Lululemon 2014 Annual Report Download - page 51

Table of Contents
Selling, general and administrative expenses
Selling, general and administrative expenses consist of all operating costs not otherwise included in cost of goods sold. Our selling, general
and administrative expenses include the costs of corporate and store-level wages and benefits, costs to transport our products from our
distribution facilities to our sales locations and e-commerce guests, professional fees, marketing, information technology, human resources,
accounting, corporate facility and occupancy costs, and depreciation and amortization expense other than in cost of goods sold.
For the years ended February 1, 2015 , February 2, 2014 and February 3, 2013 the Company incurred transportation costs of $35,901 ,
$31,296 , and $23,407 respectively.
Store pre
-opening costs
Operating costs incurred prior to the opening of new stores are expensed as incurred.
Income taxes
The Company follows the liability method with respect to accounting for income taxes. Deferred income tax assets and liabilities are
determined based on temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets
and liabilities are measured using enacted tax rates that are expected to be in effect when these differences are anticipated to reverse. Deferred
income tax assets are reduced by a valuation allowance, if based on the weight of available evidence, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
The evaluation as to the likelihood of realizing the benefit of a deferred income tax asset is based on the timing of scheduled reversals of
deferred tax liabilities, taxable income forecasts, and tax-planning strategies.
The Company provides for taxes at the rate applicable for the appropriate tax jurisdiction. U.S. income taxes on unremitted earnings of
foreign subsidiaries which the Company has determined to be indefinitely reinvested have not been recognized. Management periodically
assesses the need to utilize these unremitted earnings to finance foreign operations. This assessment is based on cash flow projections that are the
result of estimates of future production and operational and fiscal objectives by tax jurisdiction for our operations. Such estimates are inherently
imprecise since many assumptions utilized in the cash flow projections are subject to revision in the future.
Currency translation
The functional currency for each entity included in these consolidated financial statements that is domiciled outside of the United States is
generally the applicable local currency. Assets and liabilities of each foreign entity are translated into U.S. dollars at the exchange rate in effect
on the balance sheet date. Net revenue and expenses are translated at the average rate in effect during the period. Unrealized translation gains and
losses are recorded as a cumulative translation adjustment, which is included in other comprehensive income or loss, which is a component of
accumulated other comprehensive income or loss included in stockholders' equity.
Foreign currency transactions denominated in a currency other than an entity's functional currency are remeasured into the functional
currency with any resulting gains and losses included in income, except for gains and losses arising on intercompany foreign currency
transactions that are of a long-term investment nature.
The aggregate foreign exchange gains (losses) included in selling, general and administrative expenses amount to $6,372 , $17,314 , and
$(625) for the years ended February 1, 2015 , February 2, 2014 , and February 3, 2013 , respectively.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents, accounts receivable, trade accounts payable, accrued liabilities,
and other liabilities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or
credit risks arising from these financial instruments. All foreign exchange gains or losses are
45
• the cost of the Company's production, design, distribution and merchandising departments including salaries, stock-based compensation
and benefits, and operating expenses;
• occupancy costs such as minimum rent, contingent rent where applicable, property taxes, utilities and depreciation expense for the
Company's corporate-owned store locations;
•
hemming; and
•
shrink and inventory valuation reserves.