UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d)15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscalfiscal year ended January 31, 19992000
Commission File No. 0-16999
URBAN OUTFITTERS, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2003332
-
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(State of incorporation) (I.R.S. Employer Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive offices)
Registrant's telephone number, including area code: (215) 564-2313
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.0001 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x/][X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
17,377,541[X]
17,358,186 Common Shares were outstanding at April 10, 19992000
The aggregate market value of voting shares held by non-affiliates at April
10, 19992000 was $163,563,137$124,761,424.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 19992000 Annual Meeting of
Shareholders -- Part III.
TABLE OF CONTENTS
PART I
Item 1. Business.................................................................... 3
Item 2. Properties................................................................... 78
Item 3. Legal Proceedings........................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters....... 11
Item 6. Selected Financial Data..................................................... 1312
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................... 14Operations................................................................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............. 20
Item 8. Financial Statements and Supplementary Data................................. 2320
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure........................................................ 23Disclosure................................................................. 21
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 2422
Item 11. Executive Compensation...................................................... 2624
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 2624
Item 13. Certain Relationships and Related Transactions.............................. 2624
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............ 278-K............. 25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................................................F-1STATEMENTS............................................F-1
FINANCIAL STATEMENT SCHEDULES.................................................................S-1SCHEDULES.........................................................S-1
-------------------------------
As used in this Report on Form 10-K, "Fiscal 1994," "Fiscal 1995," "Fiscal
1996," "Fiscal 1997"1997," "Fiscal
1998," "Fiscal 1999" and "Fiscal 1998"2000" refer to the Company's Fiscalfiscal years ended
January 31 in each of those Fiscalfiscal years.
PART I
Item 1. Business
General
Urban Outfitters, Inc. ("Urban Outfitters" or the "Company") operates two
business segments - a lifestyle-oriented general merchandise retailing segment
and a wholesale apparel business ("Wholesale"). The retailing segment operates
through retail stores and through direct response, including a catalog and a
website.two web
sites. The two retail concepts are Urban Outfitters ("Urban Retail") and
Anthropologie, each of which sells a broad array of fashion apparel, accessories
and household and gift merchandise in an exciting and dynamic retail
environment. The Company's wholesale subsidiary ("Wholesale")business designs and markets young women's
casual wear which it provides to the Company's retail operations and sells to
over 1,300 better specialty storesretailers worldwide.
Founded and originally operated by a predecessor partnership, the Company
opened its first store in 1970 near the University of Pennsylvania campus in
Philadelphia. The Company was incorporated in Pennsylvania in 1976, and opened
its second store in Harvard Square, Cambridge, Massachusetts in 1980. The
Company has since expanded to 3437 Urban Retail stores in 2531 metropolitan areas
throughout the United States, in Canada and in the British Isles.United Kingdom. The Company has
opened 1420 Anthropologie stores in 1315 metropolitan areas in the United States,
most of which overlap the Urban Retail areas. The Company is in the process of
identifying new retail locations and negotiating new leases and planningplans to
accelerateincrease its ratenumber of new store openings in the coming years.
Urban Retail: Urban Retail has established a strong reputation among urban,
style-conscious young adults aged 18 to 30. Urban Retail stores, which average
approximately 9,500 net9,350 selling square feet and carry 50,000 to 60,000 SKUs, are
typically located near large universities or other youth enclaves. A smallerSmaller
format store hasstores, which have been developed that averages 6,000 netopened in less populated cities located near
large universities, average 5,600 selling square feet and carries somewhatcarry fewer SKUs. The
first store in this new format was opened in March, 1998 in Bloomington,
Indiana. The Company's lifestyle merchandise offerings include women's and men's
fashion apparel, footwear and accessories and apartment wares and gifts. Urban
Retail accounted for approximately 67.7%61.2%, 64.4%67.7% and 69.3%64.4% of the Company's net
sales in Fiscal 2000, Fiscal 1999 and Fiscal 1998, and
Fiscal 1997, respectively. Anthropologie: Anthropologie, the Company's second retail format, mirrorsThe Company
introduced its www.urbn.com Internet web site in November 1999 which, along with
other information, offers Urban Retail butgift certificates for sale. Direct sale
of merchandise through the web site is expected to begin during Fiscal 2001.
Anthropologie: Anthropologie tailors its merchandise and shopping
environment to appeal to an older, more established suburban customer, typically women aged 2530 to 45.
The Company opened its first Anthropologie store in a suburb of Philadelphia in
October 1992. Anthropologie stores average approximately 8,200 net8,850 selling square
feet and carry 20,000 to 25,000 SKUs with a greater emphasis on home.home than Urban
Retail stores. The stores are typically located in either affluent suburban
locations. A few very3
locations or special urban locations such asin major cities (e.g., Soho in New York
City, will be part of the mix.City). Product offerings include women's casual apparel
3
and accessories, home
furnishings and an eclectic array of gifts and decorative accessories for the
home, garden, bed and bath. Anthropologie introduced a direct response catalog
in March 1998. After evaluation of the initial test
results, the catalogCatalog circulation has since increased to 7.4 million mailings
were expanded in the back half of the fiscal year.during Fiscal 2000. The Company began acceptingalso accepts orders through its
www.Anthropologie.com Internet web site which debuted in December 1998.
