Urban Outfitters 2009 Annual Report Download - page 29

maturity and are carried at amortized cost. Interest on these securities, as well as amortization of
discounts and premiums, is included in interest income. Available-for-sale securities represent debt
securities that do not meet the classification of held-to-maturity, are not actively traded and are carried
at fair value, which approximates amortized cost. Unrealized gains and losses on these securities are
excluded from earnings and are reported as a separate component of shareholders’ equity until
realized. When available-for-sale securities are sold, the cost of the securities is specifically identified
and is used to determine the realized gain or loss. Securities classified as current have maturity dates of
less than one year from the balance sheet date. Securities classified as long-term have maturity dates
greater than one year from the balance sheet date. Available for sale securities such as ARS that fail at
auction and do not liquidate under normal course are classified as long term assets, any successful
auctions would be classified as current assets. Marketable securities as of January 31, 2009 and 2008
were classified as available-for-sale.
Inventories
We value our inventories, which consist primarily of general consumer merchandise held for sale,
at the lower of cost or market. Cost is determined on the first-in, first-out method and includes the cost
of merchandise and import related costs, including freight, import taxes and agent commissions. A
periodic review of inventory quantities on hand is performed in order to determine if inventory is
properly stated at the lower of cost or market. Factors related to current inventories such as future
consumer demand and fashion trends, current aging, current and anticipated retail markdowns or
wholesale discounts, and class or type of inventory are analyzed to determine estimated net realizable
value. Criteria utilized by the Company to quantify aging trends includes factors such as average
selling cycle and seasonality of merchandise, the historical rate at which merchandise has sold below
cost during the average selling cycle, and merchandise currently priced below original cost. A
provision is recorded to reduce the cost of inventories to the estimated net realizable values, if
required. The majority of inventory at January 31, 2009 and 2008 consisted of finished goods.
Unfinished goods and work-in-process were not material to the overall net inventory value. Net
inventories as of January 31, 2009 and January 31, 2008 totaled $169.7 million and $171.9 million,
representing 12.8% and 15.0% of total assets, respectively. Any significant unanticipated changes in
the risk factors noted within this report could have a significant impact on the value of our inventories
and our reported operating results.
Adjustments to reserves related to the net realizable value of our inventories are primarily based
on the market value of our physical inventories, cycle counts and recent historical trends. Our physical
inventories for fiscal 2009 were performed as of June 2008 and January 2009. Our estimates generally
have been accurate and our reserve methods have been applied on a consistent basis. We expect the
amount of our reserves to increase over time as we expand our store base and accordingly, related
inventories.
Long-Lived Assets
Our long-lived assets consist principally of store leasehold improvements, furniture and fixtures
and buildings, and are included in the “Property and equipment, net” line item in our consolidated
balance sheets included in this report. Store leasehold improvements are recorded at cost and are
amortized using the straight-line method over the lesser of the applicable store lease term, including
lease renewals which are reasonably assured, or the estimated useful life of the leasehold
improvements. The typical initial lease term for our stores is ten years. Buildings are recorded at cost
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