Urban Outfitters 2012 Annual Report Download - page 61

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Table of Contents
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share data)
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, the Company accrues a contingent rent liability and a corresponding rent expense.
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 lease period commencing on the date that the premise is available from the
landlord. The lease period includes the construction period required 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 in its consolidated financial statements under deferred rent and amortizes them on a straight-
line basis over the related lease 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 channel 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 channel 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 reviews on a regular basis and
believes is sufficient to cover potential credit losses and billing adjustments. Deposits for custom orders are recorded as a liability and recognized as a sale
upon delivery of the merchandise to the customer. These custom orders, typically for upholstered furniture, are not material. Deposits for landscape services
are recorded as a liability and recognized as a sale upon completion of service. Landscape services and related deposits are not material.
The Company accounts for a gift card transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration
from the customer. A liability is established and remains on the Company's books until the card is redeemed by the customer, at which time the Company
records the redemption of the card for merchandise as a sale or when it is determined the
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