Currently, web site sales represent approximately 20% of total direct response
sales. Anthropologie accounted for approximately 22.8%30.7%, 18.0%22.8% and 12.6%18.0% of the
Company's net sales in Fiscal 2000, Fiscal 1999 and Fiscal 1998, and
Fiscal 1997, respectively.
Wholesale: Wholesale was established in 1984 to develop, side by side with
Urban Retail, apparel lines of young women's casual wear that could be
effectively sold in the Urban Retail stores at attractive pricing to the retail
customers. In order to provide the "attractive" prices, minimum production lots
are necessary. In order to reach these production minimums, Wholesale sells to
other retailers throughout the United States. The Wholesale design and
production staffs have expanded their involvement by designing and producing
private label merchandise categories such as apartment wares, gifts, accessories
and shoes.
While continuing its role with Urban Retail and Anthropologie, Wholesale
also sells its products to over 1,300 better specialty storesretailers worldwide under
three major labels: Free People, Co-Operative, and Bulldog. Wholesale accounted
for approximately 9.5%8.1%, 17.6%9.5% and 18.1%17.6% of the Company's net sales in Fiscal
2000, Fiscal 1999 and Fiscal 1998, and Fiscal 1997, respectively. Like Anthropologie and Urban
Retail,the retail segment,
Wholesale has its own senior and creative management, while sharing support
services.
The Company's home offices are located in Philadelphia, PennsylvaniaPennsylvania. In
addition, the Wholesale company has sales and occupy
approximately 25,000 square feet at 1809 Walnut Street, adjacent to the retail
store at 1801 Walnut Street,showroom facilities in New York
City and approximately 22,000 square feet at 235 South
17th Street.Los Angeles, California.
Retail Strategy
The Company's overall retailing strategy is to concentrate on its target
customers and offer a wide assortment of distinctive products in a compellingmultichannel
shopping environment.environment including retail stores, a catalog, and web sites. By
executing this strategy, the Company believes that it has successfully captureddeveloped
and developedcaptured unique market niches.
4
Suppliers
To serve its target customers and to recognize changes in fashion trends
and seasonality, the Company purchases merchandise from numerous vendors -
foreign and domestic. During Fiscal 1999,2000, the Company did business with
approximately 2,500 vendors. No single vendor accounted for more than 10% of
merchandise purchases. Certain of the Company's vendors have limited financial
resources and production capabilities. The Company believes that its
relationships with its vendors are good.
Store Expansion Strategy
The CompanyCompany's strategy is to open at least five new stores eachper year for
botheach retail concepts.concept. In Fiscal 1999,2000, Urban Retail opened six new stores including
the Company's firstand
relocated one store, in London, while Anthropologie also opened five.six new stores.
Additionally, an Urban Retail location in New York City was closed in January
2000 due to a lease expiration. The Fiscal 20002001 plan anticipates sixopening
approximately eight Urban Retail stores, including a store in Dublin, Ireland,
and fiveopening approximately seven Anthropologie store
openings.stores.
Company Operations
Distribution: In October 1996, the Company completed construction and
occupied its new 100,000-square-foot distribution center. The majority of merchandise purchased by Urban Retail, Anthropologie,both the retail and
Wholesalethe wholesale segments is shipped directly to this facility.the Company's distribution center
in Gap, Pennsylvania. The facility, which has an advanced computerized materials
handling system, is owned by the Company and is approximately 60 miles from the
home officeoffices in Philadelphia. TheThis facility has an
advanced computerized materials handling system and will bewas expanded in Fiscal 2000 by
85,00091,000 square feet in order to serve the future needs of the growing retail
store network and direct response fulfillment. The 185,000-square-footcurrent 191,000 square foot
structure is expected to provide eastern United States distribution capability
at least through the year 2002.
The Anthropologie catalog and Internet direct response orders and fulfillment
are currently handled by third party processors.
In June 1998, the Company opened a distribution facility in Reno, Nevada
operated by a third party. The purpose of this facility is to service the west
coast stores with a faster turn around from West Coastwest coast vendors at a lower
freight cost per unit. TheFuture expansion of west coast distribution capabilities
is anticipated due to the growing retail store network. In addition, the Company
currently uses third-partyutilizes the basement area of the Toronto Urban Retail store as a distribution
facility in Canada. As additional stores are added in Europe, a separate
third-party
distribution center may be established.
5
Management Information Systems: Very early in the Company's growth,
management recognized the need for high-quality information in order to manage
the merchandise planning/buying, inventory management and control functions. The
Company invested in a retail software package that it believes continues to meet
its processing and reporting requirements.
5
The Company utilizes Point of Sale ("POS") register and polling systems which
provide for register efficiencies, improved customer checkout and overnight
polling. A discussion ofIn July 1999, the Company's
Year 2000 readiness can be found in Management's DiscussionCompany converted its Anthropologie catalog and Analysis on Page
17.web
site operations from third party call centers and fulfillment to an in-house
direct response management software system.
To manage its separate needs, Wholesalethe wholesale segment uses a software system
for customer service, order entry and allocations, production planning and
inventory management.
The Company is in the process of converting its Anthropologie direct
response orders from third party call centers and fulfillment to an "in-house"
catalog management system which is scheduled to begin accepting orders with the
Fall catalog mailings.
