Urban Outfitters 2010 Annual Report Download - page 59

URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 impairment of the
Company’s long-lived assets as of January 31, 2010.
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
upon historical cyclicality. For leases where achievement of these levels is considered probable based
on cumulative lease year revenue versus the established breakpoint at any given point in time,
contingent rent is accrued. This is expensed in addition to minimum rent which is recorded on a
straight-line basis over the lease period.
Operating Leases
The Company leases its retail stores under operating leases. Many of the lease agreements contain
rent holidays, rent escalation clauses and contingent rent provisions or some combination of these
items. The Company recognizes rent expense on a straight-line basis over the accounting lease term.
The Company records rent expense on a straight-line basis over the lease period commencing on
the date that the premise is available from the landlord. The lease period includes the construction
period to make the leased space suitable for operating during which time the Company is not permitted
to occupy the space. For purposes of calculating straight-line rent expense, the commencement date of
the lease term reflects the date the Company takes possession of the building for initial construction
and setup.
The Company classifies tenant improvement allowances on its consolidated financial statements
within deferred rent that will be amortized as a reduction of rent expense over the straight-line period.
Tenant improvement allowance activity is presented as part of cash flows from operating activities in
the accompanying consolidated statements of cash flows.
Revenue Recognition
Revenue is recognized at the point-of-sale for retail store sales or when merchandise is shipped to
customers for wholesale and direct-to-consumer sales, net of estimated customer returns. Revenue is
recognized at the completion of a job or service for landscape sales. Revenue is presented on a net
basis and does not include any tax assessed by a governmental or municipal authority. Payment for
merchandise at stores and through the Company’s direct-to-consumer business is tendered by cash,
check, credit card, debit card or gift card. Therefore, the Company’s need to collect outstanding
accounts receivable for its retail and direct-to-consumer business is negligible and mainly results from
returned checks or unauthorized credit card transactions. The Company maintains an allowance for
doubtful accounts for its wholesale and landscape service accounts receivable, which management
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