Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

lululemon athletica inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	36
Consolidated Balance Sheets	37
Consolidated Statements of Operations and Comprehensive Income	38
Consolidated Statements of Stockholders' Equity	39
Consolidated Statements of Cash Flows	41
Notes to the Consolidated Financial Statements	42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Directors of

lululemon athletica inc.

We have audited the accompanying consolidated balance sheets of lululemon athletica inc. and its subsidiaries as of February 1, 2015 and February 2, 2014 and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for the 52, 52, and 53 week periods ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively. In addition, we have audited the financial statement schedule listed in the index appearing under Item 15(a)(2). We also have audited lululemon athletica inc.'s and its subsidiaries' internal control over financial reporting as of February 1, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management is responsible for these consolidated 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 an opinion on these consolidated financial statements, the financial statement schedule and 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 consolidated financial statements and the financial statement schedule are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of lululemon athletica inc. and its subsidiaries as of February 1, 2015 and February 2, 2014 and the results of their operations and their cash flows for the 52, 52, and 53 week periods ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively, 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)(2) 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, lululemon athletica inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of February 1, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, British Columbia
March 25, 2015

lululemon athletica inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

		February 1, 2015				February 2, 2014
ASSETS
Current assets
Cash and cash equivalents		$	664,479			$	698,649
Accounts receivable		13,746				11,903
Inventories		208,116				188,790
Prepaid expenses and other current assets		64,671				46,197
		951,012				945,539
Property and equipment, net		296,008				255,603
Goodwill and intangible assets, net		26,163				28,201
Deferred income tax asset		16,018				18,300
Other non-current assets		7,012				4,745
		$	1,296,213			$	1,252,388
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	9,339			$	12,647
Accrued inventory liabilities		22,296				15,415
Accrued compensation and related expenses		29,932				19,445
Income taxes payable		20,073				769
Unredeemed gift card liability		46,252				38,343
Other accrued liabilities		31,989				29,595
		159,881				116,214
Deferred income tax liability		3,633				3,977
Other non-current liabilities		43,131				35,515
		206,645				155,706
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 9,833 and 29,955		—				—
Special voting stock, $0.000005 par value, 60,000 shares authorized, issued and outstanding 9,833 and 29,955		—				—
Common stock, $0.005 par value, 400,000 shares authorized, issued and outstanding 132,112 and 115,342		661				577
Additional paid-in capital		241,695				240,351
Retained earnings		1,020,619				923,822
Accumulated other comprehensive loss		(173,407		)		(68,068		)
		1,089,568				1,096,682
		$	1,296,213			$	1,252,388

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share amounts)

		Fiscal Year Ended
		February 1, 2015				February 2, 2014				February 3, 2013
Net revenue		$	1,797,213			$	1,591,188			$	1,370,358
Cost of goods sold		883,033				751,112				607,532
Gross profit		914,180				840,076				762,826
Selling, general and administrative expenses		538,147				448,718				386,387
Income from operations		376,033				391,358				376,439
Other income (expense), net		7,102				5,768				4,957
Income before provision for income taxes		383,135				397,126				381,396
Provision for income taxes		144,102				117,579				109,965
Net income		239,033				279,547				271,431
Net income attributable to non-controlling interest		—				—				875
Net income attributable to lululemon athletica inc.		$	239,033			$	279,547			$	270,556
Other comprehensive (loss) income:
Foreign currency translation adjustment		(105,339		)		(89,158		)		(459		)
Comprehensive income		$	133,694			$	190,389			$	270,097
Basic earnings per share		$	1.66			$	1.93			$	1.88
Diluted earnings per share		$	1.66			$	1.91			$	1.85
Basic weighted-average number of shares outstanding		143,935				144,913				144,000
Diluted weighted-average number of shares outstanding		144,298				146,043				145,806

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Amounts in thousands)

		Exchangeable Stock							Special Voting Stock							Common Stock							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total				Non-Controlling Interest				Total
		Shares			Par Value				Shares			Par Value				Shares			Par Value
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		)
Common stock issued upon exchange of exchangeable shares		(1,347	)		—				(1,347	)		—				1,347			7				(7		)										—								—
Stock-based compensation																							15,637												15,637								15,637
Excess tax benefit from stock-based compensation																							9,901												9,901								9,901
Restricted share issuance																16			—				—												—								—
Stock options exercised																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
Net income attributable to lululemon athletica inc.																											279,547								279,547								279,547
Foreign currency translation adjustment																															(89,158		)		(89,158		)						(89,158		)
Common stock issued upon exchange of exchangeable shares		(2,110	)						(2,110	)		—				2,110			11				(11		)										—								—
Stock-based compensation																							10,087												10,087								10,087
Excess tax benefit from stock-based compensation																							6,457												6,457								6,457
Restricted share issuance																58			—				—												—								—
Stock options exercised																686			3				8,168												8,171								8,171
Common stock issued upon settlement of performance-based restricted stock units																208			1				(1		)										—								—
Shares withheld related to net share settlement of equity awards																(91	)		—				(5,721		)										(5,721		)						(5,721		)
Balance at February 2, 2014		29,955			$	—			29,955			$	—			115,342			$	577			$	240,351			$	923,822			$	(68,068	)		$	1,096,682			$	—			$	1,096,682

