Urban Outfitters 2011 Annual Report Download - page 18

In addition, there may be liabilities that we fail, or are unable, to discover in the course of
performing due diligence investigations on any company that we may acquire, or have recently
acquired. Also, there may be additional costs relating to acquisitions including, but not limited to,
possible purchase price adjustments. Any of our rights to indemnification from sellers to us, even if
obtained, may not be enforceable, collectible or sufficient in amount, scope or duration to fully offset
the possible liabilities associated with the business or property acquired. Any such liabilities,
individually or in the aggregate, could have a material adverse effect on our business and financial
condition.
Our internet sales are subject to operational risk.
We sell merchandise over the Internet through our web sites. Our Internet operations are subject
to numerous risks, including reliance on third party computer hardware/software, rapid technological
change, diversion of sales from our stores, liability for online content, violations of state or federal
laws, including those relating to online privacy, credit card fraud, risks related to the failure of the
computer systems that operate our websites and their related support systems, including computer
viruses, telecommunications failures and electronic break-ins and similar disruptions. If our websites
were disrupted for any material length of time for the reasons described above or any other reasons,
our sales and profitability may suffer. There is no assurance that our Internet operations will continue
to achieve sales and profitability growth.
Manufacturer compliance with our social compliance program requirements.
We have a compliance program that is monitored on an annual basis by our buying offices. Our
production facilities are either certified as in compliance with our program, or areas of improvement
are identified and corrective follow-up action is taken. All manufacturing facilities are required to
follow applicable national labor laws, as well as international compliance standards regarding
workplace safety, such as standards that require clean and safe working environments, clearly marked
exits and paid overtime. We believe in protecting the safety and working rights of the people who
produce the goods sold in our stores and through our wholesale business, while recognizing and
respecting cultural and legal differences found throughout the world. We require our outside vendors
to register through an online website and agree that they and their suppliers will abide by certain
standards and conditions of employment.
Our investments in auction rate securities are subject to risks which may affect the liquidity of
these investments and could cause an impairment charge.
Approximately 3.6% of our cash, cash equivalents and marketable securities are invested in “A”
or better rated Auction Rate Securities (“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. Historically, investments in
ARS have been highly liquid, however, if an auction for the securities we own fails, the investments
may not be readily convertible. Liquidity for 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 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. Our ARS had an amortized cost of $33.3 million and a fair value of
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