Urban Outfitters 2012 Annual Report Download - page 31

Table of Contents
In assessing potential impairment of these 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
within three years from the date a store location has opened. If financial results are substantially different from our expectations, the carrying value of certain
of our long-lived assets may become impaired. For fiscal 2012, 2011 and 2010, 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 selling, general and operating and administrative 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.
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. Net deferred tax assets as of January 31, 2012 and January 31, 2011 totaled $63.9 million and $52.1 million, respectively, representing 4.3%
and 2.9% 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 Statements of Income. We increased valuation
allowances to $2.8 million as of January 31, 2012 from $2.6 million as of January 31, 2011. Valuation allowances are based on evidence of our ability to
generate sufficient taxable income in certain foreign and state jurisdictions. In the future, if enough evidence of our ability to generate sufficient future taxable
income in these jurisdictions becomes apparent, we would be required to reduce our valuation allowances, resulting in a reduction in income tax expense in
the Consolidated Statements 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.
Our tax liability for uncertain tax positions contains uncertainties because we are required to make assumptions and to apply judgment to estimate the
exposures associated with our various filing positions. Although we believe that the judgments and estimates discussed herein are reasonable, actual results
may differ, and we may be exposed to losses or gains that could be material.
Accounting for Contingencies
From time to time, we are named as a defendant in legal actions arising from our normal business activities. We are required to record an estimated loss
contingency when information available prior to
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