Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

lululemon athletica inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	37
Consolidated Balance Sheets	38
Consolidated Statements of Operations and Comprehensive Income	39
Consolidated Statements of Stockholders' Equity	40
Consolidated Statements of Cash Flows	42
Index for Notes to the Consolidated Financial Statements	43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders of lululemon athletica inc.

We have audited the accompanying consolidated balance sheets of lululemon athletica inc. and its subsidiaries as of January 29, 2017 and January 31, 2016 and the related consolidated statements of operations and comprehensive income, stockholders' equity and cash flows for the 52-week periods ended January 29, 2017, January 31, 2016 and February 1, 2015. In addition, we have audited the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2). We also have audited lululemon athletica inc. and its subsidiaries' internal control over financial reporting as of January 29, 2017, 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 the accompanying 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 January 29, 2017 and January 31, 2016 and the results of their operations and their cash flows for the 52-week periods ended January 29, 2017, January 31, 2016, and February 1, 2015 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 January 29, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 28, 2017

lululemon athletica inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)

		January 29, 2017				January 31, 2016
ASSETS
Current assets
Cash and cash equivalents		$	734,846			$	501,482
Accounts receivable		9,200				13,108
Inventories		298,432				284,009
Prepaid and receivable income taxes		81,190				91,453
Other prepaid expenses and other current assets		39,069				26,987
		1,162,737				917,039
Property and equipment, net		423,499				349,605
Goodwill and intangible assets, net		24,557				24,777
Deferred income tax assets		26,256				11,802
Other non-current assets		20,492				10,854
		$	1,657,541			$	1,314,077
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	24,846			$	10,381
Accrued inventory liabilities		8,601				25,451
Accrued compensation and related expenses		55,238				43,524
Income taxes payable		30,290				37,736
Unredeemed gift card liability		70,454				57,736
Other accrued liabilities		52,020				50,676
		241,449				225,504
Deferred income tax liabilities		7,262				10,759
Other non-current liabilities		48,857				50,332
		297,568				286,595
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; 9,781 and 9,804 issued and outstanding		—				—
Special voting stock, $0.000005 par value: 60,000 shares authorized; 9,781 and 9,804 issued and outstanding		—				—
Common stock, $0.005 par value: 400,000 shares authorized; 127,304 and 127,482 issued and outstanding		637				637
Additional paid-in capital		266,622				245,533
Retained earnings		1,294,214				1,019,515
Accumulated other comprehensive loss		(201,500		)		(238,203		)
		1,359,973				1,027,482
		$	1,657,541			$	1,314,077

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
		January 29, 2017				January 31, 2016				February 1, 2015
Net revenue		$	2,344,392			$	2,060,523			$	1,797,213
Cost of goods sold		1,144,775				1,063,357				883,033
Gross profit		1,199,617				997,166				914,180
Selling, general and administrative expenses		778,465				628,090				538,147
Income from operations		421,152				369,076				376,033
Other income (expense), net		1,577				(581		)		7,102
Income before income tax expense		422,729				368,495				383,135
Income tax expense		119,348				102,448				144,102
Net income		$	303,381			$	266,047			$	239,033
Other comprehensive income (loss):
Foreign currency translation adjustment		36,703				(64,796		)		(105,339		)
Comprehensive income		$	340,084			$	201,251			$	133,694
Basic earnings per share		$	2.21			$	1.90			$	1.66
Diluted earnings per share		$	2.21			$	1.89			$	1.66
Basic weighted-average number of shares outstanding		137,086				140,365				143,935
Diluted weighted-average number of shares outstanding		137,302				140,610				144,298

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
		Shares			Shares			Par Value				Shares			Par Value
Balance at February 2, 2014		29,955			29,955			$	—			115,342			$	577			$	240,351			$	923,822			$	(68,068	)		$	1,096,682
Net income																							239,033								239,033
Foreign currency translation adjustment																											(105,339		)		(105,339		)
Common stock issued upon exchange of exchangeable shares		(20,122	)		(20,122	)		—				20,122			101				(101		)										—
Stock-based compensation expense																			8,269												8,269
Tax benefits from stock-based compensation																			413												413
Common stock issued upon settlement of stock-based compensation												409			2				2,911												2,913
Shares withheld related to net share settlement of stock-based compensation												(104	)		(1		)		(4,971		)										(4,972		)
Repurchase of common stock												(3,657	)		(18		)		(5,177		)		(142,236		)						(147,431		)
Balance at February 1, 2015		9,833			9,833			$	—			132,112			$	661			$	241,695			$	1,020,619			$	(173,407	)		$	1,089,568
Net income																							266,047								266,047
Foreign currency translation adjustment																											(64,796		)		(64,796		)
Common stock issued upon exchange of exchangeable shares		(29	)		(29	)		—				29			—				—												—
Stock-based compensation expense																			10,356												10,356
Tax benefits from stock-based compensation																			(1,202		)										(1,202		)
Common stock issued upon settlement of stock-based compensation												350			2				4,702												4,704
Shares withheld related to net share settlement of stock-based compensation												(50	)		—				(2,857		)										(2,857		)
Repurchase of common stock												(4,959	)		(26		)		(7,016		)		(267,151		)						(274,193		)
Registration fees associated with prospectus supplement																			(145		)										(145		)
Balance at January 31, 2016		9,804			9,804			$	—			127,482			$	637			$	245,533			$	1,019,515			$	(238,203	)		$	1,027,482
Net income																							303,381								303,381
Foreign currency translation adjustment																											36,703				36,703
Common stock issued upon exchange of exchangeable shares		(23	)		(23	)		—				23			—				—												—
Stock-based compensation expense																			16,822												16,822