		Exchangeable Stock							Special Voting Stock							Common Stock							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total				Non-Controlling Interest				Total
		Shares			Par Value				Shares			Par Value				Shares			Par Value
Net income attributable to lululemon athletica inc.																											239,033								239,033								239,033
Foreign currency translation adjustment																															(105,339		)		(105,339		)						(105,339		)
Common stock issued upon exchange of exchangeable shares		(20,122	)						(20,122	)		—				20,122			101				(101		)										—								—
Stock-based compensation																							8,269												8,269								8,269
Excess tax benefit from stock-based compensation																							413												413								413
Stock options exercised																158			1				2,912												2,913								2,913
Restricted share issuance																34			—				—												—								—
Common stock issued upon settlement of performance-based restricted stock units																217			1				(1		)										—								—
Shares withheld related to net share settlement of stock-based compensation																(104	)		(1		)		(4,971		)										(4,972		)						(4,972		)
Repurchase of common stock																(3,657	)		(18		)		(5,177		)		(142,236		)						(147,431		)						(147,431		)
Balance at February 1, 2015		9,833			$	—			9,833			$	—			132,112			$	661			$	241,695			$	1,020,619			$	(173,407	)		$	1,089,568			$	—			$	1,089,568

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

		Fiscal Year Ended
		February 1, 2015				February 2, 2014				February 3, 2013
Cash flows from operating activities
Net income		$	239,033			$	279,547			$	271,431
Items not affecting cash
Depreciation and amortization		58,364				49,068				43,000
Stock-based compensation		8,269				10,087				15,637
Derecognition of unredeemed gift card liability		(1,468		)		(4,654		)		(1,351		)
Deferred income taxes		2,087				820				(6,445		)
Excess tax benefits from stock-based compensation		(413		)		(6,457		)		(9,901		)
Other, including net changes in other non-cash balances
Prepaid tax installments		(15,234		)		3,067				(7,812		)
Other prepaid expenses and other current assets		(8,813		)		(14,408		)		(10,492		)
Inventories		(26,806		)		(38,507		)		(51,222		)
Accounts payable		(2,198		)		11,627				(13,481		)
Accrued inventory liabilities		8,276				6,985				(1,785		)
Other accrued liabilities		3,271				7,837				1,777
Sales tax collected		517				161				(4,232		)
Income taxes payable		19,304				(35,075		)		30,951
Accrued compensation and related expenses		11,561				(6,282		)		4,695
Deferred gift card revenue		11,326				9,306				13,711
Other non-cash balances		7,373				5,217				5,632
Net cash provided by operating activities		314,449				278,339				280,113
Cash flows from investing activities
Purchase of property and equipment		(119,733		)		(106,408		)		(93,229		)
Net cash used in investing activities		(119,733		)		(106,408		)		(93,229		)
Cash flows from financing activities
Proceeds from exercise of stock options		2,913				8,171				11,014
Excess tax benefits from stock-based compensation		413				6,457				9,901
Registration fees associated with shelf registration statement		—				—				(393		)
Purchase of non-controlling interest		—				—				(26,013		)
Taxes paid related to net share settlement of equity awards		(4,972		)		(5,721		)		—
Repurchase of common stock		(147,431		)		—				—
Net cash (used in) provided by financing activities		(149,077		)		8,907				(5,491		)
Effect of exchange rate changes on cash		(79,809		)		(72,368		)		(651		)
(Decrease) increase in cash and cash equivalents		(34,170		)		108,470				180,742
Cash and cash equivalents, beginning of period		$	698,649			$	590,179			$	409,437
Cash and cash equivalents, end of period		$	664,479			$	698,649			$	590,179

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

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, showrooms, a network of wholesale accounts, outlets and warehouse sales. The Company's primary markets are the United States, Canada, Australia, New Zealand, the United Kingdom, and Singapore where 211, 57, 26, five, two, and one corporate-owned store(s), respectively, were in operation as at February 1, 2015. There were 302, 254, and 211 corporate-owned stores in operation as at February 1, 2015, February 2, 2014, and February 3, 2013, respectively.

Basis of presentation

The accompanying consolidated financial statements include the financial position, results of operations and cash flows of the Company during the three-year period ended February 1, 2015. The consolidated financial statements have been presented in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles ("GAAP").

The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but occasionally giving rise to an additional week, resulting in a 53 week year. Fiscal 2014 and 2013 were 52 week years whereas fiscal 2012 was a 53 week year. Fiscal 2014, 2013 and 2012 ended on February 1, 2015, February 2, 2014, and February 3, 2013, 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 sales during the holiday season.

Certain prior year amounts have been reclassified to conform to fiscal 2014 presentation.

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 for fiscal 2012 are presented within equity and net income, and are shown separately from the Company's equity and net income attributable to the Company.

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 lease inducements. The allowance for doubtful accounts represents management's best estimate of probable credit losses in accounts receivable. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. As at February 1, 2015, February 2, 2014 and February 3, 2013 the Company recorded an insignificant allowance for doubtful accounts.

Inventories

Inventories, consisting of finished goods, inventories in transit, and raw materials, are stated at the lower of cost and 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 all costs incurred to deliver inventory to the Company's distribution centers including freight, non-refundable taxes, duty and other landing costs.

The Company 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, the Company provides for inventory shrinkage based on historical trends from actual physical inventory counts. Inventory shrinkage estimates are made to reduce the inventory value for lost or stolen items. The Company performs physical inventory counts and cycle counts throughout the year and adjusts the shrink reserve accordingly.

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation. Direct internal and external costs related to software used for internal purposes which are incurred during the application development stage or for upgrades that add functionality are capitalized. All other costs related to internal use software are expensed as incurred.

