Urban Outfitters 2010 Annual Report Download - page 39

Federal Government Agencies, FDIC insured corporate bonds, pre-refunded tax-exempt municipal
bonds rated “A” or better, tax-exempt municipal bonds rated A or better, and auction rate securities
rated A or better, which bear interest at a variable rate. Due to the average maturity and conservative
nature of the Company’s investment portfolio, we believe a 100 basis point change in interest rates
would not have a material effect on the consolidated financial statements. As the interest rates on a
material portion of our cash, cash equivalents and marketable securities are variable, a change in
interest rates earned on the cash, cash equivalents and marketable securities would impact interest
income along with cash flows, but would normally not impact the fair market value of the related
underlying instruments.
Approximately 4.5% of our cash, cash equivalents and marketable securities are invested in “A”
or better rated ARS that represent interests in municipal and student loan related collateralized debt
obligations, all of which are guaranteed by either government agencies and/or insured by private
insurance agencies up to 97% or greater of par value. The Company’s ARS had a par value of $37.6
million and a fair value of $33.5 million as of January 31, 2010. As of January 31, 2010, all of the
ARS held by the Company failed to liquidate at auction due to lack of market demand. As of
January 31, 2009, the Company had $44.0 million of par and 38.7 million of fair value ARS. Liquidity
for these ARS is typically provided by an auction process that resets the applicable interest rate at
pre-determined intervals, usually 7, 28, 35 or 90 days. The principal associated with these failed
auctions will not be available until either a successful auction occurs, the bond is called by the issuer, a
buyer is found from outside the auction process, or the debt obligation reaches its maturity. Based on
review of credit quality, collateralization, final stated maturity, estimates of the probability of being
called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity
for the same investment security, impact due to extended periods of maximum auction rates and
valuation models, we have recorded $4.1 million and $5.3 million of temporary impairment charges on
our ARS as of January 31, 2010 and January 31, 2009, respectively. To date, we have collected all
interest receivable on outstanding ARS when due and expect to continue to do so in the future. We do
not have the intent to sell the underlying securities prior to their recovery and we believe it is not likely
to sell the underlying securities prior to their anticipated recovery of full amortized cost. As a result of
the current illiquidity, the Company has classified all ARS as long term assets under marketable
securities. The Company continues to monitor the market for ARS and consider the impact, if any, on
the fair value of its investments.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference from Item 7: Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Seasonality and Quarterly
Results of Operations and from pages F-1 through F-30.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
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