		Exchangeable Stock			Special Voting Stock							Common Stock							Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
		Shares			Shares			Par Value				Shares			Par Value
Tax benefits from stock-based compensation																			1,273												1,273
Common stock issued upon settlement of stock-based compensation												304			2				6,905												6,907
Shares withheld related to net share settlement of stock-based compensation												(50	)		—				(3,268		)										(3,268		)
Repurchase of common stock												(455	)		(2		)		(643		)		(28,682		)						(29,327		)
Balance at January 29, 2017		9,781			9,781			$	—			127,304			$	637			$	266,622			$	1,294,214			$	(201,500	)		$	1,359,973

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
Cash flows from operating activities
Net income		$	303,381			$	266,047			$	239,033
Items not affecting cash
Depreciation and amortization		87,697				73,383				58,364
Stock-based compensation expense		16,822				10,356				8,269
Derecognition of unredeemed gift card liability		(4,548		)		(3,647		)		(1,468		)
Deferred income taxes		(17,563		)		11,142				2,087
Tax benefits from stock-based compensation		(1,273		)		1,202				(413		)
Changes in operating assets and liabilities
Inventories		(5,403		)		(83,286		)		(26,806		)
Prepaid and receivable income taxes		11,537				(52,110		)		(15,234		)
Other prepaid expenses and other current assets		(6,730		)		(3,816		)		(6,444		)
Accounts payable		14,080				1,247				(2,198		)
Accrued inventory liabilities		(18,900		)		5,198				8,276
Accrued compensation and related expenses		9,943				14,937				11,561
Income taxes payable		(10,020		)		19,470				19,304
Unredeemed gift card liability		16,010				16,574				11,326
Other accrued liabilities		467				19,563				3,788
Other non-current assets and liabilities		(10,381		)		2,480				5,004
Net cash provided by operating activities		385,119				298,740				314,449
Cash flows from investing activities
Purchase of property and equipment		(149,511		)		(143,487		)		(119,733		)
Net cash used in investing activities		(149,511		)		(143,487		)		(119,733		)
Cash flows from financing activities
Proceeds from settlement of stock-based compensation		6,907				4,704				2,913
Tax benefits from stock-based compensation		1,273				(1,202		)		413
Taxes paid related to net share settlement of stock-based compensation		(3,268		)		(2,857		)		(4,972		)
Repurchase of common stock		(29,327		)		(274,193		)		(147,431		)
Registration fees associated with prospectus supplement		—				(145		)		—
Deferred debt financing costs		(923		)		—				—
Net cash used in financing activities		(25,338		)		(273,693		)		(149,077		)
Effect of exchange rate changes on cash		23,094				(44,557		)		(79,809		)
Increase (decrease) in cash and cash equivalents		233,364				(162,997		)		(34,170		)
Cash and cash equivalents, beginning of period		$	501,482			$	664,479			$	698,649
Cash and cash equivalents, end of period		$	734,846			$	501,482			$	664,479

See accompanying notes to the consolidated financial statements

lululemon athletica inc.

INDEX FOR NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1	Nature of Operations and Basis of Presentation	44
Note 2	Summary of Significant Accounting Policies	44
Note 3	Inventories	49
Note 4	Property and Equipment	50
Note 5	Goodwill and Intangible Assets	50
Note 6	Other Accrued Liabilities	50
Note 7	Other Non-Current Liabilities	51
Note 8	Long-Term Debt and Credit Facilities	51
Note 9	Stockholders' Equity	51
Note 10	Stock-Based Compensation and Benefit Plans	52
Note 11	Earnings Per Share	55
Note 12	Commitments and Contingencies	55
Note 13	Related Party Balances and Transactions	57
Note 14	Supplemental Cash Flow Information	57
Note 15	Income Taxes	57
Note 16	Segmented Financial Information	61
Note 17	Quarterly Financial Information (Unaudited)	62

lululemon athletica inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of operations

lululemon athletica inc., a Delaware corporation, ("lululemon" and, together with its subsidiaries unless the context otherwise requires, the "Company") is engaged in the design, distribution, and retail of healthy lifestyle inspired athletic apparel, which is sold through a chain of company-operated stores, direct to consumer through e-commerce, outlets, showrooms, sales from temporary locations, sales to wholesale accounts, warehouse sales, and through license and supply arrangements. The Company operates stores in the United States, Canada, Australia, the United Kingdom, New Zealand, China, Hong Kong, Singapore, South Korea, Germany, Puerto Rico and Switzerland. There were 406, 363, and 302 company-operated stores in operation as of January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

Basis of presentation

The consolidated financial statements have been presented in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles ("GAAP").

The Company's fiscal year ends on the Sunday closest to January 31 of the following year, typically resulting in a 52 week year, but occasionally giving rise to an additional week, resulting in a 53 week year. Fiscal 2016, 2015, and 2014 were each 52 week years. Fiscal 2016, 2015, and 2014 ended on January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

The Company's business is affected by the pattern of seasonality common to most retail apparel businesses. Historically, the Company has recognized a significant portion of its operating profit in the fourth fiscal quarter of each year as a result of increased net revenue during the holiday season.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of lululemon athletica inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.

Cash and cash equivalents

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

Accounts receivable

Accounts receivable primarily arise out of sales to wholesale accounts, landlord lease inducements, and license and supply arrangements. The allowance for doubtful accounts represents management's best estimate of probable credit losses in accounts receivable. Receivables are written off against the allowance when management believes that the amount receivable will not be recovered. As of January 29, 2017, January 31, 2016, and February 1, 2015, 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 goods that are obsolete, have quality issues, or are damaged. The amount of the provision is equal to the difference between the cost of the inventory and its estimated net realizable value based upon assumptions about future demand, selling prices and market conditions. The Company wrote-off $16.1 million, $14.2 million, and $12.4 million of inventory in fiscal 2016, fiscal 2015, and fiscal 2014, respectively. 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		20% - 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 company-operated stores.

Impairment of long-lived assets

Long-lived assets, including intangible assets with finite lives, held for use are evaluated for impairment when the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be recoverable as measured by comparing their carrying value to the estimated undiscounted future cash flows generated by their use and eventual disposition. Impaired assets are recorded at fair value, determined principally by discounting the future cash flows expected from their use and eventual disposition. Reductions in asset values resulting from impairment valuations are recognized in income in the period that the impairment is determined.