Inventory and Shrinkage Control: The Company's retail inventory management
system enables it to efficiently manage its inventory position. This system
provides management with accurate and timely information about inventory,
pricing, costing, markdowns, markups, transfers, damages, sales and perpetual
inventory levels. The system allows these items to be monitored by SKU, by
location and by day.
The Company believes in investing to control its shrinkage levels because
many store locations are in typically higher theft areas. Merchandise shrinkage
control begins at the distribution center with the Company's information
systems, internal employee procedures, electronic article surveillance systems
and self-auditing controls. The Company educates and incentivizesoffers incentives to store
employees to actively participate in loss prevention, and believes that its
store employees are its most effective deterrent to both internal and external
theft.
Competition
The specialty retail, direct response, and wholesale apparel businesses are
highly competitive. Retail segment competitive factors include store location;
merchandise breadth, quality, style, and availability; level of customer
service; and price. The Company's retail stores compete against a wide variety
of smaller, independent specialty stores as well as department stores and
national specialty chains. Along with certain retail segment factors noted
above, other key competitive factors for direct response operations include the
success or effectiveness of customer mailing lists, response rates, catalog
presentation, merchandise delivery and web site availability. The direct
response operations compete against numerous catalogs and web sites which may
have greater circulation and web traffic. Wholesale competes with numerous
companies, many of whose products have wider distribution than the Company's.
Certain of Urban Outfitters' retail and wholesale competitors have greater name
recognition and financial and other resources than the Company.
6
Trademarks and Service Marks
The Company is the registered owner in the United States of certain service
marks and trademarks (collectively "marks"), including without limitation,
"Urban Outfitters," "Anthropologie," "Ecote," "Co-Operative," "Urban Renewal,"
"Free People," "R.V.," "Slant," "Big Smokey," "Fink," "Lisa L.," "Lip Gloss," "Shag," "Big Smokey,"
"R.V.," "365 Days," and "Shag."Stapleford." Each mark is renewable indefinitely,
contingent upon continued use at the time of renewal.
In addition, the Company currently has pending registration applications
with the U.S. Patent and Trademark Office covering certain other marks. The
Company is also the owner of marks which have been registered in foreign
countries, including without limitation, Argentina, Australia, Benelux, Brazil,
Canada, Chile, the Czech Republic, Denmark, France, Germany, Hong Kong, Hungary,
Italy, Japan, Mexico, Poland, Russia, Spain, Sweden, Switzerland, Taiwan and the
UK.United Kingdom. Applications for marks are pending in variousadditional foreign
countries as well.
The Company regards its marks as important to its business due to their
name recognition with the Company's customers. The Company believes that the
marks are so important that in order to protect them from infringement and to
defend against any claim of infringement, the Company established a separate
company whose primary purpose is to maintain and manage thosethese and future marks
thereby increasing their value to the operating companies. The Company is not
aware of any claims of infringement or challenges to the Company's right to use
any of its marks in the United States; however, there can be no assurance that
the Company's marks do not or will not violate the proprietary rights of others,
that they would be upheld if challenged or that the Company would, in such an
event, not be prevented from using its marks, any of which could have an adverse
effect on the Company.
Employees
The Company employs approximately 1,7502,200 persons, 1,144 (65%approximately 1,200 (55%)
of whom are full-time employees and 606 (35%approximately 1,000 (45%) of whom are
part-time employees. Of the Company's total employees, 1,677 (96%)4% work at Wholesale and
the remaining 96% work at the retail segment, and 73 (4%)
work at Wholesale.segment. The number of part-time employees
fluctuates depending on seasonal needs. None of the Company's employees are
covered by collective bargaining agreements and management believes that the
Company's relations with its employees are excellent.
7
Item 2. Properties
The Company's home offices are located in Philadelphia, Pennsylvania and
occupy approximately 26,000 square feet at 1809 Walnut Street, immediately
adjacent to the retailAnthropologie store at 1801 Walnut Street. In March
1999, an additional near-by office facility was leasedStreet, and approximately
22,000 square feet at 235 South 17th Street. 7
Anthropologie's catalog call center
is also located in Philadelphia and occupies approximately 2,800 square feet at
1700 Sansom Street. The Company's home office and catalog call center facilities
are leased properties with varying lease term expirations through 2011.
All of the Urban Retail and Anthropologie stores are leased. The Company's
retail stores are typically leased for a term of ten years with renewal options
for an additional five to ten years. The following table shows the location of
the Company's existing retail stores. Net sellingSelling square feet can sometimes change
due to floor moves, use of staircases, cash register configuration, etc. Total
estimated net selling square feet under lease at January 31, 19992000 by Urban Retail
was 304,000346,000 and by Anthropologie was 115,000.177,000. The average store net selling square
feet is approximately 9,5009,350 for Urban Retail and approximately 8,2008,850 for
Anthropologie. The new smaller format Urban Retail stores are expected
to average 6,000 net selling square feet. The Bloomington store contains 5,100
net5,600 selling
square feet.
