Urban Outfitters 2009 Annual Report Download - page 28

Our senior management has reviewed the critical accounting policies and estimates with our audit
committee. Our significant accounting policies are described in Note 2 of our consolidated financial
statements, “Summary of Significant Accounting Policies.” We believe that the following discussion
addresses our critical accounting policies, which are those that are most important to the portrayal of
our financial condition and results of operations and require management’s most difficult, subjective
and complex judgments, often as a result of the need to make estimates about the effect of matters that
are inherently uncertain. If actual results were to differ significantly from estimates made, the reported
results could be materially affected. We are not currently aware of any reasonably likely events or
circumstances that would cause our actual results to be materially different from our estimates.
Revenue Recognition
Revenue is recognized at the point-of-sale for retail store sales or when merchandise is shipped to
customers for wholesale and direct-to-consumer sales, net of estimated customer returns. Revenue is
recognized at the completion of a job or service for landscape sales. Revenue is presented on a net
basis and does not include any tax assessed by a governmental authority. Payment for merchandise at
our stores and through our direct-to-consumer business is by cash, check, credit card, debit card or gift
card. Therefore, our need to collect outstanding accounts receivable for our retail and
direct-to-consumer business is negligible and mainly results from returned checks or unauthorized
credit card charges. We maintain an allowance for doubtful accounts for our wholesale and landscape
service businesses accounts receivable, which management reviews on a regular basis and believes is
sufficient to cover potential credit losses and billing adjustments. Deposits for custom orders are
recorded as a liability and recognized as a sale upon delivery of the merchandise to the customer.
These custom orders, typically for upholstered furniture, have not been material. Deposits for
landscape services are recorded as a liability and recognized as a sale upon completion of service.
Landscape services and related deposits have not been material.
We account for a gift card transaction by recording a liability at the time the gift card is issued to
the customer in exchange for consideration from the customer. A liability is established and remains
on our books until the card is redeemed by the customer at which time we record the redemption of the
card for merchandise as a sale or when we determine the likelihood of redemption is remote. We
determine the probability of the gift cards being redeemed to be remote based on historical redemption
patterns. Revenues attributable to gift card liabilities relieved after the likelihood of redemption
becomes remote are included in sales and have not been material. Our gift cards do not expire.
Sales Return Reserve
We record a reserve for estimated product returns where the sale has occurred during the period
reported, but the return is likely to occur subsequent to the period reported and may otherwise be
considered in-transit. The reserve for estimated in-transit product returns is based on our most recent
historical return trends. If the actual return rate or experience is materially higher than our estimate,
additional sales returns would be recorded in the future. As of January 31, 2009 and 2008, reserves for
estimated sales returns in-transit totaled $7.5 million and $6.8 million, representing 2.7% and 2.3% of
total liabilities, respectively.
Marketable Securities
Our marketable securities may be classified as either held-to-maturity or available-for-sale.
Held-to-maturity securities represent those securities that we have both the intent and ability to hold to
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