Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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lululemon athletica inc. and Subsidiaries

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm			43
Consolidated Balance Sheets as at February 3, 2013 and January 29, 2012			44
Consolidated Statements of Operations and Comprehensive Income for the years ended February 3, 2013, January 29, 2012, and January 30, 2011			45
Consolidated Statements of Stockholders’ Equity for the years ended February 3, 2013, January 29, 2012, and January 30, 2011			46
Consolidated Statements of Cash Flows for the years ended February 3, 2013, January 29, 2012, and January 30, 2011			47
Notes to the Consolidated Financial Statements			48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of lululemon athletica inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of lululemon athletica inc. and its subsidiaries as at February 3, 2013 and January 29, 2012, and the results of their operations and their cash flows for the three years ended February 3, 2013, January 29, 2012 and January 30, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, BC

March 20, 2013

lululemon athletica inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	February 3, 2013		January 29, 2012
	(Amounts in thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents	$	590,179	$	409,437
Accounts receivable		6,351		5,202
Inventories		155,222		104,097
Prepaid expenses and other current assets		35,301		8,357

		787,053		527,093
Property and equipment, net		214,639		162,941
Goodwill and intangible assets, net		30,201		31,872
Deferred income taxes		15,033		8,587
Other non-current assets		4,152		4,141

	$	1,051,078	$	734,634

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,045	$	14,536
Accrued liabilities		30,032		34,535
Accrued compensation and related expenses		27,530		22,875
Income taxes payable		39,637		8,720
Unredeemed gift card liability		35,113		22,773

		133,357		103,439
Non-current liabilities		30,422		25,014

		163,779		128,453

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, issued and outstanding 32,065 and 33,412		—		—
Special voting stock, $0.000005 par value, 60,000 shares authorized, issued and outstanding 32,065 and 33,412		—		—
Common stock, $0.005 par value, 400,000 shares authorized, issued and outstanding 112,371 and 110,135		562		551
Additional paid-in capital		221,372		205,557
Retained earnings		644,275		373,719
Accumulated other comprehensive income		21,090		21,549

		887,299		601,376

Non-controlling interest		—		4,805

	$	1,051,078	$	734,634

See accompanying notes to the consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


	Fiscal Year Ended
	February 3, 2013			January 29, 2012		January 30, 2011
	(Amounts in thousands, except per share amounts)
Net revenue	$	1,370,358		$	1,000,839	$	711,704
Cost of goods sold		607,532			431,488		316,757

Gross profit		762,826			569,351		394,947
Selling, general and administrative expenses		386,387			282,393		214,556

Income from operations		376,439			286,958		180,391
Other income (expense), net		4,957			2,500		2,886

Income before provision for income taxes		381,396			289,458		183,277
Provision for income taxes		109,965			104,494		61,080

Net income		271,431			184,964		122,197
Net income attributable to non-controlling interest		875			901		350
Net income attributable to lululemon athletica inc.	$	270,556		$	184,063	$	121,847

Basic earnings per share	$	1.88		$	1.29	$	0.86
Diluted earnings per share	$	1.85		$	1.27	$	0.85
Basic weighted-average number of shares outstanding		144,000			143,196		141,720
Diluted weighted-average number of shares outstanding		145,806			145,278		143,858
Other comprehensive income:
Foreign currency translation adjustment		(459	)		1,220		14,462

Comprehensive income	$	270,097		$	185,283	$	136,309

See accompanying notes to the consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Exchangeable Stock					Special Voting Stock					Common Stock
	Shares			Par Value		Shares			Par Value		Shares		Par Value		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total			Non- Controlling Interest			Total
	(Amounts in thousands)
Balance at January 31, 2010		38,766		$	—		38,766		$	—		102,252	$	511	$	158,921		$	67,809	$	5,867		$	233,108		$	—		$	233,108
Net income attributable to lululemon athletica inc.																			121,847					121,847						121,847
Foreign currency translation adjustment																					14,462			14,462						14,462
Stock-based compensation																7,273								7,273						7,273
Excess tax benefit from stock-based compensation																7,863								7,863						7,863
Common stock issued upon exchange of exchangeable shares		(3,130	)		—		(3,130	)		—		3,130		16		(16	)							—						—
Restricted stock issuance												12		—		—								—						—
Stock option exercises												1,362		7		5,829								5,836						5,836
Non-controlling interest:
Non-controlling interests recognized on acquisition																											3,554			3,554
Net income attributable to non-controlling interests																											350			350

Balance at January 30, 2011		35,636		$	—		35,636		$	—		106,756	$	534	$	179,870		$	189,656	$	20,329		$	390,389		$	3,904		$	394,293

Net income attributable to lululemon athletica inc.																			184,063					184,063						184,063
Foreign currency translation adjustment																					1,220			1,220						1,220
Stock-based compensation																10,340								10,340						10,340
Excess tax benefit from stock-based compensation																5,750								5,750						5,750
Common stock issued upon exchange of exchangeable shares		(2,224	)		—		(2,224	)		—		2,224		11		(11	)							—						—
Restricted stock issuance												4		—		—								—						—
Stock option exercises												1,151		6		9,608								9,614						9,614
Non-controlling interest:
Net income attributable to non-controlling interests																											901			901

Balance at January 29, 2012		33,412		$	—		33,412		$	—		110,135	$	551	$	205,557		$	373,719	$	21,549		$	601,376		$	4,805		$	606,181