8
Urban Outfitters Stores
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LOCATION LOCATION LOCATION
- ------------------------------------- ----------------------------- ---------------------------------------- -------- --------
Philadelphia, PA San Francisco, CA Bloomington, IN
110 South 36th Street 80 Powell Street 530 E. Kirkwood Ave., Box 101
Cambridge, MA Costa Mesa, CA Columbus, OH
11 J.F. Kennedy110 South 36th Street 2930 Bristol Street 1782 N. High Street
Philadelphia, PACambridge, MA Chicago. IL New York, NY
1801 Walnut11 J.F. Kennedy Street 2352 N. Clark Street 162 2nd Avenue
New York, NYPhiladelphia, PA Pasadena, CA Los Angeles, CA
628 Broadway1627 Walnut Street 139 W. Colorado Blvd. 7650 Melrose Avenue
Washington, DCNew York, NY Chicago, IL Burlington, VT
3111 M Street, N.W.628 Broadway 935 N. Rush Street 81 Church Street
Washington, DC Portland, OR Lawrence, KS
3111 M Street, N.W. 2320 N.W. Westover Road 1013 Massachusetts Street
New York, NY Portland, OR London, EnglandAustin, TX East Lansing, MI
374 Avenue of Americas 2320 N.W. Westover Road 36-38 Kensington High Street
Madison, WI Austin, TX
604 State Street 2406 Guadalupe Street Ann Arbor, MI119 E. Grand River Ave.
Madison, WI Tempe, AZ 231 S.Miami, FL
604 State Street 545 South Mill Ave. Boston, MA5701 SW 72nd St., #146
Ann Arbor, MI Houston, TX 361 NewburySeattle, WA
231 S. State Street 2501 University Blvd. Minneapolis, MN1507 5th Avenue
Boston, MA Montreal, PQ 3006 Hennepin Ave., S.London, England
361 Newbury Street 1246 Ste. Catherine Street, W. New York, NY36-38 Kensington High Street
Minneapolis, MN Toronto, ON
127 East 59th Street3006 Hennepin Ave., S. 235 Yonge Street
Seattle, WA Miami Beach, FL
401 Broadway, East 653 Collins Avenue
Berkeley, CA Boulder, CO
2590 Bancroft Way 934 Pearl Street
Santa Monica, CA Bloomington, IN
1440 Third Street Promenade 530 E. Kirkwood Avenue
San Francisco, CA San Diego, CA
2590 Bancroft Way80 Powell Street 665 Fifth Avenue
9
Anthropologie Stores
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LOCATION LOCATION LOCATION
- -------- -------- --------
Wayne, PA Chicago, IL Chestnut Hill, MA
201 W. Lancaster Ave. 1120 N. State Street 300 Boylston Street
Rockville, MD Highland Park, IL New York, NY
11500 Rockville Pike 1780 Green Bay Road 85 Fifth Avenue
Westport, CT Beverly Hills, CA Atlanta, GA
1365 Post Road, East 320 N. Beverly Drive 3393 Peachtree Rd., N.E.
Greenvale, NY Seattle, WA Philadelphia, PA
9 Northern Blvd. 2520 N.E. University Village, #120 1801 Walnut Street
Soho, NY Boston, MA Seattle, WA
375 West Broadway 799 Boylston Street 1509 Fifth Avenue
Santa Monica, CA Boulder, CO
1440Birmingham, MI Tampa, FL
1402 Third Street Promenade 934 Pearl Street
9
Anthropologie Stores
LOCATION LOCATION
- ---------------------------- -----------------------------
Wayne, PA Chicago, IL
201 W. Lancaster Ave. 1120 N. State Street
Rockville, MD Highland Park, IL
11500 Rockville Pike 1780 Green Bay Road
Westport, CT Beverly Hills, CA
1365 Post Road, East 320 N. Beverly214 West Maple Road 705 S. Dakota Avenue
Newport Beach, CA Santa Barbara, CA
823 Newport Center Drive
Greenvale, NY Seattle, WA
9 Northern Blvd. 2520 NE University Village, #120
SoHo, NY Santa Barbara, CA
375 West Broadway 901 State Street
Newport Beach, CA Birmingham, MI
823 Newport Center Drive 214 West Maple Road
Santa Monica, CA Boston, MA
1402 Third Street Promenade 799 Boylston Street
Wholesale's showroom
Wholesale operates showrooms in New York City isand Los Angeles which are
leased through July 31, 2004.2004 and 2001, respectively. Retail and Wholesale distribution
center properties are discussed in the Distribution section on page 5.
The Company believes that its facilities are well-maintained, in good
operating condition and adequate for its current needs.
Item 3. Legal Proceedings
None.The Company is party to various legal proceedings arising from normal
business activities. Management believes that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the Fiscal year ended January 31, 1999,2000, through the solicitation of proxies or otherwise.
Executive Officers of the Registrant
The information concerning the Company's executive officers required by
this Item is incorporated by reference herein tofrom Part III, Item 10 of this
Form 10-K.
10
PART II
ItemITEM 5. Market for Registrant's Common Equity and Related Shareholder MattersMARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common shares are traded on the NASDAQ National Market System
under the symbol "URBN."