Depreciation commences when an asset is ready for its intended use. Buildings are depreciated on a straight-line basis over the expected useful life of the asset, which is estimated to be 20 years. Leasehold improvements are depreciated on a straight-line basis over the lesser of the length of the lease and the estimated useful life of the improvement, to a maximum of five years. All other property and equipment are depreciated using the declining balance method as follows:

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 aggregate of the consideration transferred, the fair value of any non-controlling interest in the acquiree, and the acquisition-date fair value of the Company's previously held equity interest over the net assets acquired and liabilities assumed. Goodwill 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.

Leased property and equipment

The Company leases stores, 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.

Deferred lease inducements, which include leasehold improvements paid for by the landlord and rent free periods, 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.

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.

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 asset retirement obligations ("AROs") when such obligations are incurred. The Company's AROs are primarily associated with leasehold improvements which, at the end of a lease, the Company is contractually obligated to remove in order to comply with the lease agreement. At the inception of a lease with such conditions, the Company records an ARO liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation. The liability is estimated based on a number of assumptions requiring management's judgment, including store closing costs, cost inflation rates and discount rates, and is accreted to its projected future value over time. The capitalized asset is depreciated using the convention for depreciation of leasehold improvement assets. Upon satisfaction of the ARO conditions, any difference between the recorded ARO liability and the actual retirement costs incurred is recognized as an operating gain or loss in the consolidated statements of operations.

The Company recognizes a liability for a cost associated with a lease exit or disposal activity when such obligation is incurred. A lease exit or disposal liability is measured initially at its fair value in the period in which the liability is incurred. The Company estimates fair value at the cease-use date of its operating leases as the remaining lease rentals, reduced by estimated sublease rentals that could be reasonably obtained for the property, even where the Company does not intend to enter into a sublease. Estimating the cost of certain lease exit costs involves subjective assumptions, including the time it would take to sublease the leased location and the related potential sublease income. The estimated accruals for these costs could be significantly affected if future experience differs from that used in the initial estimate.

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 is comprised of corporate-owned store net revenue, direct to consumer sales through www.lululemon.com, www.ivivva.com and other country and region specific websites, and other net revenue, which includes outlet sales, showroom sales, sales to wholesale accounts, warehouse sales, and sales from temporary locations.

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

Sales of apparel to customers through the Company's retail internet sites are recognized when goods are shipped, and collection is reasonably assured, 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 1, 2015, February 2, 2014 and February 3, 2013, net revenue recognized on unredeemed gift card balances was $1,468, $4,654, and $1,351, respectively.

Cost of goods sold

Cost of goods sold includes:

•	the cost of purchased merchandise, which includes acquisition and production costs including raw material and labor, as applicable;

•	the cost incurred to deliver inventory to the Company's distribution centers including in-bound freight, non-refundable taxes, duty and other landing costs;

•	the cost of the Company's distribution centers (such as labor, rent and utilities) and the depreciation related to the Company's distribution centers;

•	the cost of the Company's production, design, distribution and merchandising departments including salaries, stock-based compensation and benefits, and operating expenses;

•	occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities and depreciation expense for the Company's corporate-owned store locations;

•	hemming; and

•	shrink and inventory valuation reserves.

Selling, general and administrative expenses

Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold. Our selling, general and administrative expenses include the costs of corporate and store-level wages and benefits, costs to transport our products from our distribution facilities to our sales locations and e-commerce guests, professional fees, marketing, information technology, human resources, accounting, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.

For the years ended February 1, 2015, February 2, 2014 and February 3, 2013 the Company incurred transportation costs of $35,901, $31,296, and $23,407 respectively.

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 evaluation as to the likelihood of realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of deferred tax liabilities, taxable income forecasts, and tax-planning strategies.

The Company provides for taxes at the rate applicable for the appropriate tax jurisdiction. U.S. income taxes on unremitted earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested have not been recognized. 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.

Currency translation

The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States is generally the applicable local currency. Assets and liabilities of each foreign entity are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Net revenue and expenses are translated at the average rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in stockholders' equity.

Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional currency with any resulting gains and losses included in income, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature.

The aggregate foreign exchange gains (losses) included in selling, general and administrative expenses amount to $6,372, $17,314, and $(625) for the years ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively.

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.

Concentration of credit risk

The Company is not exposed to significant credit risk on its cash and cash equivalents and accounts receivable. Cash and cash equivalents are held with high quality financial institutions. Accounts receivable are primarily from wholesale accounts and for landlord lease inducements. The Company does not require collateral to support the accounts receivable; however, in certain circumstances, the Company may require parties to provide payment for goods prior to delivery of the goods. The accounts receivable are net of an allowance for doubtful accounts, which is established based on management's assessment of the credit risk of the underlying accounts.

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 amount of compensation expense 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. The fair value of the restricted shares, performance-based restricted stock units, and restricted stock units is based on the closing price of the Company's common stock on the award date.

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, performance-based restricted stock units that have satisfied their performance factor, and restricted stock units using the treasury stock method.

Contingencies

In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships and a variety of other matters. We record contingent liabilities resulting from claims against us, when a loss is assessed to be probable and the amount of the loss is reasonably estimable.

Use of estimates

The preparation of financial statements in conformity with 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 net revenue and expenses during the reporting period.