Net income attributable to lululemon athletica inc.																			270,556					270,556						270,556
Foreign currency translation adjustment																					(459	)		(459	)					(459	)
Stock-based compensation																15,637								15,637						15,637
Excess tax benefit from stock-based compensation																9,901								9,901						9,901
Common stock issued upon exchange of exchangeable shares		(1,347	)		—		(1,347	)		—		1,347		7		(7	)							—						—
Restricted stock issuance												16		—		—								—						—
Stock option exercises												873		4		11,010								11,014						11,014
Registration fees associated with shelf registration statement																(393	)							(393	)					(393	)
Non-controlling interest:
Net income attributable to non-controlling interests																											875			875
Purchase of remaining non-controlling interests																(20,333	)							(20,333	)		(5,680	)		(26,013	)

Balance at February 3, 2013		32,065		$	—		32,065		$	—		112,371	$	562	$	221,372		$	644,275	$	21,090		$	887,299		$	—		$	887,299

See accompanying notes to the consolidated financial statements

lululemon athletica inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Fiscal Year Ended
	February 3, 2013			January 29, 2012			January 30, 2011
	(Amounts in thousands)
Cash flows from operating activities
Net income attributable to lululemon athletica inc	$	270,556		$	184,063		$	121,847
Net income attributable to non-controlling interest		875			901			350

Net income		271,431			184,964			122,197
Items not affecting cash
Depreciation and amortization		43,000			30,259			24,614
Stock-based compensation		15,637			10,340			7,273
Provision for impairment and lease exit costs		—			—			1,772
Derecognition of unredeemed gift card liability		(1,351	)		(1,775	)		(1,406	)
Deferred income taxes		(6,445	)		(693	)		11,234
Excess tax benefits from stock-based compensation		(9,901	)		(5,750	)		(7,863	)
Gain on investment		—			—			(1,792	)
Other, including net changes in other non-cash balances		(32,258	)		(13,730	)		23,966

Net cash provided by operating activities		280,113			203,615			179,995
Cash flows from investing activities
Purchase of property and equipment		(93,229	)		(116,657	)		(30,357	)
Acquisition of franchises		—			(5,654	)		(12,482	)

Net cash used in investing activities		(93,229	)		(122,311	)		(42,839	)
Cash flows from financing activities
Proceeds from exercise of stock options		11,014			9,614			5,836
Excess tax benefits from stock-based compensation		9,901			5,750			7,863
Registration fees associated with shelf registration statement		(393	)		—			—
Purchase of remaining non-controlling interest		(26,013	)		—			—

Net cash (used in) provided by financing activities		(5,491	)		15,364			13,699
Effect of exchange rate changes on cash		(651	)		(3,517	)		5,858

Increase in cash and cash equivalents		180,742			93,151			156,713
Cash and cash equivalents, beginning of year	$	409,437		$	316,286		$	159,573

Cash and cash equivalents, end of year	$	590,179		$	409,437		$	316,286

See accompanying notes to the consolidated financial statements

lululemon athletica inc. and Subsidiaries

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share amounts and store count information, unless

otherwise indicated)

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, manufacture and distribution of healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned and operated retail stores, direct to consumer through e-commerce and through a network of wholesale accounts. The Company’s primary markets are the United States, Canada, Australia, and New Zealand, where 135, 51, 23, and two corporate-owned stores, respectively, were in operation as at February 3, 2013. There were 211, 174, and 133 corporate-owned stores in operation as at February 3, 2013, January 29, 2012, and January 30, 2011, respectively.

Basis of presentation

The accompanying consolidated financial statements include the financial position, results of operations and cash flows of the Company and its subsidiary companies during the three-year period ended February 3, 2013. The consolidated financial statements have been prepared using the U.S. dollar and are presented in accordance with United States generally accepted accounting principles (“GAAP”).

The Company has experienced, and expects to continue to experience, significant seasonal variations in net revenue and income from operations. Seasonal variations in revenue are primarily related to increased sales of products during the fourth fiscal quarter, reflecting historical strength in sales during the holiday season. Historically, seasonal variations in income from operations have been driven principally by increased net revenue in the fourth fiscal quarter.

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 2012 is a 53 week year. Net sales numbers for the quarter and year include this additional week; however, comparable stores sales calculations exclude the 53rd week. Fiscal 2012, 2011 and 2010 ended on February 3, 2013, January 29, 2012, and January 30, 2011, respectively.

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 inter-company balances and transactions have been eliminated. The results of operations of lululemon athletica australia Pty attributable to the non-controlling interest are presented within equity and net income, and are shown separately from the Company’s equity and net income attributable to the Company. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals, considered necessary for a fair presentation of the Company’s results of operations for the periods reported and of its financial condition as of the date of the balance sheet have been included.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, bank balances and short-term deposits with original maturities of less than three months. The Company has not experienced any losses related to these balances, and management believes its credit risk to be minimal.

Accounts receivable

Accounts receivable primarily arise out of sales to wholesale accounts and landlord deferred lease inducements. The allowance for doubtful accounts represents management’s best estimate of probable credit losses in accounts receivable and is reviewed monthly. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. As at February 3, 2013, January 29, 2012 and January 30, 2011 the Company recorded an insignificant allowance for doubtful accounts.

Inventories

Inventories, consisting of finished goods and raw materials, are stated at the lower of cost and market value. Cost is determined using weighted-average costs. For finished goods, market is defined as net realizable value, and for raw materials, market is defined as replacement cost. Cost of inventories includes acquisition and production costs including raw material and labor, as applicable, and 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 provisions as necessary to appropriately value obsolete or damaged goods. The amount of the provision is equal to the difference between the cost of the inventory and its estimated net realizable value based upon assumptions about future demand, selling prices and market conditions. In addition, as part of inventory valuations, the Company accrues 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.