Leased property and equipment

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.

Lease inducements, which include leasehold improvements paid for by the landlord and rent free periods, are recorded within other non-current liabilities on the consolidated balance sheets 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 sheets as deferred lease liabilities or a prepaid lease assets within other non-current liabilities and other non-current assets, respectively.

Contingent rental payments based on sales 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 the assumptions 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 an unredeemed gift card liability. Revenue from the Company's gift cards is recognized when tendered for payment, or upon redemption.

Revenue recognition

Net revenue is comprised of company-operated 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 from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue, which consists of royalties as well as sales of the Company's products to licensees.

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

Sales to customers through company-operated 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 websites are recognized when delivery has occurred, and collection is reasonably assured, net of an estimated allowance for sales returns. Sales of apparel to wholesale accounts are recognized when delivery has occurred and collection is reasonably assured.

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 January 29, 2017, January 31, 2016, and February 1, 2015, net revenue recognized on unredeemed gift card balances was $4.5 million, $3.6 million, and $1.5 million, 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 freight, non-refundable taxes, duty, and other landing costs;

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

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

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

•	hemming; and

•	shrink and inventory provision expense.

Selling, general and administrative expenses

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

For the years ended January 29, 2017, January 31, 2016, and February 1, 2015, the Company incurred transportation costs of $44.9 million, $40.6 million, and $35.9 million, respectively.

Store pre-opening costs

Operating costs incurred prior to the opening of new stores are expensed as incurred as selling, general and administrative expenses.

Income taxes

The Company follows the liability method with respect to accounting for income taxes. Deferred income tax assets and liabilities are determined based on the temporary differences between the carrying amounts and the tax basis of assets and liabilities, and for tax losses, tax credit carry forwards, and other tax attributes. 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 recognition of a deferred income tax asset is based upon several assumptions and forecasts, including current and anticipated taxable income, the utilization of previously unrealized non-operating loss carry forwards, and regulatory reviews of tax filings. Given the judgments and estimates required and the sensitivity of the results to the significant assumptions used, the Company believes the accounting estimates used in relation to the valuation 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 enacted rate applicable for the appropriate tax jurisdiction. U.S. income taxes on undistributed 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 undistributed earnings to finance foreign operations. This assessment is based on the cash flow projections and operational and fiscal objectives of each of the Company's foreign subsidiaries. Such estimates are inherently imprecise since many assumptions utilized in the projections are subject to revision in the future.

The Company evaluates its tax filing positions and recognizes the largest amount of tax benefit that is considered more likely than not to be sustained upon examination by the relevant taxing authorities based on the technical merits of the position. This determination requires the use of significant judgment. Income tax expense is adjusted in the period in which an uncertain tax position is effectively settled, the statute of limitations expires, facts or circumstances change, tax laws change, or new information becomes available. The Company's policy is to recognize interest expense and penalties related to income tax matters as part of other income (expense), net. Accrued interest and penalties are included within the related tax liability on our consolidated balance sheets.

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 foreign currency translation adjustment, which is included in other comprehensive income or loss, which is a component of accumulated other comprehensive income or loss included in stockholders' equity.

Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional currency with any resulting gains and losses recognized in selling, general and administrative expenses, except for gains and losses arising on intercompany foreign currency transactions that are of a long-term investment nature, which are recorded as a foreign currency translation adjustment in other comprehensive income or loss.

The aggregate revaluation foreign exchange gains (losses) included in selling, general and administrative expenses amount to $(8.3) million, $12.0 million, and $6.4 million for the years ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

Fair value of financial instruments

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and other liabilities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The 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, for landlord lease inducements, and from license and supply arrangements. The Company does not require collateral to support the accounts receivable; however, in certain circumstances, the Company may require parties to provide payment for goods prior to delivery of the goods. The accounts receivable are net of an allowance for doubtful accounts, which is established based on management's assessment of the credit risk of the underlying accounts.

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 is 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 each stock option granted is estimated on the award date using the Black-Scholes model, and 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 and exchangeable shares outstanding during the period. Exchangeable shares are the equivalent of common shares in all material respects. All classes of stock have in effect the same rights and share equally in undistributed net income. Diluted earnings per share is calculated by dividing net income available to stockholders for the period by the diluted weighted-average number of shares outstanding during the period. Diluted earnings per share reflects the potential dilution from common shares issuable through stock options, performance-based restricted stock units that have satisfied their performance factor, restricted shares, and restricted stock units using the treasury stock method.

Contingencies

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

Use of estimates

The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board ("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. In 2015, the FASB deferred the effective date for this guidance, and in 2016, the FASB issued several updates that clarify the guidance in this topic. ASC 606 may be adopted either on a full retrospective basis or using a modified retrospective method with a cumulative adjustment to equity. This guidance will be adopted by the Company beginning in its first quarter of fiscal 2018. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements and the method of retrospective adoption that it will elect, but does not expect ASC 606 to materially impact the Company's 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 became effective for the Company beginning in its first quarter of fiscal 2016 and it was adopted prospectively. The adoption did not have an impact on the Company's consolidated financial statements.

In April 2015, the FASB amended ASC Subtopic 350-40, Intangibles - Goodwill and Other - Internal-Use Software to provide guidance to customers about whether a cloud computing arrangement includes a software license. This guidance requires that if a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance became effective for the Company beginning in its first quarter of fiscal 2016 and it was adopted prospectively. The adoption did not have a material impact on the Company's consolidated financial statements.

In July 2015, the FASB amended ASC Topic 330, Inventory to simplify the measurement of inventory. The amendments require that an entity measure inventory at the lower of cost and net realizable value instead of the lower of cost and market. This guidance will be effective for the Company beginning in its first quarter of fiscal 2017 and the Company does not expect the adoption to have a material impact on its consolidated financial statements.