Recently issued accounting standards

In May 2014, the FASB issued ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), which supersedes the revenue recognition requirements in ASC Topic 605 Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. This guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and expands the related disclosure requirements. This guidance will be effective for the Company beginning in its first quarter of fiscal 2017. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.

In June 2014, the FASB amended ASC Topic 718, Compensation - Stock Compensation ("ASC 718") for share-based payments in which the terms of the award provide that a performance target can be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This guidance is effective for public companies for years, and interim periods within those years, beginning on or after December 15, 2015, and early application is permitted. This guidance will be effective for the Company beginning in its first quarter of fiscal 2016. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.

3 INVENTORIES

		February 1, 2015				February 2, 2014
Finished goods		$	214,113			$	196,292
Provision to reduce inventory to market value		(5,997		)		(7,502		)
		$	208,116			$	188,790

4 PROPERTY AND EQUIPMENT

		February 1, 2015				February 2, 2014
Land		$	60,548			$	67,903
Buildings		29,099				20,407
Leasehold improvements		176,677				140,748
Furniture and fixtures		55,320				41,400
Computer hardware		35,457				29,497
Computer software		84,854				70,537
Equipment and vehicles		11,908				4,108
Accumulated depreciation		(157,855		)		(118,997		)
		$	296,008			$	255,603

Included in the cost of computer software are capitalized costs of $2,620 and $1,697 at February 1, 2015 and February 2, 2014, respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $57,450, $48,177 and $41,671 for the years ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively.

5 GOODWILL AND INTANGIBLE ASSETS

		February 1, 2015				February 2, 2014
Goodwill		$	25,496			$	25,496
Changes in foreign currency exchange rates		(1,083		)		(217		)
		24,413				25,279
Intangibles—reacquired franchise rights		$	10,150			$	10,630
Accumulated amortization		(8,264		)		(7,830		)
Changes in foreign currency exchange rates		(136		)		122
		1,750				2,922
Total goodwill and intangibles		$	26,163			$	28,201

Amortization expense related to intangible assets was $914, $891, and $1,329 for the years ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively. The estimated aggregate future amortization expense is as follows:

Fiscal Year
2015		$	747
2016		677
2017		254
2018		72
Thereafter		—
		$	1,750

The weighted-average remaining useful lives of the reacquired franchise rights was 1.79 years as at February 1, 2015 and 2.49 years as at February 2, 2014.

6 OTHER ACCRUED LIABILITIES

		February 1, 2015				February 2, 2014
Sales tax collected		$	8,579			$	8,341
Accrued rent		5,567				5,936
Other		17,843				15,318
		$	31,989			$	29,595

7 OTHER NON-CURRENT LIABILITIES

		February 1, 2015				February 2, 2014
Deferred lease liability		$	20,837			$	17,994
Tenant inducements		22,294				17,521
		$	43,131			$	35,515

8 LONG-TERM DEBT AND CREDIT FACILITIES

In November 2013, the Company canceled the uncommitted senior secured demand revolving credit facility with Royal Bank of Canada that it had entered into in April 2007 and entered into unsecured demand revolving credit facilities with HSBC Bank Canada and Bank of America, N.A., Canada Branch for up to $15,000 in the aggregate to support the issuance of letters of credit and 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. These facilities were renewed for a one year period in November 2014.

Borrowings under the credit facility can be made either as (i) U.S. Dollar Loans - U.S. Dollar Loans bear interest a rate equal to U.S. LIBOR plus 100 basis points or U.S. prime rate, at the Company's option; (ii) Letters of Credit - Borrowings drawn down under standby letters of credit issued by the banks bear a fee of 100 basis points; and (iii) CDN Dollar Loans - CDN Dollar Loans bear interest at a rate equal to the CDOR Rate plus 100 basis points or the Canadian Prime Rate, at the Company's option.

At February 1, 2015, aside from letters of credit and guarantees, there were no borrowings outstanding under these credit facilities. At February 1, 2015, letters of credit totaling $566 had been issued under these credit facilities.

9 STOCKHOLDERS' EQUITY

Authorized share capital

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. 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 June 2014, the Company's stockholders approved the adoption of the lululemon athletica inc. 2014 Equity Incentive Plan ("2014 Plan"). The 2014 Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock purchase rights, restricted share bonuses, restricted stock units, performance shares, performance-based restricted stock units, cash-based awards, other stock-based awards, and deferred compensation awards to employees (including officers and directors who are also employees), consultants, and directors of the Company.

The awards granted under the 2007 Equity Incentive Plan ("2007 Plan") remain outstanding and continue to vest under their original conditions. No further awards will be granted under the 2007 Plan.

The Company has granted stock options, performance-based restricted stock units, restricted stock units and restricted shares. 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 and generally expire seven years from the date of grant. Performance-based restricted stock units issued generally vest three years from the grant date and restricted shares vest one year from the grant date. Restricted stock units granted generally have a three-year vesting period and vest at a certain percentage each year on the anniversary date of the grant. To date, 199 restricted shares have been issued to certain directors of the Company.

The Company's policy is to issue shares from treasury upon the exercise of Company options, vesting of performance-based restricted stock units or restricted stock units, and granting of restricted shares.

Stock-based compensation expense charged to income for the plans was $8,269, $10,087 and $15,637 for the years ended February 1, 2015, February 2, 2014, and February 3, 2013, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $25,720 as at February 1, 2015, which is expected to be recognized over a weighted-average period of 2.5 years, and was $17,065 as at February 2, 2014 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. Contributions are made by eligible employees, subject to certain limits as defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares available under the ESPP is 6,000 shares. During the year ended February 1, 2015, there were 145 shares purchased under the ESPP in the open market.