Buildings are amortized on a straight-line basis over the expected useful life of the asset, which ranges from 10 to 20 years. Leasehold improvements are amortized on a straight-line basis over the lesser of the length of the lease, without consideration of option renewal periods, and the estimated useful life of the improvement, to a maximum of five years. All other property and equipment are amortized using the declining balance method as follows. Amortization commences when an asset is ready for its intended use.


Furniture and fixtures	20	%
Computer hardware and software	30	%
Equipment and vehicles	30	%

Goodwill and intangible assets

Intangible assets are recorded at cost. Reacquired franchise rights are amortized on a straight-line basis over their estimated useful lives of 10 years.

Goodwill represents the excess of the net assets acquired and liabilities assumed over 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. Goodwill and intangible assets with indefinite lives are tested annually for impairment or more frequently when an event or circumstance indicates that goodwill or indefinite life intangible assets might be impaired. The Company’s operating segment for goodwill is its corporate-owned 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. Long-lived assets, including intangible assets with finite lives, held for sale are reported at the lower of the carrying value of the asset and fair value less cost to sell. Any write-down to reflect fair value less selling cost is recognized in income when the asset is classified as held for sale. Gains or losses on assets held for sale and asset dispositions are included in provision for impairment and lease exit costs.

Leased property and equipment

The Company leases corporate-owned stores and distribution centers and administrative offices. Minimum rental payments, including any fixed escalation of rental payments and rent premiums, are amortized on a straight-line basis over the life of the lease beginning on the possession date. Rental costs incurred during a construction period, prior to store opening, are recognized as rental expense. The difference between the recognized rental expense and the total rental payments paid is reflected on the consolidated balance sheet as a deferred lease liability or a prepaid lease asset.

Deferred lease inducements, which include leasehold improvements paid for by the landlord and free rent, are recorded as liabilities on the consolidated balance sheet and recognized as a reduction of rent expense on a straight-line basis over the term of the lease.

Contingent rental payments based on sales volumes are recorded in the period in which the sales occur.

The Company recognizes a liability for the fair value of a required asset retirement obligation (“ARO”) when such obligation is 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 activity 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 that used in the initial estimate. Lease exit costs are included in provision for impairment and lease exit costs.

Deferred revenue

Receipts from the sale of gift cards are treated as deferred revenue. Amounts received in respect of gift cards are recorded as unredeemed gift card liability. When gift cards are redeemed for apparel, the Company recognizes the related revenue.

Revenue recognition

Net revenue includes sales of apparel to customers through corporate-owned and operated retail stores, direct to consumer through www.lululemon.com, www.ivivva.com and other country and region specific websites, sales through a network of wholesale accounts, and sales from company-operated showrooms.

Sales to customers through corporate-owned retail stores are recognized at the point of sale, net of an estimated allowance for sales returns.

Sales of apparel to customers through the Company’s retail internet site are recognized when goods are shipped, net of an estimated allowance for sales returns.

Sales of apparel to wholesale accounts are recognized when goods are shipped and collection is reasonably assured.

All revenue is reported net of sales taxes collected for various governmental agencies.

Revenue from the Company’s gift cards is recognized when tendered for payment, or upon redemption. Outstanding customer balances are included in “Unredeemed gift card liability” on the consolidated balance sheets. There are no expiration dates on the Company’s gift cards, and lululemon does not charge any service fees that cause a decrement to customer balances.

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, card balances may be recognized in the consolidated statements of operations in “Net revenue.” For the years ended February 3, 2013, January 29, 2012 and January 30, 2011, net revenue recognized on unredeemed gift card balances was $1,351, $1,775, and $1,406, respectively.

Cost of goods sold

Cost of goods sold includes the cost of purchased merchandise, including in-bound freight, duty and nonrefundable taxes incurred in delivering the goods to the Company’s distribution centers. It also includes all occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities and depreciation expense for the Company’s corporate-owned store locations and all costs incurred in operating the Company’s distribution centers and production, design and merchandise departments, hemming and shrink and valuation reserves. Production, design, merchandise and distribution center costs include salaries and benefits as well as operating expenses, which include occupancy costs and depreciation expense for the Company’s distribution centers.

Store pre-opening costs

Operating costs incurred prior to the opening of new stores are expensed as incurred.

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 temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates that are expected to be in effect when these differences are anticipated to reverse. 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 recognition of a deferred income tax asset is based primarily on management’s forecasts, including current and proposed tax legislation, current and anticipated taxable income, utilization of previously unrealized non-operating loss carryforwards and regulatory reviews of tax filings. Given the judgments and estimates required and the sensitivity of the results to the significant assumptions used, the accounting estimates used in relation to the recognition of deferred income tax assets are subject to measurement uncertainty and are susceptible to a material change if the underlying assumptions change.

The Company provides for taxes at the rate applicable for the appropriate tax jurisdiction. Because present intentions are to reinvest the unremitted earnings into foreign operations, the Company does not provide U.S. income taxes on unremitted earnings of foreign subsidiaries. Management periodically assesses the need to utilize these unremitted earnings to finance foreign operations. This assessment is based on cash flow projections that are the result of estimates of future production and operational and fiscal objectives by tax jurisdiction for our operations. Such estimates are inherently imprecise since many assumptions utilized in the cash flow projections are subject to revision in the future.