Market Information
Market Prices ($)*
High Bid Low Bid
Price Price
-------- -------
Fiscal 1997
Quarter ended April 30, 1996 16 15/16 12
Quarter ended July 31, 1996 27 3/8 14 3/4
Quarter ended October 31, 1996 24 3/4 13 5/8
Quarter ended January 31, 1997 17 10 1/2
Fiscal 1998
Quarter ended April 30, 1997 14 10 1/2
Quarter ended July 31, 1997 18 1/2 12
Quarter ended October 31, 1997 19 3/4 15 1/8
Quarter ended January 31, 1998 19 14 1/2
FiscalMARKET INFORMATION
MARKET PRICES
HIGH BID LOW BID
PRICE PRICE
FISCAL 1999
Quarter ended April 30, 1998 24$24 3/4 15$15 3/4
Quarter ended July 31, 1998 20 14 1/2
Quarter ended October 31, 1998 17 11
Quarter ended January 31, 1999 18 11 9/16
*Post June 1, 1996 2-for-1 stock split
11
HoldersFISCAL 2000
Quarter ended April 30, 1999 $21 1/2 $12 1/8
Quarter ended July 31, 1999 28 3/4 19 1/2
Quarter ended October 31, 1999 31 1/16 16 1/8
Quarter ended January 31, 2000 29 5/8 12 7/8
HOLDERS
On April 2, 1999,5, 2000, the Company had approximately 1,800 shareholders.
Dividends2,300 shareholders of
record.
DIVIDENDS
The Company has not paid any cash dividends since its inception and does
not anticipate paying any cash dividends on its common shares in the foreseeable
future.
1211
ItemITEM 6. Selected Financial DataSELECTED FINANCIAL DATA
The following table sets forth selected consolidated income statement and
balance sheet data for the periods indicated. The selected consolidated balance
sheet and income statement data at the fiscal year end for each of the five
fiscal years presented below, are derived from the consolidated financial
statements of the Company. The Company has revised its manner of reporting gross
profit to group certain buying, distribution and occupancy costs with cost of
sales in order to enhance the comparability of its results with other specialty
apparel retailers. Prior period amounts have been reclassified to conform to the
current year presentation. The data presented below should be read in
conjunction with the consolidated financial statements of the Company, includingand the
related notes thereto, includedwhich appear elsewhere in this document.report.
Fiscal Year Ended JanuaryFISCAL YEAR ENDED JANUARY 31,
------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
1995
----------- ----------- ----------- ----------- -----------
(In thousands, except share and per share data)
Income Statement Data:----- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales ............................................................................... $ 276,106 $ 208,969 $ 173,121 $ 156,414 $ 133,036
$ 110,121
Gross profit .................................. 79,344 60,562 57,087 49,158 42,866....................................... 104,450 78,618 60,090 56,744 48,851
Income from operations ..................................................... 37,565 25,117 22,062 21,356 19,867
17,576
Net income ............................................................................. $ 18,680 $ 15,760 $ 13,880 $ 13,260 $ 12,308 $ 10,817
=========== =========== =========== =========== ===========
Net income per common share ...................- basic ................ $ 0 .891.07 $ 0.89 $ 0.79 $ 0.76 $ 0.72 $ 0.64
=========== =========== =========== =========== ===========
Weighted average common shares outstanding .... 17,702,922 17,576,203 17,429,375 17,028,856 16,790,740
Net income per common share -
assuming dilution ........................... $ 0.88 $ 0.78 $ 0.75 $ 0.70 $ 0.62
=========== =========== =========== =========== ===========
Weighted average common shares outstanding - assuming dilution ...........................basic . 17,531,971 17,702,922 17,576,203 17,429,375 17,028,856
Net income per common share - diluted .............. $ 1.05 $ 0.88 $ 0.78 $ 0.75 $ 0.70
=========== =========== =========== =========== ===========
Weighted average common shares outstanding - diluted 17,844,356 17,929,109 17,843,873 17,722,629 17,487,673
17,407,608
Balance Sheet Data:BALANCE SHEET DATA:
Working capital ................................................................... $ 47,52738,006 $ 47,342 $ 52,133 $ 39,239 $ 36,487
$ 26,872
Total assets ......................................................................... 153,501 133,363 107,424 89,675 71,117
56,766
Total liabilities ............................................................... 32,585 28,069 16,766 13,983 11,665 10,015
Long-term debt, excluding current maturities ......... -- -- -- -- --
Total shareholders' equity ............................................. 120,916 105,294 90,658 75,692 59,452 46,751
1312
ItemITEM 7. Management's Discussion and Analysis
of Financial Condition and Results of OperationsMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the selected financial data and the consolidated financial statements of the
Company and related notes thereto appearingwhich appear elsewhere in this Form 10-K.
Generalreport.
GENERAL
The Company's fiscal year ends on January 31. All references in this
discussion to fiscal years of the Company refer to the fiscal years ended on
January 31 in those years. For example, the Company's "Fiscal 1999"2000" ended on
January 31, 1999.2000. The comparable store net sales data presented in this
discussion are calculated based on the net sales of all stores open at least
twelve full months at the beginning of the period for which such data is
presented.
The Company operates two business segments - a lifestyle-oriented general
merchandise retailing segment and a wholesale apparel business ("Wholesale").
The retailing segment operates through retail stores and through direct response,
including a catalog and a website.two web sites. The two retail concepts are Urban
Outfitters ("Urban Retail") and Anthropologie. Urban Retail is the larger of the
two and generates mostthe majority of the Company's revenues and profits. Urban
Retail had 3237 stores open at January 31, 19992000 and 2632 at January 31, 1998. The Company's
first Anthropologie store opened in October 1992.1999.
Anthropologie had 1420 stores open at January 31, 19992000 and 914 at January 31, 1998.1999.