Company stock options, performance-based restricted stock units, restricted shares and restricted stock units

A summary of the Company's stock option, performance-based restricted stock unit, restricted share and restricted stock unit activity as of February 1, 2015, February 2, 2014, and February 3, 2013, and changes during the years then ended is presented below:

		Stock Options							Performance-Based Restricted Stock Units							Restricted Shares							Restricted Stock Units
		Number			Weighted-Average Exercise Price				Number			Weighted-Average Grant Date Fair Value				Number			Weighted-Average Grant Date Fair Value				Number			Weighted-Average Grant Date Fair Value
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/vested		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			—			$	—
Granted		118			64.86				290			52.41				59			52.35				—			—
Exercised/vested		686			11.90				208			21.72				16			63.97				—			—
Forfeited		140			41.33				145			59.03				2			64.30				—			—
Balance at February 2, 2014		669			$	30.76			428			$	57.08			57			$	51.99			—			$	—
Granted		447			48.16				321			49.67				34			39.00				195			45.76
Exercised/vested		158			18.50				217			40.04				29			56.28				—			—
Forfeited		79			59.09				80			61.34				—			—				9			45.92
Balance at February 1, 2015		879			$	39.25			452			$	59.27			62			$	42.86			186			$	45.75

A total of 15,180 of shares of our common stock have been authorized for future issuance under our 2014 Equity Incentive Plan.

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

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

The following table summarizes information about stock options outstanding and exercisable at February 1, 2015:

		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 – $14.16		176				$	7.37			2.6		176				$	7.37			2.6
$14.29 – $39.56		140				25.96				2.9		132				25.27				2.8
$44.20 – $44.20		224				44.20				6.6		—				—				0.0
$45.75 – $52.59		191				52.02				5.9		13				46.97				3.6
$53.44 – $76.49		148				65.65				5.1		55				66.55				4.6
		879				$	39.25			4.8		376				$	23.73			3.0
Intrinsic value		$	24,211									$	16,220

As of February 1, 2015, the unrecognized compensation cost related to these options was $8,172, which is expected to be recognized over a weighted-average period of 3.1 years; and the total aggregate intrinsic value for stock options outstanding and exercisable was $16,220. The weighted-average grant date fair value of options granted during the years ended February 1, 2015, February 2, 2014, and February 3, 2013 was $17.69, $31.96, and $37.20, respectively.

The following table summarizes the intrinsic value of options exercised and full value awards vested during fiscal 2014, 2013, and 2012:

		Intrinsic Value of Options Exercised and Full Value Awards Vested During the Fiscal Year Ended
		February 1, 2015				February 2, 2014				February 3, 2013
Stock Options		$	4,382			$	37,591			$	53,605
Performance-based restricted stock units		10,242				13,057				—
Restricted shares		1,567				1,070				474
Restricted stock units		—				—				—
		$	16,191			$	51,718			$	54,079

The fair value of each stock option granted is estimated on date of grant using the Black-Scholes model. The assumptions used to calculate the fair value of 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 historical experience of similar awards, giving consideration for expectations of future employee behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The Company began using its own historical data in fiscal 2014 to determine the assumptions; prior to fiscal 2014, the assumptions were based upon a review of a peer group of publicly traded apparel retailers. The following assumptions were used in calculating the fair value of stock options granted in fiscal 2014, 2013, and 2012:

		Stock Options Granted During the Fiscal Year Ended
		February 1, 2015			February 2, 2014			February 3, 2013
Expected term		4.00 years			4.06 years			4.06 years
Expected volatility		45.93	%		64.65	%		64.65	%
Risk-free interest rate		1.04	%		0.72	%		0.72	%
Dividend yield		—	%		—	%		—	%

11 EARNINGS PER SHARE

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

		Fiscal Year Ended
		February 1, 2015				February 2, 2014				February 3, 2013
Net income attributable to lululemon athletica inc		$	239,033			$	279,547			$	270,556
Basic weighted-average number of shares outstanding		143,935				144,913				144,000
Effect of stock options assumed exercised		363				1,130				1,806
Diluted weighted-average number of shares outstanding		144,298				146,043				145,806
Basic earnings per share		$	1.66			$	1.93			$	1.88
Diluted earnings per share		$	1.66			$	1.91			$	1.85

The Company's calculation of weighted-average shares includes the common stock of the Company as well as the exchangeable shares. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have in effect the same rights and share equally in undistributed net income. For the fiscal years ended February 1, 2015, February 2, 2014 and February 3, 2013, 296, 57 and 45 stock options, respectively, were anti-dilutive to earnings and therefore have been excluded from the computation of diluted earnings per share.

On June 11, 2014, the Company's board of directors approved a program to repurchase shares of the Company's common stock up to an aggregate value of $450,000. The common stock is to be repurchased in the open market at prevailing market prices, with the timing and actual number of shares to be repurchased depending upon market conditions and other factors. The repurchases will be made up until June 2016. During the fiscal year ended February 1, 2015, 3,657 shares were repurchased under the program at a total cost of $147,431. Subsequent to February 1, 2015, and up to March 23, 2015, no shares were repurchased.

12 COMMITMENTS AND CONTINGENCIES

The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment. As of February 1, 2015, the lease terms of the various leases are from two to 10 years. A substantial number of the Company's leases 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 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.