The Company files income tax returns in the United States, Canada and various foreign and state jurisdictions. The 2011 and 2012 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2008 tax year is still open for certain state tax authorities. The 2008 to 2012 tax years remain subject to examination by tax authorities in certain foreign jurisdictions. Our policy is to recognize interest expense and penalties related to income tax matters as a selling, general and administrative expense. At February 3, 2013, the Company does not have any significant accruals for interest related to unrecognized tax benefits or tax penalties. Intercompany transfer pricing policies are currently subject to audits by various foreign tax jurisdictions. Although management believes that the Company’s intercompany transfer pricing policies and tax positions are reasonable, the final determination of tax audits or potential tax disputes may be materially different from that which is reflected in the Company’s income tax provisions and accruals.

Currency translation

The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States (the foreign entities) is 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. Revenue and expenses are translated at the average rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income 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 included in income, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature.

Fair value of financial instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, trade accounts payable, accrued liabilities, and other liabilities. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. All foreign exchange gains or losses are recorded in the consolidated statements of operations under selling, general and administrative expenses. The fair value of these financial instruments approximates their carrying value, unless otherwise noted.

Foreign exchange risk

A significant portion of the Company’s sales are denominated in Canadian dollars. The Company’s exposure to foreign exchange risk is mainly related to fluctuations between the Canadian dollar and the

U.S. dollar. This exposure is partly mitigated by a natural hedge in that a significant portion of the Company’s operating costs are also denominated in Canadian dollars. The Company is also exposed to changes in interest rates. The Company does not hedge foreign currency and interest rate exposure in a manner that would entirely eliminate the effect of changes in foreign currency exchange rates, or interest rates on net income and cash flows.

The aggregate foreign exchange (losses) gains included in income amount to $(625), $(759), and $477 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011, respectively.

Concentration of credit risk

The Company is not exposed to significant credit risk on its cash and cash equivalents and trade accounts receivable. Cash and cash equivalents are held with high quality financial institutions. Trade accounts receivable are primarily from certain franchisees and wholesale accounts. The Company does not require collateral to support the trade 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 risks of the underlying accounts.

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 and recognized as employee compensation expense on a straight-line basis over the requisite service period with the offsetting credit to additional paid-in capital. For awards with service and/or performance conditions, the total amount of compensation expense to be recognized is based on the number of awards expected to vest 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. For awards with market conditions, all compensation expense is recognized irrespective of whether such conditions are met.

Earnings per share

Earnings per share is calculated using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income available to common stockholders for the period by the diluted weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options and performance share units using the treasury stock method.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period.

Recently issued accounting standards

In February 2013, the FASB amended ASC Topic 220 Other Comprehensive Income (“ASC 220”) to require an entity to provide additional information about reclassifications out of accumulated other comprehensive income. This guidance is effective for reporting periods beginning on or after December 15, 2012. The Company adopted the amendment in the fourth quarter of fiscal 2012 with no material impact on the Company’s consolidated financial statements.

In January 2013, the FASB amended ASC Topic 210 Balance Sheet (“ASC 210”) to clarify the scope of the required enhanced disclosures that will enable financial statement users to evaluate the effect or potential effect of netting arrangements on a company’s financial position, including the effect or potential effect of rights of setoff associated within scope assets and liabilities. The amendment requires enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with ASC 210-20-45 or ASC 815-10-45 or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with ASC 210-20-45 or ASC 815-10-45. This guidance is effective for annual periods beginning on or after January 1, 2013. The Company will adopt the amendment in the first quarter of fiscal 2013 and expects no material impact on the Company’s consolidated financial statements.

In July 2012, the Financial Accounting Standards Board (“FASB”) amended Accounting Standards Codification (“ASC”) Topic 350 Intangibles—Goodwill and Other (“ASC 350”) allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under these amendments, an entity would not be required to calculate the fair value of an indefinite-lived intangible asset unless the entity determines, based on qualitative assessment, that it is not more likely than not, the indefinite-lived intangible asset is impaired. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The Company adopted the amendment in the second quarter of fiscal 2012 with no material impact on the Company’s consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to fiscal 2012 presentation.

3 INVENTORIES


	February 3, 2013			January 29, 2012
Finished goods	$	163,008		$	105,462
Raw materials		583			2,531
Provision for obsolescence and shrink		(8,369	)		(3,896	)

	$	155,222		$	104,097

4 PROPERTY AND EQUIPMENT


	February 3, 2013			January 29, 2012
Land	$	72,679		$	60,014
Buildings		10,969			5,018
Leasehold improvements		109,233			113,931
Furniture and fixtures		30,907			22,512
Computer hardware and software		81,099			51,657
Equipment and vehicles		1,486			1,285
Accumulated amortization and depreciation		(91,734	)		(91,476	)

	$	214,639		$	162,941

Included in the cost of property and equipment are capitalized software costs of $13,874 and $14,150 at February 3, 2013 and January 29, 2012, respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $41,671, $28,945 and $23,549 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011, respectively.

5 GOODWILL AND INTANGIBLE ASSETS


	February 3, 2013			January 29, 2012
Goodwill	$	23,609		$	23,609
Changes in foreign currency exchange rates		2,451			2,727

		26,060			26,336

Intangibles—reacquired franchise rights	$	10,630		$	10,709
Accumulated amortization		(8,076	)		(6,747	)
Changes in foreign currency exchange rates		1,587			1,574

		4,141			5,536

Total goodwill and intangibles	$	30,201		$	31,872

Amortization expense related to intangible assets was $1,329, $1,314, and $1,065 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011, respectively. The estimated aggregate amortization expense is as follows:


Fiscal Year
2013	$	1,102
2014		982
2015		897
2016		810
2017		275
Thereafter		75

	$	4,141

During September 2011, the Company reacquired in asset purchase transactions four franchised stores for a total cash consideration of $5,654 plus working capital adjustments of $170. Included in the Company’s consolidated statements of operations for the year ended January 29, 2012 are the results of the reacquired franchised stores from the dates of acquisition to January 29, 2012.