In February 2016 the FASB issued ASC Topic 842, Leases ("ASC 842") to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, lessees are required to recognize a lease liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet for most leases. This guidance will be effective for the Company beginning in its first quarter of fiscal 2019, with early application permitted. The Company will adopt ASC 842 in its first quarter of fiscal 2019. While the Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements, it is expected that the primary impact upon adoption will be the recognition, on a discounted basis, of the Company's minimum commitments under noncancelable operating leases as right of use assets and obligations on the consolidated balance sheets. It is expected that this will result in a significant increase in assets and liabilities on the consolidated balance sheets.

In March 2016, the FASB amended ASC 718, simplifying the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance also allows an entity to account for forfeitures when they occur. This guidance will be effective for the Company beginning in its first quarter of fiscal 2017, with early application permitted. The Company will adopt this amendment in the first quarter of fiscal 2017 and will elect to continue to estimate expected forfeitures. Starting in the first quarter of fiscal 2017, the Company will be required to include excess tax benefits and deficiencies as a component of income tax expense, rather than a component of stockholders' equity. This will increase the volatility of income tax expense and the magnitude of the impact, among other variables, will be dependent upon the future price of the Company's common stock and the timing and volume of share-based payment award activity, such as employee exercises of stock options and the vesting of stock awards. The adoption of this new guidance, will also have an immaterial retrospective impact on the classification of cash flows between operating and financing activities.

3 INVENTORIES

		January 29, 2017				January 31, 2016
		(In thousands)
Finished goods		$	306,087			$	290,791
Provision to reduce inventory to market value		(7,655		)		(6,782		)
		$	298,432			$	284,009

4 PROPERTY AND EQUIPMENT

		January 29, 2017				January 31, 2016
		(In thousands)
Land		$	78,561			$	55,488
Buildings		32,174				30,885
Leasehold improvements		273,801				225,604
Furniture and fixtures		84,479				73,254
Computer hardware		58,270				44,085
Computer software		160,835				112,161
Equipment and vehicles		13,704				11,929
Accumulated depreciation		(278,325		)		(203,801		)
		$	423,499			$	349,605

Included in the cost of computer software are capitalized costs of $6.3 million and $3.7 million at January 29, 2017 and January 31, 2016, respectively, associated with internally developed software.

Depreciation expense related to property and equipment was $87.0 million, $72.6 million, and $57.5 million for the years ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

5 GOODWILL AND INTANGIBLE ASSETS

		January 29, 2017				January 31, 2016
		(In thousands)
Goodwill		$	25,496			$	25,496
Changes in foreign currency exchange rates		(1,263		)		(1,666		)
		24,233				23,830
Intangibles—reacquired franchise rights		10,150				10,150
Accumulated amortization		(9,807		)		(9,074		)
Changes in foreign currency exchange rates		(19		)		(129		)
		324				947
Goodwill and intangible assets, net		$	24,557			$	24,777

Amortization expense related to intangible assets was $0.7 million, $0.8 million, and $0.9 million for the years ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

The weighted-average remaining useful lives of the reacquired franchise rights were 1.29 years as of January 29, 2017 and 1.73 years as of January 31, 2016.

6 OTHER ACCRUED LIABILITIES

		January 29, 2017				January 31, 2016
		(In thousands)
Accrued duty, freight, and other operating expenses		$	27,477			$	26,017
Sales tax collected		10,182				10,506
Accrued rent		5,562				6,070
Other		8,799				8,083
		$	52,020			$	50,676

7 OTHER NON-CURRENT LIABILITIES

		January 29, 2017				January 31, 2016
		(In thousands)
Deferred lease liabilities		$	26,648			$	25,723
Lease inducements		22,209				24,609
		$	48,857			$	50,332

8 LONG-TERM DEBT AND CREDIT FACILITIES

Revolving credit facility

On December 15, 2016, the Company entered into a $150.0 million unsecured, revolving credit facility. Any amounts outstanding under the revolving credit facility will be due and payable in full on December 15, 2021, subject to provisions that permit the Company to request a limited number of one year extensions annually.

Up to $35.0 million of the revolving credit facility is available for the issuance of letters of credit and up to $25.0 million is available for swing line loans. Commitments under the revolving credit facility may be increased by up to $200.0 million, subject to certain conditions, including the approval of the lenders.

Borrowings under the revolving credit facility may be made in U.S. Dollars, Euros, Canadian Dollars, and in other currencies, subject to the approval of the administrative agent and the lenders. Borrowings under the agreement may be prepaid and commitments may be reduced or terminated without premium or penalty (other than customary breakage costs).

Borrowings made under the revolving credit facility bear interest at a variable rate per annum equal to, at the Company's option, either (a) LIBOR or (b) an alternate base rate, plus, in each case, an applicable margin. The applicable margin is determined by reference to a pricing grid, based on the ratio of indebtedness to earnings before interest, tax depreciation, amortization and rent ("EBITDAR") and ranges between 1.00%-1.75% for LIBOR loans and 0.00%-0.75% for alternate base rate loans. Additionally, a commitment fee of between 0.125%-0.200%, also determined by reference to the pricing grid, is payable on the average daily unused amounts under the revolving credit facility.

The credit agreement contains negative covenants that, among other things and subject to certain exceptions, limit the ability of the Company's subsidiaries to incur indebtedness, incur liens, undergo fundamental changes, make dispositions of all or substantially all of their assets, alter their businesses and enter into agreements limiting subsidiary dividends and distributions.

The Company is also required to maintain a consolidated rent-adjusted leverage ratio of not greater than 3.50:1.00 and it is not permitted to allow the ratio of consolidated EBITDAR to consolidated interest charges (plus rent) to be less than 2.00:1.00. The credit agreement also contains certain customary representations, warranties, affirmative covenants, and events of default (including, among others, an event of default upon the occurrence of a change of control). As of January 29, 2017, the Company was in compliance with all applicable covenants.

