Rue 21 2012 Annual Report Download - page 49

rue21, inc.
Notes to Consolidated Financial Statements — Continued
Short term investments
As of February 2, 2013, short term investments included deposits primarily held in money market accounts
with a maturity greater than three months but less than one year.
Accounts Receivable
Accounts receivable generally represent tenant allowances due from lessors. The Company evaluates
collectability and has determined that no allowance is necessary. As of fiscal year end 2012, receivables consisted
of: construction allowances — $7.7 million; third party sell offs — $1.9 million; and other — $1.0 million. This
compares to fiscal year end 2011 of: construction allowances — $6.0 million; and other — $0.7 million.
Merchandise Inventory
Merchandise inventory is valued at the lower of cost (first-in, first-out basis) or market using the retail
inventory method. The Company records merchandise receipts at the time they are delivered to our consolidator, as
we are not directly importing any merchandise. This is the point at which title and risk of loss transfer to the
Company.
The Company reviews its inventory levels to identify slow-moving merchandise and generally uses markdowns
to clear slow-moving merchandise. The Company records a markdown reserve based on estimated future
markdowns related to current inventory. Each period the Company evaluates the selling trends experienced and the
related promotional events or pricing strategies in place to sell through the current inventory levels. Markdowns
may occur when inventory exceeds customer demand for reasons of style, seasonal adaptation, changes in customer
preference, lack of consumer acceptance of fashion items, competition, or if it is determined that the inventory in
stock will not sell at its currently ticketed price. Such markdowns may have an adverse impact on earnings,
depending on the extent and amount of inventory affected. The anticipated deployment of new seasonal
merchandise is reflected within the estimated future markdowns reserve utilized in valuing current inventory, as
such new inventory in certain circumstances will displace merchandise units currently on-hand. The markdown
reserve is recorded as an increase to cost of goods sold in the accompanying Consolidated Statements of Income.
The Company also estimates a shrinkage reserve for the period of time between the last physical count and the
balance sheet date. The estimate for shrinkage reserve can be affected by changes in merchandise mix and changes
in actual shrinkage trends.
Property and Equipment
Property and equipment are recorded on the basis of cost with depreciation and amortization computed
utilizing the straight-line method over the estimated useful lives as follows:
Furniture and fixtures .................................... 7years
Leasehold improvements ................................. Lesser of 10 years or lease term
Automobiles ........................................... 5years
Computer equipment and software .......................... 3to5years
In accordance with the FASB’s authoritative guidance related to the impairment or disposal of long-lived
assets, impairment losses may be recorded on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets
are less than the carrying amounts of those assets. If such a condition occurs, the assets are adjusted to their
estimated fair value. Impairment charges of $0.1 million, $0.3 million and $0.2 million were recognized for the
fiscal years 2012, 2011, and 2010, respectively, for assets related to stores to be converted and are recorded in
selling, general, and administrative expense in the accompanying Consolidated Statements of Income.
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