The Company has plans to open sixapproximately eight Urban Retail stores and
fiveapproximately seven Anthropologie stores in Fiscal 2000. An
Anthropologie catalog was tested in the first half of2001.
Fiscal 19992000 and based
upon the success of the test, was launched during the second half of the year.
To support the catalog, a website was established in August 1998. In response to
customer requests, the site began accepting orders in December 1998. The direct
response operation incurred a loss for the year, and management expects the
catalog and the Company's "e-commerce" efforts to also incur a loss for Fiscal
2000.
Fiscal 1999 and 1998 continued as profitable years for Urban Outfitters
with earningsnet income to net sales of 7.6%6.8% and 8.0%7.6%, respectively, as well as return
on beginning shareholders' equity of 17.7% for Fiscal 2000 and 17.4% and 18.3%, respectively.for Fiscal
1999. The slight contraction of earningsnet income as a percentpercentage of sales in Fiscal 1999 and2000
resulted primarily from a net charge to earnings of $4.4 million to recognize a
required accounting reserve for the reductionCompany's portion of operating losses
relating to its minority investment in MXG Media, Inc. (see "Other Matters - MXG
Media, Inc." below). Although net income as a percentage of sales contracted,
the return on beginning shareholders' equity increased for Fiscal 2000 over the
prior year due primarily to the Company's sales growth. In part, the increase in
return on shareholders'beginning equity reflects the repurchase during Fiscal 1999 of 167,200
shares of its common stock at an open market value of $2.3 million.
13
The Company has wholly-owned subsidiaries that operate Urban Retail stores
in that year resulted primarily fromLondon, England and Montreal and Toronto, Canada. The results of operations
and financial position for the start-up costs ofLondon and Canadian stores are included in the
catalog effortCompany's retail operations segment results. The Company plans to open a store
in Dublin, Ireland during Fiscal 2001 and additional stores in Canada and Europe
in the 35% decrease in sales by Wholesale
to unrelated entities. Thefuture.
For Fiscal 2000, the Wholesale company had recorded sales growth of 8% in
Fiscal 1998.12% after
elimination of intersegment sales to Urban Retail and Anthropologie. The
Wholesale company is anticipated to grow at aanticipates modest ratesales growth in Fiscal 2000.
The Company previously established a European subsidiary - Urban Outfitters
(U.K.) Ltd. - and opened its first Urban Retail store in London in June 1998.
The success of the London store opening enabled the subsidiary to make a small
profit during Fiscal 1999.
14
Results of Operations2001.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the percentage
of the Company's net sales represented by certain income statement data and the
growth of certain income statement data from period to period. The Company has
revised its manner of reporting gross profit to group certain buying,
distribution and occupancy costs with cost of goods soldsales in order to enhance the
comparability of its results with other specialty apparel retailers. Prior
period amounts have been reclassified to conform to the current year'syear
presentation.
Fiscal Year Ended
JanuaryFISCAL YEAR ENDED
JANUARY 31,
--------------------------------
As a Percentage of Net Sales-----------------------------------
AS A PERCENTAGE OF NET SALES 2000 1999 1998 1997
---- ---- ----
Net sales...................................................................sales ........................................... 100.0% 100.0% 100.0%
Cost of goods sold,sales, including certain buying, distribution
and occupancy costs...................................................... 62.0 65.0 63.5costs .............................. 62.2 62.4 65.3
----- ----- -----
Gross profit.............................................................. 38.0 35.0 36.5profit ...................................... 37.8 37.6 34.7
Selling, general and administrative expenses................................ 26.0 22.3 22.8expenses ........ 24.2 25.6 22.0
----- ----- -----
Income from operations....................................................operations ............................ 13.6 12.0 12.7
13.7
Net interest and other expenses (income).................................... (0.8)Other income (expense), net ......................... (1.0) (0.8)0.8 1.0
----- ----- -----
Income before income taxes................................................taxes ........................ 12.6 12.8 13.7
14.5
Income tax expense..........................................................expense .................................. 5.8 5.2 5.7 6.0
----- ----- -----
Net income................................................................income ........................................ 6.8% 7.6% 8.0% 8.5%
===== ===== =====
Period over Period Dollar GrowthPERIOD OVER PERIOD DOLLAR GROWTH
Net sales...................................................................sales ........................................... 32.1% 20.7% 10.7%
17.6%
Gross profit................................................................ 31.0% 6.1% 16.1%profit ........................................ 32.9% 30.8% 5.9%
Income from operations......................................................operations .............................. 49.6% 13.8% 3.3%
7.5%
Net income..................................................................income .......................................... 18.5% 13.5% 4.7% 7.7%
==== ===== =====
14
FISCAL 2000 COMPARED TO FISCAL 1999
Net sales in Fiscal 2000 increased to $276.1 million from $209.0 million in
the prior fiscal year, a 32.1% increase. The $67.1 million increase was
attributable to: (1) net sales increases of $39.4 million from stores opened
during Fiscal 1999 Comparedand Fiscal 2000, (2) comparable store net sales increases of
10%, aggregating $15.8 million, (3) direct response (catalog and e-commerce)
revenue increases of $9.5 million, and (4) an increase of $2.4 million in net
sales from the Wholesale company.
