Urban Outfitters 2012 Annual Report Download - page 60

Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data)
Inventories
Inventories, which consist primarily of general consumer merchandise held for sale, are valued 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 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 expected 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 include 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 the value and
nature of merchandise currently priced below original cost. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if
appropriate. The majority of inventory at January 31, 2012 and 2011 consisted of finished goods. Unfinished goods and work-in-process were not material to
the overall net inventory value.
Adjustments to reserves related to the net realizable value of inventories are primarily based on the market value of the Company's physical inventories,
cycle counts and recent historical trends. The Company's physical inventories for fiscal 2012 were performed as of June 2011 and January 2012. The
Company's estimates generally have been accurate and its reserve methods have been applied on a consistent basis. The Company expects the amount of its
reserves and related inventories to increase over time as it expands its store base and increases direct-to-consumer sales.
Property and Equipment
Property and equipment are stated at cost and primarily consist of store related leasehold improvements, buildings and furniture and fixtures.
Depreciation is typically computed using the straight-line method over five years for furniture and fixtures, the lesser of the lease term or useful life for
leasehold improvements, three to ten years for other operating equipment and 39 years for buildings. 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.
The Company reviews long-lived assets for possible impairment whenever events or changes in circumstances indicate the carrying amount may not be
recoverable. This determination includes evaluation of factors such as future asset utilization and future net undiscounted cash flows expected to result from
the use of the assets. Management believes there has been no material impairment of the Company's long-lived assets as of January 31, 2012.
Deferred Rent
Rent expense from leases is recorded on a straight-line basis over the lease period. The net excess of rent expense over the actual cash paid is recorded
as deferred rent. In addition, certain store leases provide for contingent rentals when sales exceed specified break-point levels that are weighted based
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