an interactive workout platform that features live and on-demand classes. In connection with the acquisition, the Company recognized certain acquisition-related expenses which were expensed within acquisition-related expenses in the consolidated statements of operations. The following table summarizes the acquisition-related expenses recognized:
Second QuarterFirst Two Quarters
2022202120222021
(in thousands)
Acquisition-related expenses:
Transaction and integration costs$ $1,035 $ $1,531 
Acquisition-related compensation 7,108  14,276 
$ $8,143 $ $15,807 
Income tax effects of acquisition-related expenses$ $(434)$ $(806)
Note 4. Gain on Disposal of Assets
During the second quarter of 2022, the Company completed the sale of an administrative office building, which resulted in a pre-tax gain of $10.2 million. The income tax effect of the gain on disposal of assets was an expense of $1.7 million. The building's carrying value of $5.4 million was first classified as held for sale and recognized within other current assets as of May 1, 2022.
Note 5. Revolving Credit Facilities
North America revolving credit facility
On December 14, 2021, the Company entered into an amended and restated credit agreement extending its existing credit facility, which provides for $400.0 million in commitments under an unsecured five-year revolving credit facility. The credit facility has a maturity date of December 14, 2026, subject to extension under certain circumstances. Borrowings under the credit facility may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).
As of July 31, 2022, aside from letters of credit of $5.2 million, the Company had no other borrowings outstanding under this credit facility.
Borrowings made under the credit facility bear interest at a rate per annum equal to, at the Company's option, either (a) a rate based on the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York ("SOFR"), 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 1.000%-1.375% for SOFR loans and 0.000%-0.375% for alternate base rate or Canadian prime rate loans. Additionally, a commitment fee of between 0.100%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the credit facility.
The applicable interest rates and commitment fees are subject to adjustment based on certain sustainability key performance indicators ("KPIs"). The two KPIs are based on greenhouse gas emissions intensity reduction and gender pay equity, and the Company's performance against certain targets measured on an annual basis could result in positive or
10

negative sustainability rate adjustments of 2.50 basis points to its drawn pricing and positive or negative sustainability fee adjustments of 0.50 basis points to its undrawn pricing.
The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.
The Company's financial covenants include maintaining an operating lease adjusted leverage ratio of not greater than 3.25:1.00 and the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) of not 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). If an event of default occurs, the credit agreement may be terminated, and the maturity of any outstanding amounts may be accelerated. As of July 31, 2022, the Company was in compliance with the covenants of the credit facility.
China Mainland revolving credit facility
In December 2019, the Company entered into an uncommitted and unsecured 130.0 million Chinese Yuan ($19.3 million) revolving credit facility with terms that are reviewed on an annual basis. The credit facility was increased to 230.0 million Chinese Yuan ($34.1 million) during 2020. It is comprised of a revolving loan of up to 200.0 million Chinese Yuan ($29.7 million) and a financial guarantee facility of up to 30.0 million Chinese Yuan ($4.4 million), or its equivalent in another currency. Loans are available for a period not to exceed 12 months, at an interest rate equal to the loan prime rate plus a spread of 0.5175%. The Company is required to follow certain covenants. As of July 31, 2022, the Company was in compliance with the covenants and, aside from letters of credit of 8.9 million Chinese Yuan ($1.3 million), there were no other borrowings or guarantees outstanding under this credit facility.
Note 6. Stock-Based Compensation and Benefit Plans
Stock-based compensation plans
The Company's eligible employees participate in various stock-based compensation plans, provided directly by the Company.
Stock-based compensation expense charged to income for the plans was $38.8 million and $33.6 million for the first two quarters of 2022 and 2021, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $154.4 million as of July 31, 2022, which is expected to be recognized over a weighted-average period of 2.3 years.
A summary of the balances of the Company's stock-based compensation plans as of July 31, 2022, and changes during the first two quarters then ended, is presented below:
Stock OptionsPerformance-Based Restricted Stock UnitsRestricted SharesRestricted Stock Units
NumberWeighted-Average Exercise PriceNumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair ValueNumberWeighted-Average Grant Date Fair Value
(In thousands, except per share amounts)
Balance as of January 30, 2022789 $186.10 167 $225.27 4 $326.70 238 $265.90 
Granted184 372.45 116 274.15 4 307.77 102 370.72 
Exercised/released50 122.91 114 170.04 4 326.70 95 217.92 
Forfeited/expired14 268.26 3 302.77   9 310.80 
Balance as of July 31, 2022909 $226.19 166 $295.76 4 $307.77 236 $328.60 
Exercisable as of July 31, 2022415 $153.80 
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 grant 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 grant date.
