Urban Outfitters 2010 Annual Report Download - page 29

card for merchandise as a sale or when we determine the likelihood of redemption is remote. We
determine the probability of the gift cards being redeemed to be remote based on historical redemption
patterns. Revenues attributable to gift card liabilities relieved after the likelihood of redemption
becomes remote are included in sales and are not material. Our gift cards do not expire.
Sales Return Reserve
We record a reserve for estimated product returns where the sale has occurred during the period
reported, but the return is likely to occur subsequent to the period reported and may otherwise be
considered in-transit. The reserve for estimated in-transit product returns is based on our most recent
historical return trends. If the actual return rate or experience is materially higher than our estimate,
additional sales returns would be recorded in the future. As of January 31, 2010 and 2009, reserves for
estimated sales returns in-transit totaled $9.9 million and $7.5 million, representing 2.9% and 2.7% of
total liabilities, respectively.
Marketable Securities
Our marketable securities may be classified as either held-to-maturity or available-for-sale.
Held-to-maturity securities represent those securities that we have both the intent and ability to hold to
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. Other than temporary impairment losses related to credit losses, as defined by ASC 320
Investments—Debt and Equity Securities, are considered to be realized losses. 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. Successful auctions would be
classified as current assets. Marketable securities as of January 31, 2010 and 2009 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 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
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