Lululemon 2011 Annual Report Download - page 49

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Table of Contents
expenses generated in Canadian dollars, we expect that our results of operations will be further impacted by changes in exchange rates. A portion
of our net revenue is generated in Australia. A 10% depreciation in the relative value of the Australian dollar compared to the U.S. dollar would
have resulted in lost income from operations of approximately $0.4 million in fiscal 2011 and $0.1 million in fiscal 2010. We do not currently
hedge foreign currency fluctuations. However, in the future, in an effort to mitigate losses associated with these risks, we may at times enter into
derivative financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice of trading
derivative securities for profit.
Interest Rate Risk. In April 2007, we entered into an uncommitted senior secured demand revolving credit facility with Royal Bank of
Canada. The revolving credit facility provides us with available borrowings in an amount up to CDN$20.0 million. Because our revolving credit
facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates, if we have a meaningful
outstanding balance. As of January 29, 2012, we had no outstanding borrowings under our revolving facility. We had small outstanding balances
under our revolving facility during fiscal 2011 as we built inventory and working capital for the holiday selling season, but we do not believe we
are significantly exposed to changes in interest rate risk. We currently do not engage in any interest rate hedging activity and currently have no
intention to do so in the foreseeable future. However, in the future, if we have a meaningful outstanding balance under our revolving facility, in
an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not
historically done so. These may take the form of forward sales contracts, option contracts, and interest rate swaps. We do not, and do not intend
to, engage in the practice of trading derivative securities for profit.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we
do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the
future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a
percentage of net revenue if the selling prices of our products do not increase with these increased costs.
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