As of January 29, 2017, aside from letters of credit of $0.8 million, there were no other borrowings outstanding under this credit facility.

9 STOCKHOLDERS' EQUITY

Special voting stock and exchangeable shares

The holders of the special voting stock are entitled to one vote for each share held. The special voting shares are not entitled to receive dividends or distributions or receive any consideration in the event of a liquidation, dissolution, or wind-up. To the extent that exchangeable shares as described below are exchanged for common stock, a corresponding number of special voting shares will be cancelled without consideration.

The holders of the exchangeable shares have dividend and liquidation rights equivalent to those of holders of the common shares of the Company. The exchangeable shares can be converted on a one for one basis by the holder at any time into common shares of the Company plus a cash payment for any accrued and unpaid dividends. Holders of exchangeable shares are entitled to the same or economically equivalent dividend as declared on the common stock of the Company. The exchangeable shares are non-voting. The Company has the right to convert the exchangeable shares into common shares of the Company at any time after the earlier of July 26, 2047, the date on which fewer than 4.2 million exchangeable shares are outstanding, or in the event of certain events such as a change in control.

10 STOCK-BASED COMPENSATION AND BENEFIT PLANS

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. Stock options granted to date generally have a four-year vesting period, vest at a rate of 25% each year on the anniversary date of the grant, and 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 generally vest one year from the grant date. Restricted stock units granted generally have a three-year vesting period and vest at a certain percentage each year on the anniversary date of the grant.

The Company issues previously unissued shares upon the exercise of Company options, vesting of performance-based restricted stock units or restricted stock units, and granting of restricted shares.

Stock-based compensation expense charged to income for the plans was $16.8 million, $10.4 million, and $8.3 million for the years ended January 29, 2017, January 31, 2016, and February 1, 2015, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $35.8 million as of January 29, 2017, which is expected to be recognized over a weighted-average period of 2.2 years, and was $30.3 million as of January 31, 2016 over a weighted-average period of 2.4 years.

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 January 29, 2017, January 31, 2016, and February 1, 2015, and changes during the fiscal 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
		(In thousands, except per share amounts)
Balance at February 2, 2014		669			$	30.76			428			$	57.08			57			$	51.99			—			$	—
Granted		447			48.16				321			49.67				34			39				195			45.76
Exercised/vested		158			18.5				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
Granted		399			57.43				156			63.35				19			66.07				238			61.6
Exercised/vested		235			20.26				58			67.5				46			42.73				41			46.04
Forfeited		176			55.22				155			62.06				4			38.25				50			53.35
Balance at January 31, 2016		867			$	49.54			395			$	58.58			31			$	57.67			333			$	55.91
Granted		428			68.63				164			68.64				17			69.94				216			68.15
Exercised/vested		191			36.76				7			64.36				34			58.39				91			56.87
Forfeited		186			58.87				162			62.54				—			—				98			55.95
Balance at January 29, 2017		918			$	59.20			390			$	61.05			14			$	70.54			360			$	62.99

A total of 14.3 million shares of the Company's common stock have been authorized for future issuance under the Company's 2014 Equity Incentive Plan.

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

The 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 fair value of each stock option granted is estimated on the date of grant using the Black-Scholes model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company's historical experience. The expected term of the options is based upon the historical experience of similar awards, giving consideration to expectations of future employee behavior. Expected volatility is based upon the historical volatility of the Company's common stock for the period corresponding with the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve for the period corresponding with the expected term of the options. The following assumptions were used in calculating the fair value of stock options granted in fiscal 2016, 2015, and 2014:

		Fiscal Year Ended
		January 29, 2017			January 31, 2016			February 1, 2015
Expected term		4.00 years			4.00 years			4.00 years
Expected volatility		40.07	%		42.73	%		45.93	%
Risk-free interest rate		1.08	%		0.98	%		1.04	%
Dividend yield		—	%		—	%		—	%

The following table summarizes information about stock options outstanding and exercisable at January 29, 2017:

		Outstanding										Exercisable
Range of Exercise Prices		Number of Options				Weighted-Average Exercise Price				Weighted-Average Remaining Life (Years)		Number of Options				Weighted-Average Exercise Price				Weighted-Average Remaining Life (Years)
		(In thousands, except per share amounts and years)
$9.00 - $48.36		180				$	40.94			4.2		89				$	36.40			3.5
$52.59 - $53.79		214				53.40				5.1		63				53.25				4.9
$53.87 - $67.68		132				63.97				5.1		35				62.88				4.6
$68.69 - $68.69		351				68.69				6.2		—				—				0.0
$69.30 - $76.95		41				73.06				3.9		27				73.80				2.9
		918				$	59.20			5.3		214				$	50.41			4.0
Intrinsic value		$	7,916									$	3,695

As of January 29, 2017, the unrecognized compensation cost related to these options was $11.6 million, which is expected to be recognized over a weighted-average period of 2.8 years. The weighted-average grant date fair value of options granted during the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was $22.39, $19.76, and $17.69, respectively.

The following table summarizes the intrinsic value of options exercised and awards that vested during fiscal 2016, 2015, and 2014:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Stock options		$	6,072			$	10,554			$	4,382
Performance-based restricted stock units		471				3,592				10,242
Restricted shares		2,283				2,739				1,567
Restricted stock units		6,084				2,230				—
		$	14,910			$	19,115			$	16,191

Employee share purchase plan

The Company's board of directors and stockholders approved the Company's Employee Share Purchase Plan ("ESPP") in September 2007. Contributions are made by eligible employees, subject to certain limits as defined in the ESPP, and the Company matches one-third of the contribution. The maximum number of shares available under the ESPP is 6.0

million shares. During the year ended January 29, 2017, there were 0.1 million shares purchased under the ESPP in the open market.