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The grant date fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The closing price of the Company's common stock on the grant date is used in the model. The assumptions used to calculate the fair value of the options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee exercise behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. 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 during the first two quarters of 2022:
First Two Quarters
 2022
Expected term3.75 years
Expected volatility40.00 %
Risk-free interest rate2.51 %
Dividend yield %
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 second quarter of 2022, there were 23.1 thousand shares purchased.
Defined contribution pension plans
The Company offers defined contribution pension plans to its eligible employees. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period. The Company's net expense for the defined contribution plans was $6.7 million and $5.8 million in the first two quarters of 2022 and 2021, respectively.
Note 7. Fair Value Measurement
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:
Level 1 - defined as observable inputs such as quoted prices in active markets;
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
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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Assets and liabilities measured at fair value on a recurring basis
The fair value measurement is categorized in its entirety by reference to its lowest level of significant input. As of July 31, 2022 and January 30, 2022, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis:
July 31,
2022
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$40,357 $40,357 $ $ Cash and cash equivalents
Term deposits34,894  34,894  Cash and cash equivalents
Forward currency contract assets6,397  6,397  Prepaid expenses and other current assets
Forward currency contract liabilities5,015  5,015  Other current liabilities

January 30,
2022
Level 1Level 2Level 3Balance Sheet Classification
(In thousands)
Money market funds$38,475 $38,475 $ $ Cash and cash equivalents
Term deposits318,698  318,698  Cash and cash equivalents
Forward currency contract assets19,077  19,077  Prepaid expenses and other current assets
Forward currency contract liabilities18,985  18,985  Other current liabilities
The Company records cash, accounts receivable, accounts payable, and accrued liabilities at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
The Company has short-term, highly liquid investments classified as cash equivalents, which are invested in money market funds 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.
Note 8. Derivative Financial Instruments
Foreign currency exchange risk
The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative financial instruments to manage its exposure to certain of these foreign currency exchange rate risks. The Company does not enter into derivative contracts for speculative or trading purposes.
The Company currently hedges against changes in the Canadian dollar and Chinese Yuan to the U.S. dollar exchange rate and changes in the Euro and Australian dollar to the Canadian dollar exchange rate using forward currency contracts.
Net investment hedges
The Company is exposed to foreign currency exchange gains and losses which arise on translation of its international subsidiaries' balance sheets into U.S. dollars. These gains and losses are recorded as other comprehensive income (loss), net of tax in accumulated other comprehensive income or loss within stockholders' equity.
The Company holds a significant portion of its assets in Canada and enters 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 during the first two quarters of 2022.
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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 is exposed to gains and losses arising from changes in foreign currency exchange rates associated with transactions which are undertaken by its subsidiaries in currencies other than their functional currency. Such transactions include intercompany transactions and inventory purchases. These transactions result in the recognition of certain foreign currency denominated monetary assets and liabilities which are remeasured to the quarter-end or settlement date foreign currency exchange rate. The resulting foreign currency gains and losses are recorded in selling, general and administrative expenses.
During the first two quarters of 2022, the Company entered into certain forward currency contracts designed to economically hedge the foreign currency exchange revaluation gains and losses that are recognized by its Canadian and Chinese subsidiaries on specific monetary assets and liabilities denominated in currencies other than the functional currency of the entity. The Company has not applied hedge accounting to these instruments and the change in fair value of these derivatives is recorded within selling, general and administrative expenses.
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.
Quantitative disclosures about derivative financial instruments
The Company presents its derivative assets and derivative liabilities at their gross fair values within prepaid expenses and other current assets and other current liabilities on the consolidated balance sheets. However, the Company's Master International Swap Dealers Association, Inc., Agreements and other similar arrangements allow net settlements under certain conditions. As of July 31, 2022, there were derivative assets of $6.4 million and derivative liabilities of $5.0 million subject to enforceable netting arrangements.