The following table summarizes the fair values of the net assets acquired at the date of acquisition:


Inventory	$	617
Prepaid and other assets		24
Property and equipment		239
Goodwill		5,168

Total assets acquired		6,048
Unredeemed gift card liability		224

Total liabilities assumed		224

Total identifiable net assets	$	5,824

The acquisition of the franchised stores was part of management’s vertical retail growth strategy. There are no longer any franchised stores remaining. The reacquired franchise rights are amortized on a straight-line basis over their estimated useful lives. Goodwill is reviewed for impairment annually, or as events occur or circumstances arise which may reduce the fair value of goodwill below carrying value. The weighted-average remaining useful lives of the reacquired franchise rights was 3.26 as at February 3, 2013 and 4.25 years as at January 29, 2012.

6 ACCRUED LIABILITIES


	February 3, 2013		January 29, 2012
Inventory purchases	$	7,633	$	9,648
Sales tax collected		8,501		12,740
Accrued rent		5,688		5,343
Other		8,210		6,804

	$	30,032	$	34,535

7 NON-CURRENT LIABILITIES


	February 3, 2013		January 29, 2012
Deferred lease liability	$	16,785	$	15,302
Tenant Inducements		13,637		9,712

	$	30,422	$	25,014

8 LONG-TERM DEBT AND CREDIT FACILITIES

In April 2007, the Company executed a credit facility with a lending institution that provided for a CDN$20,000 uncommitted demand revolving credit facilities to fund the working capital requirements of the Company. Borrowings under the uncommitted credit facilities are made on a when-and-as-needed basis at the discretion of the Company.

Borrowings under the credit facility can be made either as i) Revolving Loans—Revolving loan borrowings will bear interest at a rate equal to the Bank’s CDN$ or USD$ annual base rate (defined as zero% plus the lender’s annual prime rate) per annum, ii) Offshore Loans—Offshore rate loan borrowings will bear interest at a rate equal to a base rate based upon LIBOR for the applicable interest period, plus 1.125 percent per annum, iii) Bankers Acceptances—Bankers acceptance borrowings will bear interest at the bankers acceptance rate plus 1.125 percent per annum and iv) Letters of Credit and Letters of Guarantee—Borrowings drawn down under letters of credit or guarantee issued by the banks will bear a 1.125 percent per annum fee.

At February 3, 2013, there were no borrowings outstanding under this credit facility. As well, at February 3, 2013, letters of credit totaling USD$nil and guarantees totaling USD$1,406 had been issued under the facility, which reduced the amount available by a corresponding amount.

9 STOCKHOLDERS’ EQUITY

Authorized share capital

On June 8, 2011 the Company’s stockholders approved a two-for-one stock split (the “Stock Split”) of the Company’s common stock and an increase in the Company’s authorized common stock from 200,000 shares to 400,000 shares. Shares of the Company’s common stock began trading on a post-split basis on July 12, 2011 on the Nasdaq Stock Market and July 6, 2011 on the Toronto Stock Exchange. In connection with the Stock Split, the stockholders also approved a two-for-one split of the Company’s special voting stock and an increase in the Company’s authorized special voting stock from 30,000 to 60,000. Lulu Canadian Holding, Inc., a wholly-owned subsidiary of the Company, effected a two-for-one stock split of the exchangeable shares (which are exchangeable for an equal number of shares of the Company’s common stock) in connection with the Stock Split.

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 earlier of July 26, 2047, the date on which less than 4,188 exchangeable shares are outstanding or in the event of certain events such as a change in control.

Purchase of non-controlling interest

In August 2012, the Company purchased the non-controlling interest in lululemon athletica Australia Pty Ltd (“lululemon australia”) for $26,013. lululemon australia is engaged in the distribution of healthy lifestyle inspired athletic apparel, which is sold through a chain of corporate-owned retail locations and through a network of wholesale accounts, in Australia and New Zealand. The Company previously accounted for its 80 percent interest in lululemon australia as a subsidiary with non-controlling interest.

As a result of the transaction, the carrying amount of $5,680 of the non-controlling interest was reduced to $nil. The Company’s equity was reduced by $20,333, the excess of the purchase price over the net adjustments, as a charge to additional paid in capital.

10 STOCK-BASED COMPENSATION

Stock-based compensation plans

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

In July 2007, the Company’s Board of Directors adopted, and the Company’s stockholders approved the 2007 Equity Incentive Plan (“2007 Plan”). The 2007 Plan provides for the grants of stock options, stock appreciation rights, performance share units, restricted stock or restricted stock units to employees (including officers and directors who are also employees) of the Company. The majority of stock options granted to date have a four-year vesting period and vest at a rate of 25% each year on the anniversary date of the grant. Performance share units issued under the 2007 Plan generally vest three years from the grant date and restricted stock issued under the 2007 Plan vest one year from the grant date. To date, 90 shares of restricted stock have been issued under the 2007 Plan to certain directors and consultants of the Company.

The Company’s policy is to issue shares upon the exercise of Company options or vesting of Performance Share Units from treasury.

Stock-based compensation expense charged to income for the plans was $15,637, $10,340 and $7,273 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $20,871 as at February 3, 2013, which is expected to be recognized over a weighted-average period of 2.0 years, and was $18,619 as at January 29, 2012 over a weighted-average period of 2.2 years.