Defined contribution pension plans

During fiscal 2016, the Company began offering defined contribution pension plans to its eligible employees in Canada and the United States. Participating employees may elect to defer and contribute a portion of their eligible compensation to a plan up to limits stated in the plan documents, not to exceed the dollar amounts set by applicable laws. The Company matches 50% to 75% of the contribution depending on the participant's length of service, and the contribution is subject to a two year vesting period. The Company's contributions were $3.2 million for the year ended January 29, 2017.

11 EARNINGS PER SHARE

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

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands, except per share amounts)
Net income		$	303,381			$	266,047			$	239,033
Basic weighted-average number of shares outstanding		137,086				140,365				143,935
Assumed conversion of dilutive stock options and awards		216				245				363
Diluted weighted-average number of shares outstanding		137,302				140,610				144,298
Basic earnings per share		$	2.21			$	1.90			$	1.66
Diluted earnings per share		$	2.21			$	1.89			$	1.66

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 January 29, 2017, January 31, 2016, and February 1, 2015, 0.1 million, 0.1 million, and 0.3 million stock options and awards, respectively, were anti-dilutive to earnings per share and therefore have been excluded from the computation of diluted earnings per share.

On 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 $450.0 million. This stock repurchase program was completed during the second quarter of fiscal 2016.

On December 1, 2016, the Company's board of directors approved a program to repurchase shares of the Company's common stock up to an aggregate value of $100.0 million. The common stock is repurchased in the open market at prevailing market prices, with the timing and actual number of shares repurchased depending upon market conditions, eligibility to trade, and other factors. The repurchases may be made up until December 2018. As of January 29, 2017, the remaining aggregate value of shares available to be repurchased under this program was $99.2 million.

During the fiscal years ended January 29, 2017, January 31, 2016, and February 1, 2015, 0.5 million, 5.0 million, and 3.7 million shares, respectively, were repurchased under the programs at a total cost of $29.3 million and $274.2 million, and $147.4 million respectively.

Subsequent to January 29, 2017, and up to March 23, 2017, 35 thousand shares were repurchased at a total cost of $2.3 million.

12 COMMITMENTS AND CONTINGENCIES

Commitments

The Company has obligations under operating leases for its store and other retail locations, distribution centers, offices, and equipment. As of January 29, 2017, the lease terms of the various leases range from two to 15 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. The majority 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

commitments in respect of company-operated stores that have not yet opened but for which lease agreements have been executed.

		Payments Due by Fiscal Year
		Total				2017				2018				2019				2020				2021				Thereafter
		(In thousands)
Operating leases (minimum rent)		$	518,613			$	118,897			$	106,496			$	94,085			$	71,973			$	45,019			$	82,143

Rent expense for the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was $147.4 million, $124.5 million, and $100.0 million, respectively, under operating lease agreements, consisting of minimum rental expense of $137.0 million, $113.9 million, and $89.9 million, respectively, and contingent rental amounts of $10.4 million, $10.5 million, and $10.1 million, respectively.

In January 2015, the Company entered into a license and supply arrangement with a partner in the Middle East which grants the partner the right to operate lululemon 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 supplies the partner with lululemon products, training, and other support. As of January 29, 2017, there were three licensed stores in the United Arab Emirates and one licensed store in Qatar.

In November 2016, the Company entered into a license and supply agreement with a partner which grants the partner the right to operate lululemon branded retail locations in Mexico for a term of ten years, subject to certain conditions. Under this arrangement the Company supplies the partner with lululemon products, training and other support. As of January 29, 2017 there were no licensed retail locations in operation in Mexico.

Contingencies

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, personal injury claims, product liability claims, employment claims, and similar matters. The Company believes the ultimate resolution of any such current proceeding will not have a material adverse effect on its consolidated balance sheets, results of operations or cash flows.

On July 15, 2015, plaintiffs Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund and Laborers' District Council Industry Pension Fund filed in the Delaware Court of Chancery a derivative lawsuit on behalf of lululemon against certain current and former directors of lululemon, captioned Laborers' District Council Industry Pension Fund v. Bensoussan, et al., C.A. No. 11293-CB. The plaintiffs claimed that the individual defendants breached their fiduciary duties to lululemon by allegedly failing to investigate certain trades of lululemon stock owned by Dennis J. Wilson in 2013. The plaintiffs also claimed that Mr. Wilson breached his fiduciary duties by making his broker aware of certain non-public, material events prior to executing sales of lululemon stock on Mr. Wilson's behalf. On June 14, 2016 the Court of Chancery dismissed the action for failure to adequately plead that demand on the board was excused and for failure to state a claim upon which relief may be granted. The plaintiffs appealed the dismissal to the Supreme Court of the state of Delaware and the Supreme Court affirmed the Court of Chancery's judgment on February 3, 2017.

On October 9, 2015, certain current and former hourly employees of the Company filed a class action lawsuit in the Supreme Court of New York entitled Rebecca Gathmann-Landini et al v. lululemon USA inc. On December 2, 2015, the case was moved to the United States District Court for the Eastern District of New York. The lawsuit alleges that the Company violated various New York labor codes by failing to pay all earned wages, including overtime compensation. The plaintiffs are seeking an unspecified amount of damages. The Company intends to vigorously defend this matter.

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:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Payments to related parties
Lease costs for one company-operated store		$	108			$	112			$	140
Consulting fees		$	167			$	354			$	289
Employment compensation		$	274			$	140			$	—

The Company's founder, who is a beneficial owner of more than 10% of the Company's total outstanding shares, and who was a member of the Company's board of directors until February 2, 2015, owns a retail space that the Company leases for one of its company-operated stores. Consulting fees were paid to a relative of the Company's founder.

An immediate family member of one of our executives commenced employment with the Company during fiscal 2015. The above employment compensation consists of salary, bonuses, and the grant date fair value of equity awards.