The notional amounts and fair values of forward currency contracts were as follows:
July 31, 2022January 30, 2022
Gross NotionalAssetsLiabilitiesGross NotionalAssetsLiabilities
(In thousands)
Derivatives designated as net investment hedges:
Forward currency contracts$1,190,500 $4,039 $ $1,502,000 $18,468 $ 
Derivatives not designated in a hedging relationship:
Forward currency contracts1,470,750 2,358 5,015 1,597,878 609 18,985 
Net derivatives recognized on consolidated balance sheets:
Forward currency contracts$6,397 $5,015 $19,077 $18,985 
The forward currency contracts designated as net investment hedges outstanding as of July 31, 2022 mature on different dates between August 2022 and June 2023.
The forward currency contracts not designated in a hedging relationship outstanding as of July 31, 2022 mature on different dates between August 2022 and February 2023.
The pre-tax gains and losses on foreign currency exchange forward contracts recorded in accumulated other comprehensive income or loss were as follows:
Second QuarterFirst Two Quarters
2022202120222021
(In thousands)
Gains (losses) recognized in net investment hedge gains (losses):
Derivatives designated as net investment hedges$(5,807)$16,930 $1,039 $(15,056)
14

No gains or losses have been reclassified from accumulated other comprehensive income or loss 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 currency exchange and derivative gains and losses recorded in the consolidated statement of operations were as follows:
Second QuarterFirst Two Quarters
2022202120222021
(In thousands)
Gains (losses) recognized in selling, general and administrative expenses:
Foreign currency exchange gains (losses)$(14,497)$13,404 $(16,240)$(20,135)
Derivatives not designated in a hedging relationship8,600 (18,344)7,708 12,247 
Net foreign currency exchange and derivative gains (losses) $(5,897)$(4,940)$(8,532)$(7,888)
Credit risk
The Company is 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's forward currency contracts are entered into with large, reputable financial institutions that are monitored by the Company for counterparty risk.
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 revolving credit facility, the Company may be required to make immediate payment for outstanding liabilities under its derivative contracts.
Note 9. Earnings Per Share
The details of the computation of basic and diluted earnings per share are as follows:
Second QuarterFirst Two Quarters
2022202120222021
(In thousands, except per share amounts)
Net income$289,521 $208,074 $479,519 $353,030 
Basic weighted-average number of shares outstanding127,619 130,007 127,848 130,187 
Assumed conversion of dilutive stock options and awards287 483 376 555 
Diluted weighted-average number of shares outstanding127,906 130,490 128,224 130,742 
Basic earnings per share$2.27 $1.60 $3.75 $2.71 
Diluted earnings per share$2.26 $1.59 $3.74 $2.70 
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 first two quarters of 2022 and 2021, 0.1 million 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 January 31, 2019, the Company's board of directors approved a stock repurchase program for up to $500.0 million of the Company's common shares. On December 1, 2020, it approved an increase in the remaining authorization from $263.6 million to $500.0 million, and on October 1, 2021, it approved an increase in the remaining authorization from $141.2 million to $641.2 million. During the first quarter of 2022, the Company completed the remaining stock repurchases under this program.
On March 23, 2022, the Company's board of directors approved a stock repurchase program for up to $1.0 billion of the Company's common shares on the open market or in privately negotiated transactions. The repurchase plan has no time limit and does not require the repurchase of a minimum number of shares. Common shares repurchased on the open market are
15

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. As of July 31, 2022, the remaining authorized value of shares available to be repurchased under this program was $829.5 million.
During the first two quarters of 2022 and 2021, 1.1 million and 0.8 million shares, respectively, were repurchased under the program at a total cost of $358.0 million and $254.9 million, respectively.
Subsequent to July 31, 2022, and up to August 26, 2022, 31.5 thousand shares were repurchased at a total cost of $10.0 million.
Note 10. Supplementary Financial Information
A summary of certain consolidated balance sheet accounts is as follows:
July 31,
2022
January 30,
2022
(In thousands)
Inventories:
Inventories, at cost$1,524,026 $1,004,526 
Provision to reduce inventories to net realizable value(61,950)(38,045)
$1,462,076 $966,481 
Prepaid expenses and other current assets:
Prepaid inventories$126 $42,691 
Other prepaid expenses121,388 98,254 
Forward currency contract assets6,397 19,077 
Other current assets50,054 32,550 
$177,965 $192,572 
Property and equipment, net:
Land$73,444 $74,297 
Buildings27,849