Employee stock purchase plan

The Company’s Board of Directors and stockholders approved the Company’s Employee Share Purchase Plan (“ESPP”) in September 2007. The ESPP allows for the purchase of common stock of the Company by all eligible employees at a 25% discount from fair market value subject to certain limits as defined in the ESPP. The maximum number of shares available under the ESPP is 6,000 shares. During the year ended February 3, 2013, 22 shares were purchased under the ESPP, which were funded by the Company through open market purchases.

Company stock options and performance share units

A summary of the Company’s stock options, performance share units and restricted shares activity as of February 3, 2013, January 29, 2012, and January 30, 2011, and changes during the years then ended is presented below:


	Number of Stock Options		Weighted- Average Exercise Price		Number of Performance Share Units		Weighted- Average Grant Fair Value		Number of Restricted Shares		Weighted- Average Grant Fair Value
Balance at January 31, 2010		4,387	$	7.04		—	$	—		30	$	6.92
Granted		501		25.23		183		20.94		11		19.37
Exercised		1,369		4.38		—		—		29		7.66
Forfeited		249		8.72		9		20.61		4		6.92

Balance at January 30, 2011		3,270	$	10.83		174	$	20.96		8	$	21.22
Granted		183		45.47		231		40.99		9		47.74
Exercised		1,150		8.36		—		—		8		23.41
Forfeited		50		16.62		21		41.00		1		60.54

Balance at January 29, 2012		2,253	$	14.77		384	$	31.90		8	$	46.10
Granted		84		75.52		156		74.46		16		63.97
Exercised		874		12.60		—		—		8		46.10
Forfeited		86		20.43		49		31.81		—		—

Balance at February 3, 2013		1,377	$	19.51		491	$	45.47		16	$	63.97

The Company’s performance share units are awarded to eligible employees and entitle the grantee to receive a maximum of 1.5 shares of common stock per performance share unit if the Company achieves specified performance goals and the grantee remains employed during the vesting period. The fair value of performance share units is based on the closing price of the Company’s common stock on the award date. Expense for performance share units is recognized when it is probable the performance goal will be achieved.

The following table summarizes information about stock options outstanding and exercisable at February 3, 2013:


	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)
$0.25 – $0.30		113	$	0.30		3.9		113	$	0.30		3.9
$3.57 – $9.00		400		4.62		3.5		169		4.52		4.0
$10.19 – $14.51		318		12.39		5.9		184		12.22		6.0
$16.16 – $25.23		179		19.63		4.3		68		19.75		4.3
$33.50 – $57.25		286		39.70		5.1		82		38.33		5.1
$58.63 – $77.40		81		75.52		6.4		1		65.01		6.0

		1,377	$	19.51		4.7		617	$	12.32		4.8

Intrinsic Value	$	67,219					$	34,256

As of February 3, 2013, the unrecognized compensation cost related to these options was $7,382, which is expected to be recognized over a weighted-average period of 2.3 years; and the total aggregate intrinsic value for stock options outstanding and exercisable was $34,256. The intrinsic value of stock options exercised during the years ended February 3, 2013, January 29, 2012, and January 30, 2011 was $53,605, $42,783, and $28,463. The weighted-average grant date fair value of options granted during the years ended February 3, 2013, January 29, 2012, and January 30, 2011 was $37.20, $22.51, and $12.83, respectively.

The fair value of options with service conditions was determined at the date of grant using the Black-Scholes model. Expected volatilities are based on a review of a peer group of publicly traded apparel retailers. The expected term of options with service conditions is the simple average of the term and the requisite service period as stated in the respective option contracts. The risk-free interest rate is the Federal Reserve federal funds rate. The following assumptions were used in calculating the fair value of stock options issued in fiscal 2012:


	lululemon athletica inc.
Dividend yield		0%
Expected volatility		64.65%
Risk-free interest rate		0.72%
Weighted-average life		4.06 years

11 EARNINGS PER SHARE

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


	Fiscal Year Ended
	February 3, 2013		January 29, 2012		January 30, 2011
Net income	$	271,431	$	184,964	$	122,197
Net income attributable to non-controlling interest		875		901		350

Net income attributable to lululemon athletica inc	$	270,556	$	184,063	$	121,847
Basic weighted-average number of shares outstanding		144,000		143,196		141,720
Effect of stock options assumed exercised		1,806		2,082		2,138

Diluted weighted-average number of shares outstanding		145,806		145,278		143,858

Basic earnings per share	$	1.88	$	1.29	$	0.86
Diluted earnings per share	$	1.85	$	1.27	$	0.85

12 COMMITMENTS AND CONTINGENCIES

The Company has obligations under operating leases for its office, distribution centers and corporate-owned store premises in Canada, the United States, Australia, New Zealand and Hong Kong. As of February 3, 2013, the lease terms of various leases are from two to 10 years. A substantial number of the Company’s leases for corporate-owned store premises include renewal options and certain of the Company’s leases include rent escalation clauses, rent holidays and leasehold rental incentives. Certain of the Company’s leases for corporate-owned store premises also include contingent rental payments based on sales volume. The Company is required to make deposits for rental payments pursuant to certain lease agreements, which have been included in other non-current assets. 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 commitment in respect of corporate-owned stores that have not yet opened but for which lease agreements have been executed.


Fiscal Year
2013	$	57,691
2014		56,920
2015		53,195
2016		47,712
2017		37,192
Thereafter		50,183

Rent expense for the years ended February 3, 2013, January 29, 2012, and January 30, 2011 was $82,428, $67,117, and $53,071, respectively, under operating lease agreements, consisting of minimum rental expense of $54,050, $43,795, and $36,754, respectively, and contingent rental amounts of $28,378, $23,322, and $16,317, respectively.