		Payments Due by Fiscal Year
		Total				2015				2016				2017				2018				2019				Thereafter
Operating leases (minimum rent)		$	395,483			$	82,282			$	81,697			$	72,660			$	57,190			$	43,625			$	58,029

Rent expense for the years ended February 1, 2015, February 2, 2014, and February 3, 2013 was $105,989, $95,574, and $82,428, respectively, under operating lease agreements, consisting of minimum rental expense of $68,598, $61,552, and $54,050, respectively, and contingent rental amounts of $37,391, $34,022, and $28,378, respectively.

On January 11, 2015, the Company entered into a license and supply agreement with a license to a partner in the Middle East which grants it the right to operate lululemon athletica branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain for an initial term of five years. Under this arrangement the Company will be supplying the partner with lululemon products, training and other support. As at February 1, 2015 there were no franchised retail locations in operation.

In addition to the legal matters described below, the Company is, from time to time, involved in routine legal matters incidental to the conduct of its business, including legal matters such as initiation and defense of proceedings to protect intellectual property rights, slip and fall/personal injury claims, product liability claims, and similar matters. The Company believes the ultimate resolution of any such current proceeding will not have a material adverse effect on its continued financial position, results of operations or cash flows.

On October 25, 2013, plaintiff Laborers' District Council Industry Pension Fund filed a books-and-records action in the Delaware Court of Chancery entitled Laborers' District Council Construction Industry Pension Fund v. lululemon athletica inc., C.A. No. 9039-VCP (Del. Ch.) under 8 Del. C. Sec. 220 based on a demand letter it sent to the Company on or around August 8, 2013 to request certain lululemon records relating to the March 2013 sheer Luon issue, the Company's announcement that its then CEO, Christine Day, intended to resign, and certain stock trades executed by the then-Chairman of the Company's board of directors, Mr. Wilson, prior to the Company's announcement regarding its former CEO, Christine Day. The Court held a one-day trial on February 19, 2014, which took the form of an oral argument. On April 2, 2014, the Court rejected the majority of books and records sought by plaintiff and ordered the Company to produce a narrow category of documents relating to one trade made by the Company's former Chairman. On June 11, 2014, the Court consolidated this action with the action captioned Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund v. lululemon athletica inc., C.A. No. 8522-VCP (Del. Ch.), which is described below. On June 13, 2014, Plaintiffs filed a Motion to Enforce the Court's April 2, 2014 Telephonic Rulings and Compel in Camera Inspection of Withheld and Redacted Documents. The Court held a hearing on the Motion to Enforce on December 1, 2014 and the judgment on the Motion remains pending. The Company believes there is no merit to the Motion.

On August 12, 2013 and August 23, 2013, plaintiffs Thomas Canty and Tammy Federman filed shareholder derivative actions entitled Canty v. Day, et al., No. 13-CV-5629 (S.D.N.Y.) and Federman v. Day, et al., No. 13-CV-5977 (S.D.N.Y.). Plaintiffs allege that they are acting on behalf of the Company and name as defendants current and former directors and certain

officers of the Company. On January 17, 2014, plaintiffs filed an amended complaint, operative in both actions. In that amended complaint, plaintiffs challenge certain public disclosures and conduct relating to the March 2013 sheer Luon issue, the June 2013 announcement regarding the resignation of the Company's former CEO, Christine Day, and certain stock trades executed by Mr. Wilson and Ms. Day in the months leading up to that announcement. Plaintiffs allege violations of Section 14(a) of the Securities Exchange Act and breach of fiduciary duty, unjust enrichment, abuse of control, and gross mismanagement. On April 9, 2014, the Court dismissed all of plaintiffs' claims due to plaintiffs' failure to make a pre-suit demand. On May 9, 2014, plaintiff in the Canty action filed a notice of appeal to the United States Court of Appeals for the Second Circuit. The Court of Appeals has scheduled an oral argument on the appeal on March 27, 2015. The Company believes there is no merit to the appeal.

On July 2, 2013, plaintiff Houssam Alkhoury filed a putative shareholder class action entitled Alkhoury v. lululemon athletica inc., et al., No. 13-CV-4596 (S.D.N.Y.) against lululemon, a certain director and a certain officer of the Company (collectively, "Defendants"). On October 1, 2013, the Court appointed Louisiana Sheriffs' Pension & Relief Fund as Lead Plaintiff and on November 1, 2013, Lead Plaintiff filed a consolidated class action complaint on behalf of a proposed class of purchasers of lululemon stock between September 7, 2012 through June 11, 2013 (the "Complaint"). In its Complaint, Lead Plaintiff asserted causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Defendants based on certain public disclosures made by the Company relating to lululemon's product quality and the March 2013 sheer Luon issue. On January 15, 2014, Lead Plaintiff filed a consolidated amended class action complaint (the "Amended Complaint") on behalf of a proposed class of purchasers of lululemon stock between September 7, 2012 through January 10, 2014. In its Amended Complaint, Lead Plaintiff added new claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on certain of lululemon's public disclosures related to the Company's ongoing quality control improvements and the impact of those improvements on the Company's financial results. On April 18, 2014, the Court dismissed all of Lead Plaintiff's claims for failure to state a claim. Lead Plaintiff filed a notice of appeal of this decision and filed its appeal brief on August 1, 2014. The Company filed a reply on October 23, 2014, Lead Plaintiff filed a further reply on November 6, 2014, and a hearing has been scheduled for May 8, 2015. The Company believes there is no merit to the appeal.

