Lululemon 2010 Annual Report Download - page 62

Table of Contents
lululemon athletica inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reviewed monthly. Receivables are written off against the allowance when management believes that the amount
receivable will not be recovered. As at January 30, 2011, January 31, 2010 and February 1, 2009 the Company
recorded an insignificant allowance for doubtful accounts.
Inventories
Inventories, consisting of finished goods and raw materials, are stated at the lower of cost and market value.
Cost is determined using weighted-average costs. For finished goods, market is defined as net realizable value, and
for raw materials, market is defined as replacement cost. Cost of inventories includes acquisition costs and all costs
incurred to deliver inventory to the Company’s distribution centers including freight, non-refundable taxes, duty and
other landing costs.
The Company periodically reviews its inventories and makes provisions as necessary to appropriately value
obsolete or damaged goods. The amount of the provision is equal to the difference between the cost of the inventory
and its estimated net realizable value based upon assumptions about future demand, selling prices and market
conditions. In addition, as part of inventory valuations, the Company accrues for inventory shrinkage based on
historical trends from actual physical inventory counts. Inventory shrinkage estimates are made to reduce the
inventory value for lost or stolen items. The Company performs physical inventory counts and cycle counts
throughout the year and adjusts the shrink reserve accordingly.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation. Direct internal and external costs
related to software used for internal purposes which are incurred during the application development stage or for
upgrades that add functionality are capitalized. All other costs related to internal use software are expensed as
incurred.
Leasehold improvements are amortized on a straight-line basis over the lesser of the length of the lease, without
consideration of option renewal periods, and the estimated useful life of the assets, to a maximum of five years. All
other property and equipment are amortized using the declining balance method as follows. Amortization
commences when an asset is ready for its intended use.
Goodwill and intangible assets
Intangible assets are recorded at cost. Non-competition agreements are amortized on a straight-line basis over
their estimated useful life of five years. Reacquired franchise rights are amortized on a straight-line basis over their
estimated useful lives of 10 years.
Goodwill represents the excess of the net assets acquired and liabilities assumed over the aggregate of the
consideration transferred, the fair value of any non-controlling interest in the acquiree and the acquisition-date fair
value of the Company’
s previously held equity interest. Goodwill and intangible assets with indefinite lives are tested
annually for impairment or more frequently when an event or circumstance indicates that goodwill or indefinite life
intangible assets might be impaired. The Company’s operating segment for goodwill is its corporate-owned stores.
Impairment of long-lived assets
Long-lived assets, including intangible assets with finite lives, held for use are evaluated for impairment when
the occurrence of events or a change in circumstances indicates that the carrying value of the assets may not be
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Furniture and fixtures
20
%
Computer hardware and software
30
%
Equipment and vehicles
30
%