On October 12, 2012, former hourly employees of the Company filed a class action lawsuit in the Superior Court of the State of California entitled Rebekah Geare et al v. lululemon athletica inc. The lawsuit alleges that the Company violated various U.S. labor codes by failing to provide meal and rest breaks, failing to pay minimum wage, failing to pay overtime, failing to pay certain wages, failing to provide reasonable seating and failing to provide unpaid vacation times as wages at time of termination. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend the matter.

On August 10, 2012, customers of the Company filed a class action lawsuit in San Diego Superior Court entitled Laura Chaikin et al v. lululemon athletica inc. The lawsuit alleges that the Company violated California Civil Code sections by requesting and capturing personal information from guests using credit cards at the point-of-sale in stores. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend the matter.

The Company is, from time to time, involved in routine legal matters incidental to its business. Management believes that the ultimate resolution of any such current proceedings will not have a material adverse effect on the Company’s continued financial position, results of operations or cash flows.

13 RELATED PARTY BALANCES AND TRANSACTIONS

The Company entered into the following transactions with related parties:


	February 3, 2013		January 29, 2012		January 30, 2011
Payments to related parties
Occupancy costs for one corporate-owned store	$	151	$	134	$	100
Consulting fees	$	295	$	305	$	31

During the year ended January 30, 2011, the Company’s principal stockholder increased his interest from 50% to 100% in a company that leases retail space to one corporate-owned store. Consulting fees were paid to a relative of our principal stockholder.

14 SUPPLEMENTAL CASH FLOW INFORMATION

Other, including changes in non-cash working capital items:


	February 3, 2013			January 29, 2012			January 30, 2011
(Increase) decrease in prepaid expenses and other current assets	$	(18,304	)	$	1,344		$	(3,443	)
(Increase) in inventories		(51,022	)		(46,072	)		(7,954	)
(Decrease) increase in trade accounts payable		(13,481	)		7,861			(5,167	)
(Decrease) increase in accrued liabilities		(208	)		1,027			5,589
(Decrease) increase in sales tax collected		(4,232	)		8,232			1,811
Increase (decrease) in income taxes payable		30,951			(3,951	)		14,929
Increase in accrued compensation and related expenses		4,695			5,976			6,413
Increase in deferred gift card revenue		13,711			6,110			7,310
Increase in other non-cash balances		5,632			5,743			4,478

	$	(32,258	)	$	(13,730	)	$	23,966

Cash paid for income taxes	$	71,342		$	85,633		$	30,968
Interest paid	$	206		$	501		$	424

15 INCOME TAXES

The Company files income tax returns in the U.S., Canada and various foreign, state and provincial jurisdictions. The 2011 and 2012 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2008 tax year is still open for certain state tax authorities. The 2008 to 2012 tax years remain subject to examination by tax authorities in certain foreign jurisdictions. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a selling, general and administrative expense. At February 3, 2013, the Company does not have any significant accruals for interest related to unrecognized tax benefits or tax penalties.

The Company’s intercompany transfer pricing policies are currently subject to audits by the various foreign tax jurisdictions. Although the Company believes that its intercompany transfer pricing policies and tax positions are fully supportable, the final determination of tax audits or potential tax disputes may be different from that which is reflected in the Company’s income tax provisions and accruals.

The provision for income taxes consists of the following:


	February 3, 2013			January 29, 2012			January 30, 2011
Federal income tax at statutory rate		35.0	%		35.0	%		35.0	%

Non-deductible compensation expense		0.8			0.8			0.8
U.S. state taxes		1.2			2.8			1.7
Foreign tax rate differential		(7.7	)		(3.4	)		(4.0	)
Permanent and other		(0.5	)		0.9			(0.2	)

Provision for income taxes		28.8	%		36.1	%		33.3	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at February 3, 2013 and January 29, 2012 are presented below:


	February 3, 2013			January 29, 2012
Deferred tax assets/(liabilities)
Net operating loss carryforward	$	2,397		$	655
Foreign tax credits		4,585			—
Property and equipment		(13,151	)		(6,957	)
Deferred lease liability		6,243			5,825
Lease exit costs		—			957
Stock-based compensation		3,317			2,171
Inventory		5,372			1,230
Tenant inducements		4,506			3,505
Other		1,764			1,201

	$	15,033		$	8,587

The Company’s current and deferred taxes from federal, state and foreign sources were as follows:


	February 3, 2013			January 29, 2012			January 30, 2011
Income before provision for income taxes
Domestic	$	63,426		$	114,481		$	57,583
Foreign		317,970			174,977			125,694

Income before provision for income taxes		381,396			289,458			183,277

Current taxes
Federal	$	22,598		$	45,623		$	9,476
State		3,795			8,438			2,435
Foreign		90,017			51,126			37,935

Total current		116,410			105,187			49,846

Deferred taxes
Federal	$	(5,667	)	$	73		$	11,182
State		(786	)		12			635
Foreign		8			(778	)		(583	)

Total deferred		(6,445	)		(693	)		11,234

Provision for income taxes	$	109,965		$	104,494		$	61,080

U.S. income and foreign withholding taxes have not been provided on approximately CDN $437,009 at February 3, 2013 of cumulative undistributed earnings of foreign subsidiaries. The Company intends to reinvest these earnings for the foreseeable future. If these amounts were distributed to the U.S., in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, which could be material. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