On May 3, 2013, plaintiff Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund filed a books-and-records action in the Delaware Court of Chancery entitled Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund v. lululemon athletica inc., C.A. No. 8522-VCP (Del. Ch.) under 8 Del. C. Sec. 220 based on a demand letter it sent to the Company on April 17, 2013 to request certain lululemon records relating to the March 2013 sheer Luon issue and revisions to the Company's executive bonus plan. The Company moved to dismiss the complaint on May 28, 2013. On June 14, 2013, plaintiff sent a supplemental demand letter that requested additional records from the Company relating to the Company's announcement that Christine Day intended to resign as the Company's Chief Executive Officer, and certain stock trades executed by the Company's then-Chairman, Mr. Wilson, prior to the Company's announcement regarding Ms. Day. On July 1, 2013, plaintiff filed an amended complaint to incorporate allegations relating to the June 14, 2013 supplemental demand letter. The Company moved to dismiss the amended complaint on August 15, 2013, and in response to this filing, plaintiffs served the Company with a new demand letter and then filed a second amended complaint on November 4, 2013. The Company moved to dismiss the second amended complaint on December 4, 2013 and the Court held argument on the motion on February 5, 2014. On April 2, 2014, the Court rejected the majority of books and records sought by plaintiff and ordered the Company to produce a narrow category of documents relating to one trade made by the Company's former Chairman. On June 11, 2014 the Court consolidated this action with the action captioned Laborers' District Council Construction Industry Pension Fund v. lululemon athletica inc., C.A. No. 9039-VCP (Del. Ch.) which is described above. On June 13, 2014 Plaintiffs filed a Motion to Enforce the Court's April 2, 2014 Telephonic Rulings and Compel in Camera Inspection of Withheld and Redacted Documents. The Court held a hearing on the Motion to Enforce on December 1, 2014 and the judgment on the Motion remains pending. The Company believes there is no merit to the Motion.

The Company has indemnification agreements with certain of its current and former officers and directors that may require it, among other things, to indemnify such current or former officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

The Company is unable at this time to predict the amount of its legal expenses associated with these proceedings and any settlement or damages associated with these matters. In the event that the Company is unsuccessful in its defense, or if the Company pursues settlement with regard to any of these actions, the Company could be required to pay significant final settlement amounts and/or judgments that exceed the limits of its insurance policies or the carriers may decline to fund such final settlements and/or judgments, which could have a material adverse effect on the Company's financial condition and liquidity. Regardless of whether any of the claims asserted against the Company in these actions are valid, or whether the Company is ultimately held liable, such litigation may be expensive to defend and may divert resources away from the Company's operations and negatively impact earnings. Further, the Company may not be able to obtain adequate insurance to protect it from these types of litigation matters or extraordinary business losses.

13 RELATED PARTY BALANCES AND TRANSACTIONS

The Company entered into the following transactions with related parties, all of which were approved by the Company's Audit Committee in accordance with the Company’s related party transaction policy:

		February 1, 2015				February 2, 2014				February 3, 2013
Payments to related parties
Occupancy costs for one corporate-owned store		$	140			$	150			$	151
Consulting fees		$	289			$	409			$	295

The Company's founder, who was member of the Company's board of directors up until February 2, 2015, owns a retail space that the Company leases for one of its corporate-owned stores. Consulting fees were paid to a relative of the Company's founder.

14 SUPPLEMENTAL CASH FLOW INFORMATION

		February 1, 2015				February 2, 2014				February 3, 2013
Cash paid for income taxes		$	146,376			$	155,394			$	71,342
Interest paid		$	14			$	117			$	206

15 INCOME TAXES

The Company files income tax returns in the U.S., Canada and various foreign, state and provincial jurisdictions. The 2011 to 2013 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2010 tax year is still open for certain state tax authorities. The 2007 to 2013 tax years remain subject to examination by Canadian tax authorities. The 2008 to 2013 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 part of other income (expense), net. At February 1, 2015, 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 1, 2015			February 2, 2014			February 3, 2013
Federal income tax at statutory rate		35.0	%		35.0	%		35.0	%
Non-deductible compensation expense		0.3			0.5			0.8
U.S. state taxes		1.2			1.2			1.2
Foreign tax rate differential		(6.8	)		(7.1	)		(7.7	)
Tax on repatriated foreign earnings		8.8			—			—
Permanent and other		(0.9	)		—			(0.5	)
Provision for income taxes		37.6	%		29.6	%		28.8	%

The provision for income taxes in fiscal 2014 includes a tax expense of $33.7 million to provide for U.S. income and applicable foreign withholding taxes on dividends of $473.7 million which were distributed during fiscal 2014 by foreign subsidiaries to the U.S. parent entity to fund the share repurchase program.

