Urban Outfitters 2009 Annual Report Download - page 30

and are amortized using the straight-line method over 39 years. Furniture and fixtures are recorded at
cost and are amortized using the straight-line method over their useful life, which is typically five
years. Net property and equipment as of January 31, 2009 and January 31, 2008 totaled $505.4 million
and $488.9 million, respectively, representing 38.0% and 42.8% of total assets, respectively.
In assessing potential impairment of our store related assets, we periodically evaluate historical
and forecasted operating results and cash flows on a store-by-store basis. Newly opened stores may
take time to generate positive operating and cash flow results. Factors such as store type (e.g., mall
versus free-standing), store location (e.g., urban area versus college campus or suburb), current
marketplace awareness of our brands, local customer demographic data and current fashion trends are
all considered in determining the time frame required for a store to achieve positive financial results,
which, in general, is assumed to be measurable within three years from the date a store location has
opened. If economic conditions are substantially different from our expectations, the carrying value of
certain of our long-lived assets may become impaired. For fiscal 2009, 2008 and 2007, write-downs of
long-lived assets were not material.
We have not historically encountered material early retirement charges related to our long-lived
assets. The cost of assets sold or retired and the related accumulated depreciation or amortization is
removed from the accounts with any resulting gain or loss included in net income. Maintenance and
repairs are charged to operating expense as incurred. Major renovations or improvements that extend
the service lives of our assets are capitalized over the extension period or life of the improvement,
whichever is less. We did not close any store locations in fiscal 2009.
As of the date of this report, all of our stores opened in excess of three years are expected to
generate positive annual cash flow before allocation of corporate overhead.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to
estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves
estimating our actual current tax obligations together with assessing temporary differences resulting
from differing treatment of certain items for tax and accounting purposes, such as depreciation of
property and equipment and valuation of inventories. These temporary differences result in deferred
tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the
likelihood that our deferred tax assets will be recovered from future taxable income. Actual results
could differ from this assessment if adequate taxable income is not generated in future periods.
Deferred tax assets as of January 31, 2009 and January 31, 2008 totaled $46.3 million and
$35.0 million, respectively, representing 3.5% and 3.1% of total assets, respectively. To the extent we
believe that recovery of an asset is at risk, we establish valuation allowances. To the extent we
establish valuation allowances or increase the allowances in a period, we include an expense within the
tax provision in the consolidated statement of income.
We increased valuation allowances to $1.4 million as of January 31, 2009 from $1.2 million as of
January 31, 2008. This increase occurred based on evidence of our ability to generate sufficient future
taxable income in certain foreign jurisdictions. In the future, if enough evidence of our ability to
generate sufficient future taxable income in these foreign jurisdictions becomes apparent, we would be
required to reduce our valuation allowances, resulting in a reduction in income tax expense in the
consolidated statement of income. On a quarterly basis, management evaluates the likelihood that we
will realize the deferred tax assets and adjusts the valuation allowances, if appropriate.
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