Urban Outfitters 2011 Annual Report Download - page 61

URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data)
Marketable Securities
The Company’s marketable securities may be classified as either held-to-maturity or
available-for-sale. Held-to-maturity securities represent those securities that the Company has 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 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. 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
non-current have maturity dates greater than one year from the balance sheet date. Available for sale
securities such as Auction Rate Securities (“ARS”) that fail at auction and do not liquidate under
normal course are classified as non-current assets. Successful auctions would be classified as current
assets. Marketable securities as of January 31, 2011 and 2010 were classified as available-for-sale.
Approximately 3.6% of the Company’s 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 at 97% or greater of par value. The Company’s ARS had a fair
value of $29.5 million as of January 31, 2011 and $33.5 million as of January 31, 2010. As of and
subsequent to the end of the current fiscal year, all of the ARS held by the Company failed to
liquidate at auction due to a lack of market demand. Liquidity for these ARS was historically
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 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
illiquid prior to final maturity, redemptions of similar ARS, previous market activity for same
investment security, impact due to extended periods of maximum auction rates and valuation
models, the Company has recorded $3.8 million and $4.1 million of temporary impairment on its
ARS as of January 31, 2011 and January 31, 2010, respectively. To date the Company has collected
all interest receivable on outstanding ARS when due and has not been informed by the issuers that
accrued interest payments are currently at risk. The Company does not have the intent to sell the
underlying securities prior to their recovery and the Company believes it is not likely that it will be
required 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 non-current 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.
The Company also includes disclosure about its investments that are in an unrealized loss position
for which other-than-temporary impairments have not been recognized.
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