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability at February 1, 2015 and February 2, 2014 are presented below:

		February 1, 2015				February 2, 2014
Deferred income tax asset
Net operating loss carryforward		$	8,803			$	5,097
Foreign tax credits		—				4,585
Property and equipment		(15,850		)		(12,447		)
Deferred lease liability		6,977				6,284
Stock-based compensation		4,662				3,758
Inventory		3,058				4,681
Tenant inducements		6,965				5,841
Other		1,403				501
		16,018				18,300
Deferred income tax liability
Property and equipment		(5,027		)		(5,122		)
Other		1,394				1,145
		(3,633		)		(3,977		)
Net deferred income tax asset		$	12,385			$	14,323

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

		February 1, 2015				February 2, 2014				February 3, 2013
Income before provision for income taxes
Domestic		$	94,234			$	81,688			$	63,426
Foreign		288,901				315,438				317,970
Income before provision for income taxes		383,135				397,126				381,396
Current taxes
Federal		$	54,172			$	27,818			$	22,598
State		8,203				4,017				3,795
Foreign		80,461				84,924				90,017
Total current		142,836				116,759				116,410
Deferred taxes
Federal		$	7,763			$	266			$	(5,667	)
State		77				38				(786		)
Foreign		(6,574		)		516				8
Total deferred		1,266				820				(6,445		)
Provision for income taxes		$	144,102			$	117,579			$	109,965

U.S. income and foreign withholding taxes have not been provided on approximately $471,322 of cumulative undistributed earnings of foreign subsidiaries at February 1, 2015. The Company intends to reinvest these earnings for the foreseeable future. U.S. income taxes of approximately $44,148 would be incurred if these earnings were distributed.

16 SEGMENTED FINANCIAL INFORMATION

The Company applies ASC Topic 280, Segment Reporting ("ASC 280"), in determining reportable segments for its financial statement disclosure. The Company reports segments based on the financial information it uses in managing its business. The Company's reportable segments are comprised of corporate-owned stores and direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites. Outlet sales, showroom sales, sales to wholesale accounts, warehouse sales, and sales from temporary locations have been combined into the other segment. The Company has reviewed the classification of its expenses amongst its reportable segments and has updated the classification of some of these 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 1, 2015				February 2, 2014				February 3, 2013
Net revenue
Corporate-owned stores		$	1,348,225			$	1,228,999			$	1,090,181
Direct to consumer		321,180				263,083				197,255
Other		127,808				99,106				82,922
		$	1,797,213			$	1,591,188			$	1,370,358
Income from operations before general corporate expense
Corporate-owned stores		$	356,589			$	372,267			$	373,607
Direct to consumer		132,877				109,999				85,128
Other		9,499				13,994				19,787
		498,965				496,260				478,522
General corporate expense		122,932				104,902				102,083
Income from operations		376,033				391,358				376,439
Other income (expense), net		7,102				5,768				4,957
Income before provision for income taxes		$	383,135			$	397,126			$	381,396
Capital expenditures
Corporate-owned stores		$	76,894			$	60,233			$	64,863
Direct to consumer		9,952				5,953				4,881
Corporate		32,887				40,222				23,485
		$	119,733			$	106,408			$	93,229
Depreciation and amortization
Corporate-owned stores		$	37,951			$	31,349			$	28,874
Direct to consumer		6,299				4,599				3,393
Corporate		14,114				13,120				10,733
		$	58,364			$	49,068			$	43,000

Intercompany amounts are excluded from the above table as they are not included in the materials reviewed by the Chief Operating Decision Maker.

The Company operates in five geographic areas—Canada, the United States, Australia and New Zealand, Europe, and Asia. Net revenue from these regions for the years ended February 1, 2015, February 2, 2014, and February 3, 2013 was as follows:

		February 1, 2015				February 2, 2014				February 3, 2013
United States		$	1,257,351			$	1,052,148			$	839,908
Canada		434,328				454,209				461,586
Outside of North America		105,534				84,831				68,864
		$	1,797,213			$	1,591,188			$	1,370,358

Long-lived assets by geographic area for the years ended February 1, 2015 and February 2, 2014 were as follows:

		February 1, 2015				February 2, 2014
United States		$	133,222			$	97,288
Canada		144,689				145,416
Outside of North America		18,097				12,899
		$	296,008			$	255,603

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 periods ended February 1, 2015 and February 2, 2014. The following tables should be read 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 2014																Fiscal 2013
		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
		(Unaudited; Amounts in thousands, except per share amounts)
Consolidated statements of operations and comprehensive income:
Net revenue		$	602,491			$	419,396			$	390,708			$	384,618			$	520,993			$	379,900			$	344,513			$	345,782
Cost of goods sold		292,450				208,308				193,401				188,874				242,203				175,294				158,558				175,057
Gross profit		310,041				211,088				197,307				195,744				278,790				204,606				185,955				170,725
Selling, general and administrative expenses		152,853				129,932				129,419				125,943				124,643				112,270				106,969				104,836
Income from operations		157,188				81,156				67,888				69,801				154,147				92,336				78,986				65,889
Other income (expense), net		1,755				1,814				1,890				1,643				1,519				1,453				1,295				1,501
Income before provision for income taxes		158,943				82,970				69,778				71,444				155,666				93,789				80,281				67,390
Provision for income taxes		48,090				22,519				21,030				52,463				45,974				27,678				23,816				20,111
Net income		$	110,853			$	60,451			$	48,748			$	18,981			$	109,692			$	66,111			$	56,465			$	47,279
Other comprehensive (loss) income:
Foreign currency translation adjustment		(92,137		)		(29,256		)		3,664				12,390				(53,657		)		(9,153		)		(21,901		)		(4,447		)
Comprehensive income		$	18,716			$	31,195			$	52,412			$	31,371			$	56,035			$	56,958			$	34,564			$	42,832
Basic earnings per share		$	0.78			$	0.42			$	0.34			$	0.13			$	0.75			$	0.46			$	0.39			$	0.33
Diluted earnings per share		$	0.78			$	0.42			$	0.33			$	0.13			$	0.75			$	0.45			$	0.39			$	0.32

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.