Lululemon 2010 Annual Report Download - page 66

Table of Contents
lululemon athletica inc. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
exposure is partly mitigated by a natural hedge in that a significant portion of the Company’s operating costs are also
denominated in Canadian dollars. The Company is also exposed to changes in interest rates. The Company does not
hedge foreign currency and interest rate exposure in a manner that would entirely eliminate the effect of changes in
foreign currency exchange rates, or interest rates on net income and cash flows.
The aggregate foreign exchange gains (losses) included in income amount to $477, $174, and $(110) for the
years ended January 30, 2011, January 31, 2010, and February 1, 2009, respectively.
Concentration of credit risk
The Company is not exposed to significant credit risk on its cash and cash equivalents and trade accounts
receivable. Cash and cash equivalents are held with high quality financial institutions. Trade accounts receivable are
primarily from certain franchisees and wholesale accounts. The Company does not require collateral to support the
trade accounts receivable; however, in certain circumstances, the Company may require parties to provide payment
for goods prior to delivery of the goods. The accounts receivable are net of an allowance for doubtful accounts,
which is established based on management’s assessment of the credit risks of the underlying accounts.
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method. The fair value of awards
granted is estimated at the date of grant and recognized as employee compensation expense on a straight-line basis
over the requisite service period with the offsetting credit to additional paid-in capital. For awards with service
performance conditions, the total amount of compensation expense to be recognized is based on the number of
awards expected to vest and is adjusted to reflect those awards that do ultimately vest. For awards with performance
conditions, the Company recognizes the compensation expense if and when the Company concludes that it is
probable that the performance condition will be achieved. The Company reassesses the probability of achieving the
performance condition at each reporting date. For awards with market conditions, all compensation expense is
recognized irrespective of whether such conditions are met.
Certain employees are entitled to share-based awards from the principal stockholder of the Company. These
awards are accounted for by the Company as employee compensation expense in accordance with the above-noted
policies.
Earnings per share
Earnings per share is calculated using the weighted-average number of common shares outstanding during the
period. Diluted earnings per share is calculated by dividing net income available to common stockholders for the
period by the diluted weighted-average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution from common shares issuable through stock options and performance stock
units using the treasury stock method.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period.
Recently issued accounting standards
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2010-06, Fair Value Measurements and Disclosures Topic 820: Improving Disclosures about Fair Value
Measurements (“ASU 2010-06”). ASU 2010-06 requires new disclosures regarding transfers in and out of the
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