16 SEGMENTED FINANCIAL INFORMATION

The Company applies ASC Topic 280, Segment Reporting (“ASC 280”), in determining reportable segments for 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 corporate-owned stores,

direct to consumer and other. Direct to consumer includes sales from the Company’s e-commerce websites. Franchise sales, wholesale, showrooms sales and outlet sales have been combined into other. The Company has reviewed its general corporate expenses and determined some costs previously classified as general corporate are direct segment expenses. Accordingly, all prior year comparable information has been reclassified to conform to the current year classification. Information for these segments is detailed in the table below:


	Fiscal Year Ended
	February 3, 2013		January 29, 2012		January 30, 2011
Net revenue
Corporate-owned stores	$	1,090,181	$	816,925	$	590,389
Direct to consumer		197,255		106,313		57,348
Other		82,922		77,601		63,967

	$	1,370,358	$	1,000,839	$	711,704

Income from operations before general corporate expense
Corporate-owned stores	$	379,670	$	297,809	$	207,692
Direct to consumer		82,947		44,175		14,035
Other		17,370		21,103		16,925

	$	479,987	$	363,087	$	238,652
General corporate expense		103,548		76,129		58,261

Income from operations		376,439		286,958		180,391
Other income (expense), net		4,957		2,500		2,886

Income before provision for income taxes	$	381,396	$	289,458	$	183,277

Capital expenditures
Corporate-owned stores	$	64,863	$	34,117	$	14,536
Direct to consumer		4,881		6,724		4,626
Corporate		23,485		76,055		11,195

	$	93,229	$	116,896	$	30,357

Depreciation and amortization
Corporate-owned stores	$	27,519	$	18,480	$	15,588
Direct to consumer		3,393		2,377		190
Corporate		12,088		9,402		8,836

	$	43,000	$	30,259	$	24,614

The intercompany wholesale sales of $490,982, $66,824, and $10,188 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011 respectively, have been excluded from the net revenue in the Other reportable segment. In addition, the income from operations reported included in the segment results for Other does not reflect the intercompany profit on these sales, which amounted to $216,156, $21,072, and $931 for the years ended February 3, 2013, January 29, 2012, and January 30, 2011, respectively. The increase in intercompany wholesale sales and the profit on these sales in fiscal 2012 compared to prior years was the result of revised intercompany pricing agreements.

The Company operates in five geographic areas—Canada, the United States, Australia and New Zealand, Asia and Europe. Revenue from these regions for the years ended February 3, 2013, January 29, 2012, and January 30, 2011 was as follows:


	February 3, 2013		January 29, 2012		January 30, 2011
United States	$	839,908	$	536,182	$	323,477
Canada		461,586		425,720		371,604
Outside of North America		68,864		38,937		16,623

	$	1,370,358	$	1,000,839	$	711,704

Long-lived assets by geographic area for the years ended February 3, 2013, January 29, 2012, and January 30, 2011 were as follows:


	February 3, 2013		January 29, 2012		January 30, 2011
United States	$	68,115	$	47,131	$	33,513
Canada		135,505		107,340		33,616
Outside of North America		11,019		8,470		3,825

	$	214,639	$	162,941	$	70,954

Substantially all of the Company’s intangible assets and goodwill relate to the reporting segment consisting of corporate-owned stores.

17 QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables present the Company’s unaudited quarterly results of operations and comprehensive income for each of the eight fiscal quarters in the period ended February 3, 2013. You should read the following tables in conjunction with the Company’s audited consolidated financial statements and related notes appearing elsewhere in this Form 10-K. 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 2012										Fiscal 2011
	Fourth Quarter			Third Quarter		Second Quarter			First Quarter		Fourth Quarter			Third Quarter			Second Quarter			First Quarter
	(In thousands) (unaudited)
Consolidated statements of operations and comprehensive income:
Net revenue	$	485,489		$	316,537	$	282,634		$	285,698	$	371,520		$	230,216		$	212,323		$	186,780
Cost of goods sold		210,982			141,237		126,879			128,434		162,476			101,703			90,256			77,053

Gross profit		274,507			175,300		155,755			157,264		209,044			128,513			122,067			109,727

Operating expenses:
Selling, general and administrative expenses		121,932			94,689		85,567			84,199		92,977			68,792			62,584			58,040

Income from operations		152,575			80,611		70,188			73,065		116,067			59,721			59,483			51,687
Other income (expense), net		1,457			1,424		1,166			910		380			619			597			904

Income before provision for income taxes		154,032			82,035		71,354			73,975		116,447			60,340			60,080			52,591
Provision for income taxes		44,657			24,655		13,652			27,001		42,558			21,399			21,462			19,075

Net income		109,375			57,380		57,702			46,974		73,889			38,941			38,618			33,516

Net income attributable to non-controlling interest		—			64		480			331		371			147			239			144

Net income attributable to lululemon athletica inc.	$	109,375		$	57,316	$	57,222		$	46,643	$	73,518		$	38,794		$	38,379		$	33,372

Basic earnings per share	$	0.76		$	0.40	$	0.40		$	0.32	$	0.51		$	0.27		$	0.27		$	0.23
Diluted earnings per share	$	0.75		$	0.39	$	0.39		$	0.32	$	0.51		$	0.27		$	0.26		$	0.23
Other comprehensive income:
Foreign currency translation adjustment		(79	)		2,642		(10,567	)		7,545		(282	)		(14,586	)		(1,077	)		17,165

Comprehensive income	$	109,296		$	59,958	$	46,655		$	54,188	$	73,236		$	24,208		$	37,302		$	50,537

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.

Previous: Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK · Next: Item 9A. CONTROLS AND PROCEDURES

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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