In Fiscal 2000, increases in the number of transactions in comparable
stores and an increase in average sales prices resulting from reducing the level
of lower priced items such as greeting cards, as well as a lower proportion of
markdowns, accounted for the comparable store sales dollar increase. During
Fiscal 2000, twelve new stores were opened, one store was relocated, and one
store was closed due to a lease expiration. Eleven stores were opened in Fiscal
1999. Direct response revenue growth was due to increased catalog circulation
and web site traffic. The Company believes increased net sales from the
Wholesale company during Fiscal 2000 were due to increased popularity of its
fashion offerings combined with improved delivery and quality of merchandise.
Gross profit margins increased slightly to 37.8% of sales in Fiscal 2000
from 37.6% of sales in Fiscal 1999. This increase is attributable to higher
initial mark-ups in the Urban Retail and Anthropologie stores offset by
increased occupancy costs and investments in additional merchandising, design
and production staff.
Selling, general and administrative expenses decreased to 24.2% of sales in
Fiscal 2000 from 25.6% of sales in Fiscal 1999. Aggressive store cost
containment combined with the comparable store sales increases resulted in the
leveraging of operating expenses in the retail segment. Additionally, direct
response operations experienced a similar reduction in operating expense
percentages for the year due to: (1) the significant increase in sales, (2)
improvements in catalog production costs, and (3) the efficiencies attributable
to moving the catalog call center in-house during the second quarter of Fiscal
2000. The increase in sales by the Wholesale company also resulted in the
leveraging of its operating expenses.
Other income (expense) for Fiscal 2000 includes a net charge to earnings of
$4.4 million to reserve for the Company's portion of operating losses related to
the minority investment in MXG Media, Inc. (see "Other Matters - MXG Media,
Inc." below). Income tax expense for Fiscal 2000 does not include a tax benefit
related to this reserve which, in part, has caused an increase in income tax
expense along with the Company's effective tax rate.
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales in Fiscal 1999 increased to $209.0 million from $173.1 million in
the prior fiscal year, a 20.7% increase. The $35.9 million increase was
attributable to a combination of
15
comparable store net sales increases of $15.1 million, net sales increases of
$25.6 million from stores opened during Fiscal 1998 and Fiscal 1999, and catalog
and e-commerce revenues of $5.7 million, offset in part by a decrease of $10.5
million from the Wholesale company.
15
In Fiscal 1999, increases in the number of transactions in comparable
stores and an increase in average sales prices resulting from a lower proportion
of markdowns accounted for the comparable store sales dollar increase. Eleven
new stores were opened in Fiscal 1999 and three new stores were opened in Fiscal
1998. The Wholesale sales decrease reflected lower purchases by larger retail
chains, as well as customer issues regarding quality, delivery and fashion,
which have been addressed by management.
Gross profit margins increased to 38.0%37.6% of sales in Fiscal 1999 from 35.0%34.7%
of sales in Fiscal 1998. This increase is attributable to higher initial
mark-ups and lower markdown percentages in the Urban Retail and Anthropologie
stores. Comparable store sales increases in existing stores offset the higher
occupancy costs of noncomparable and new stores. Reduced sales in the Wholesalewholesale
segment necessitated an increased proportion of merchandise to be sold in the
"off-price" sector, offsetting in part, the higher retail segment performance.
Selling, general and administrative expenses increased to 26.0%25.6% of sales in
Fiscal 1999 from 22.3%22.0% of sales in Fiscal 1998 due to the costs incurred for the
start-up of the catalog and European operations as well as the substantial
negative leverage associated with the decline in Wholesalewholesale segment sales. The
increase in dollars in selling, general and administrative expenses is
attributable to the opening of additional stores as well as the catalog
start-up.
Fiscal 1998 Compared to Fiscal 1997
Net sales in Fiscal 1998 increased to $173.1 million from $156.4 million in
the prior fiscal year, a 10.7% increase. The $16.7 million increase was
attributable to a combination of comparable store net sales decreases of $1.6
million, net sales increases of $16.1 million from stores opened or enlarged
during Fiscal 1997 and Fiscal 1998 and net sales increases of $2.2 million from
the Wholesale company.
The decrease in comparable store sales of 1% or $1.6 million resulted
primarily from one merchandise division that did not perform to prior year
levels. Average selling prices were not a significant determinant of Fiscal 1998
sales levels. New and enlarged stores included seven stores opened in Fiscal
1997 and three opened in Fiscal 1998. The Company believes increased net sales
from the Wholesale subsidiary during Fiscal 1997 and Fiscal 1998 were
attributable to increased orders and order size due to the popularity of its
product lines.
The Company's gross profit margin declined from 36.5% in Fiscal 1997 to
35.0% in Fiscal 1998 due to higher cost of goods sold and higher occupancy
costs. The primary contributor to the cost of goods sold increase was higher
markdowns in the retail segment. Markdowns were triggered by lower than planned
comparable store sales. Occupancy costs as a percentage of sales increased due
to the impact of new stores and the comparable store sales decline.
