Urban Outfitters 2010 Annual Report Download - page 30

values, if required. The majority of inventory at January 31, 2010 and 2009 consisted of finished
goods. Unfinished goods and work-in-process were not material to the overall net inventory value. Net
inventories as of January 31, 2010 and January 31, 2009 totaled $186.1 million and $169.7 million,
representing 11.4% and 12.8% of total assets, respectively. Any significant unanticipated changes in
the risk factors noted within this report could have a significant impact on the value of our inventories
and our reported operating results.
Adjustments to reserves related to the net realizable value of our inventories are primarily based
on the market value of our physical inventories, cycle counts and recent historical trends. Our physical
inventories for fiscal 2010 were performed as of June 2009 and January 2010. Our estimates generally
have been accurate and our reserve methods have been applied on a consistent basis. We expect the
amount of our reserves to increase over time as we expand our store base and accordingly, related
inventories.
Long-Lived Assets
Our long-lived assets consist principally of store leasehold improvements, buildings and furniture
and fixtures, and are included in the “Property and equipment, net” line item in our consolidated
balance sheets included in this report. Store leasehold improvements are recorded at cost and are
amortized using the straight-line method over the lesser of the applicable store lease term, including
lease renewals which are reasonably assured, or the estimated useful life of the leasehold
improvements. The typical initial lease term for our stores is ten years. Buildings are recorded at cost
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, 2010 and January 31, 2009 totaled $540.0 million
and $505.4 million, respectively, representing 33.0% and 38.0% 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 2010, 2009 and 2008, 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. In January of fiscal 2010 we converted one Free People store location in Chicago to
a Free People Wholesale Showroom.
As of the date of this report, all of our stores are expected to generate positive annual cash flow
before allocation of corporate overhead.
28