14 SUPPLEMENTAL CASH FLOW INFORMATION

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Cash paid for income taxes		$	132,422			$	113,534			$	146,376
Interest paid		$	5,178			$	52			$	14

15 INCOME TAXES

The Company's domestic and foreign income before income tax expense and current and deferred income taxes from federal, state, and foreign sources are as follows:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Income (loss) before income tax expense
Domestic		$	(30,955	)		$	84,286			$	94,234
Foreign		453,684				284,209				288,901
		422,729				368,495				383,135
Current income tax expense (recovery)
Federal		$	36,245			$	(18,662	)		$	54,172
State		6,690				3,363				8,203
Foreign		94,581				110,372				80,461
		137,516				95,073				142,836
Deferred income tax expense (recovery)
Federal		$	(11,065	)		$	8,719			$	7,763
State		(1,840		)		425				77
Foreign		(5,263		)		(1,769		)		(6,574		)
		(18,168		)		7,375				1,266
Income tax expense		$	119,348			$	102,448			$	144,102

The Company's income tax expense for fiscal 2016, fiscal 2015 and fiscal 2014 include certain tax adjustments, as follows:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Transfer pricing adjustments, net		$	(10,706	)		$	(4,826	)		$	—
Tax on repatriation of foreign earnings		(38		)		7,838				33,746
Tax adjustment on foreign tax credit calculations		—				(10,455		)		—
Total tax adjustments		$	(10,744	)		$	(7,443	)		$	33,746

Transfer pricing adjustments, net

The Company's tax positions include the Company's intercompany transfer pricing policies and the associated taxable income and deductions arising from intercompany charges between subsidiaries within the consolidated group.

During fiscal 2016, the Company finalized an Advance Pricing Arrangement ("APA") with the Internal Revenue Service ("IRS") and the Canada Revenue Agency ("CRA"). This agreement determines the amount of income which is taxable in each respective jurisdiction.

In the year ended January 31, 2016, the Company received communications from the IRS and CRA which led to the determination that it was more likely than not that the outcome of the APA would result in a decrease in taxable income in the United States and an increase in taxable income in Canada for fiscal 2011 through fiscal 2015. The Company recorded a net income tax recovery of $4.8 million in the year ended January 31, 2016, representing the largest amount of benefit that was considered more likely than not to be realized upon finalization of the APA.

In the year ended January 29, 2017, the APA was finalized and the final terms of the arrangement resulted in an increased amount of income tax recoverable in the United States. This resulted in the recognition of a further net income tax recovery of $10.7 million in the year ended January 29, 2017.

For the years ended January 29, 2017 and January 31, 2016, the Company recorded net interest expenses related to the APA of $1.7 million and $3.5 million, respectively. This represents accrued interest on the Canadian income tax payable related to the APA. The APA resulted in an increase in income tax payable in Canada. These interest costs were recognized in other income (expense), net. There were no similar net interest expenses during the year ended February 1, 2015.

Tax on repatriation of foreign earnings

In the year ended February 1, 2015, the Company recorded a tax expense of $33.7 million representing the estimated U.S. income tax and foreign withholding tax payable on the repatriation of earnings in the form of dividends of $473.7 million, which were distributed during fiscal 2014 by foreign subsidiaries to the U.S. parent entity to fund a share repurchase program.

In the year ended January 31, 2016, as a result of the change in the expected outcome of the APA described above, it was expected that a significant intercompany debt between one of the Company's U.S. subsidiaries and a Canadian subsidiary would arise upon the finalization of the APA. In order to finance the payment of this intercompany debt, it was expected that $156.0 million would be distributed from a Canadian subsidiary to the U.S. parent entity. As a result, these foreign earnings were no longer considered indefinitely reinvested and the Company recorded an incremental tax expense and deferred tax liability of $7.8 million to provide for U.S. income and applicable foreign withholding taxes on this expected distribution.

In the year ended January 29, 2017, the APA was finalized and a distribution of $156.0 million was made from a Canadian subsidiary to the U.S. parent entity.

The cumulative undistributed earnings of the Company's foreign subsidiaries as of January 29, 2017 were $866.2 million, including $852.3 million of cumulative undistributed earnings of a Canadian subsidiary. Income taxes of approximately $38.4 million would be incurred if these earnings were repatriated to the United States.

No deferred income tax liabilities have been recognized on any of the undistributed earnings of the Company's foreign subsidiaries as these earnings are indefinitely reinvested outside of the United States. In reaching the conclusion that these undistributed earnings are indefinitely reinvested, the Company considers its international expansion plans, projected working capital needs, projected head office capital investments outside of the United States, forecasted cash flow requirements and available liquidity within the United States, and other factors the Company believes are relevant. If the intentions of the Company change, the Company would be required to accrue the income taxes which would be due upon repatriation.

As of January 29, 2017, the Company had cash and cash equivalents of $559.5 million outside of the United States.

Tax adjustment on foreign tax credit calculations

During the year ended January 31, 2016, the Company finalized the amount of U.S. income tax payable on the dividends of $473.7 million which were distributed in fiscal 2014. The change in the expected outcome of the APA had an impact on the foreign tax credits relating to the dividends paid in fiscal 2014 that had been initially estimated and as a result the Company recognized an income tax recovery of $10.5 million during fiscal 2015.

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

		Fiscal Year Ended
		January 29, 2017			January 31, 2016			February 1, 2015
		(Percentages)
Federal income tax at statutory rate		35.0	%		35.0	%		35.0	%
Foreign tax rate differentials		(7.0	)		(6.9	)		(6.8	)
U.S. state taxes		1.6			0.8			1.2
Non-deductible compensation expense		0.6			0.6			0.3
Permanent and other		0.5			—			(0.9	)
Tax and related interest adjustments
Transfer pricing adjustments, net		(2.5	)		(1.0	)		—
Tax on repatriation of foreign earnings		—			2.1			8.8
Tax adjustment on foreign tax credit calculations		—			(2.8	)		—
Effective tax rate		28.2	%		27.8	%		37.6	%

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities as of January 29, 2017 and January 31, 2016 are presented below:

		January 29, 2017				January 31, 2016
		(In thousands)
Deferred income tax assets
Net operating loss carry forwards		$	16,280			$	11,753
Property and equipment, net		(21,025		)		(35		)
Deferred lease liabilities		8,542				55
Stock-based compensation		2,354				—
Inventories		4,811				—
Lease inducements		8,142				29
Foreign tax credits		6,818				—
Other		334				—
		26,256				11,802
Deferred income tax liabilities
Property and equipment, net		$	(10,128	)		$	(29,214	)
Tax and related interest adjustments		—				(8,245		)
Deferred lease liabilities		831				8,757
Lease inducements		311				8,353
Inventories		—				4,015
Foreign tax credits		—				3,845
Stock-based compensation		—				2,192
Other		1,724				(462		)
		(7,262		)		(10,759		)
Net deferred income tax assets		$	18,994			$	1,043

The majority of the net operating loss carry forwards begin expiring in fiscal 2031.

The Company files income tax returns in the U.S., Canada and various foreign, state, and provincial jurisdictions. The 2012 to 2015 tax years remain subject to examination by the U.S. federal and state tax authorities. The 2010 and 2011 tax years are still open for certain state tax authorities. The 2007 to 2015 tax years remain subject to examination by Canadian tax authorities. The 2011 to 2015 tax years remain subject to examination by tax authorities in certain foreign jurisdictions. The Company does not have any significant unrecognized tax benefits arising from uncertain tax positions taken, or expected to be taken, in the Company's tax returns.

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 company-operated stores and direct to consumer. Direct to consumer represents sales from the Company's e-commerce websites. Outlets, showrooms, sales from temporary locations, sales to wholesale accounts, warehouse sales, and license and supply arrangement net revenue have been combined into other. Information for these segments is detailed in the table below:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
Net revenue
Company-operated stores		$	1,704,357			$	1,516,323			$	1,348,225
Direct to consumer		453,287				401,525				321,180
Other		186,748				142,675				127,808
		$	2,344,392			$	2,060,523			$	1,797,213
Income from operations before general corporate expenses
Company-operated stores		$	415,635			$	346,802			$	356,589
Direct to consumer		186,178				166,418				132,877
Other		22,312				5,826				9,499
		624,125				519,046				498,965
General corporate expenses		202,973				149,970				122,932
Income from operations		421,152				369,076				376,033
Other income (expense), net		1,577				(581		)		7,102
Income before income tax expense		$	422,729			$	368,495			$	383,135
Capital expenditures
Company-operated stores		$	75,304			$	85,756			$	76,894
Direct to consumer		11,461				8,284				9,952
Corporate and other		62,746				49,447				32,887
		$	149,511			$	143,487			$	119,733
Depreciation and amortization
Company-operated stores		$	59,585			$	50,951			$	37,951
Direct to consumer		7,015				6,628				6,299
Corporate and other		21,097				15,804				14,114
		$	87,697			$	73,383			$	58,364

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 — the United States, Canada, Australia and New Zealand, Europe, and Asia. Net revenue by region for the years ended January 29, 2017, January 31, 2016, and February 1, 2015 was as follows:

		Fiscal Year Ended
		January 29, 2017				January 31, 2016				February 1, 2015
		(In thousands)
United States		$	1,726,076			$	1,508,841			$	1,257,351
Canada		447,167				416,520				434,328
Outside of North America		171,149				135,162				105,534
		$	2,344,392			$	2,060,523			$	1,797,213

Property and equipment, net by geographic area as of January 29, 2017 and January 31, 2016 were as follows:

		January 29, 2017				January 31, 2016
		(In thousands)
United States		$	170,745			$	170,823
Canada		217,035				154,578
Outside of North America		35,719				24,204
		$	423,499			$	349,605

The Company's intangible assets and goodwill relate to the reporting segment consisting of company-operated 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 quarters in the fiscal years ended January 29, 2017 and January 31, 2016. The following tables should be read in conjunction with the Company's audited consolidated financial statements and related notes. The Company has prepared the information below on a basis consistent with its audited consolidated financial statements and has included all adjustments, consisting of normal recurring adjustments, which, in the opinion of the Company's management, are necessary to fairly present its operating results for the quarters presented. The Company's historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.

		Fiscal 2016																Fiscal 2015
		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
		(Unaudited; Amounts in thousands, except per share amounts)
Net revenue		$	789,940			$	544,416			$	514,520			$	495,516			$	704,276			$	479,693			$	453,010			$	423,544
Cost of goods sold		362,041				265,990				260,359				256,385				349,809				254,896				240,985				217,667
Gross profit		427,899				278,426				254,161				239,131				354,467				224,797				212,025				205,877
Selling, general and administrative expenses		231,270				185,451				180,202				181,542				188,184				156,619				145,446				137,841
Income from operations		196,629				92,975				73,959				57,589				166,283				68,178				66,579				68,036
Other income (expense), net		857				628				578				(486		)		938				(2,890		)		842				529
Income before income tax expense		197,486				93,603				74,537				57,103				167,221				65,288				67,421				68,565
Income tax expense		61,351				25,318				20,912				11,767				49,805				12,135				19,753				20,755
Net income		$	136,135			$	68,285			$	53,625			$	45,336			$	117,416			$	53,153			$	47,668			$	47,810
Other comprehensive income (loss):
Foreign currency translation adjustment		15,941				(24,748		)		(28,052		)		73,562				(47,369		)		(665		)		(39,368		)		22,606
Comprehensive income		$	152,076			$	43,537			$	25,573			$	118,898			$	70,047			$	52,488			$	8,300			$	70,416
Basic earnings per share		$	0.99			$	0.50			$	0.39			$	0.33			$	0.85			$	0.38			$	0.34			$	0.34
Diluted earnings per share		$	0.99			$	0.50			$	0.39			$	0.33			$	0.85			$	0.38			$	0.34			$	0.34

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.