16
Selling, general and administrative expenses grew to $38.5 million in
Fiscal 1998 from $35.7 million in the prior fiscal year, a 7.7% increase. As a
percentage of net sales, selling, general and administrative costs decreased
from 22.8% of sales in Fiscal 1997 to 22.3% of sales in Fiscal 1998. The
increase in dollars is due to the opening of new stores during Fiscal 1997 and
Fiscal 1998. The decrease in such expenses as a percentage of sales was
attributable to cost containment measures at store level.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
During the last three years, the Company has satisfied its cash
requirements through cash flow from operations.operations and accumulated cash. The
Company's primary uses of cash have been to open new stores, purchase
inventories, and purchase inventories. Most recently,repurchase its common stock. Additionally, during the last two
years, the Company has invested in the Anthropologie direct response effort, and in a
new European subsidiary. An investment has also been made insubsidiary, and a direct response company aimed at teen shoppers
(see "HMB Publishing""Other Matters - MXG Media, Inc." below). In addition to cash generated
from operations, sources of cash have included the net proceeds from the
exercise of certain employee stock options in each of Fiscal 2000, 1999 1998 and
1997. Over the next few years, the1998. The Company expects to incur additional capital expenditures in support of
its expansion program.program and the establishment of commerce capability on its
www.urbn.com web site. Accumulated cash and future cash from operations are
expected to fund such expansion-related uses of cash, including
additional investments in the direct response operations.cash.
Although the Company has not borrowed short-term or long-term funds during
the last five fiscal years, it maintains a line of credit of $16.2 million, all
of which is available for cash borrowings or for the issuance of letters of
credit. The line is unsecured and any cash borrowings under the line would
accrue interest upon an as-offered basisat a rate not to exceed LIBOR plus 1/2 of 1 percent. The Company
uses letters of credit primarily to purchase private labelmerchandise for the retail and Wholesale merchandise from offshore suppliers.wholesale
segments.
16
Outstanding balances of letters of credit at January 31, 2000 and 1999 and 1998 were $4.1$6.6
million and $4.7$4.1 million, respectively. There were no short-term or long-term
borrowings outstanding at January 31, 19992000 or at January 31, 1998.1999. The Company
expects that accumulated cash and cash from operations will be sufficient to
meet the Company's cash needs for at least the next three years.
Other Mattersyear. However, accelerated expansion
beyond the fifteen store openings planned for Fiscal 2001 may necessitate
borrowings on the credit line.
OTHER MATTERS
Year 2000
TheAs of the date of this report, the Company has not incurred and is not
expected to incur any material business disruptions as a result of Year 2000
problem concernsinformation technology issues.
Prior to January 1, 2000, the inability of information and technology-
based operating systems to function properly after December 31, 1999. This could
result in system failures and miscalculations which may cause business
disruptions.
17
The Company does not generally sell products that must be brought into Year
2000 compliance. However, the Company does rely upon many vendors and suppliers
for their products and services, as well as utilities, financial institutions
and governmental entities that provide critical services to the Company and to
its customers. The Company has conducted a comprehensive review of
its computer systems to identify thethose systems that could be affected by the
Year 2000 issue. Based on theAs a result of this review, the Company's major information technology
systems, ("IT")
that would be adversely affected by Year 2000 dates will be upgraded or replaced
through the normal course of business prior to December 31, 1999. Internal
resources will be used in a timely manner to evaluate, modify and test the
Company's less critical systems that are not scheduled to be upgraded or
replaced through the normal course of business. The Company's core merchandising
and financial system upgrade and the store register system upgrades have been
completed; testing of these upgrades is substantially completed. In addition,
the Company is in the process of completing the inventory and assessment of its non-information technology systems, ("non-IT"),
including those with embedded processor chips --(such as heating, ventilation and
air conditioning systems, elevators, etc.
The) were evaluated, modified and/or
upgraded and tested for Year 2000 compliance prior to December 31, 1999. In
addition, the Company has also reviewed and continues to monitorevaluated the implemented
changes or planned changesYear 2000 capabilities of its major
suppliers that management believes could
be affected by Year 2000 dates. The Company is evaluatingand key vendor
preparednessvendors by conducting interviews, obtaining compliance representation
letters
and, if deemed necessary, conducting comprehensive tests. TheIn most circumstances, the
information that the Company expects to complete itsreceived from key suppliers and vendors indicated
that they would be Year 2000 compliance evaluation programcompliant by June 30,the end of 1999. AtAs of the date of
this time, management continuesreport, the Company has not been adversely affected by a major supplier's
or key vendor's inability to believe thatprovide merchandise or services. Amounts expended
by the incremental costs associated with major system upgrades and/or replacements, as
well as internal effortsCompany related to evaluate, modify and test the Company's other
systems to ensure Year 2000 compliance, will not be material to the Company.
There can be no guarantee, however, that the Company's efforts will prevent Year 2000 issues from having a material adverse impact on its results of operations,
financial condition and cash flows. The possible consequences to the Company if
its vendors and suppliers arewere not fully Year 2000 compliant (including the
global banking systems, communications and other public utilities and the
transportation industry) include temporary store closings and delays in the
receipt of key merchandise. Accordingly, the Company is in the process of
developing contingency plans to mitigate the potential disruptions that may
result from the Year 2000 issue. Such plans may include earlier receipt of key
merchandise, preparing alternative merchandise delivery methodologies and
securing alternative suppliers. It is anticipated that these contingency plans
to manage identified IT and non-IT areas of high risk will be completed by June
30, 1999. There can be no guarantee, however, that any contingency plans
developed by the Company will prevent such material adverse effects.
18
material.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133") which is required to be adopted in
fiscal years beginning after June 15, 1999. The Company plans to adopt SFAS No.
133 effective February 1, 2000.Fiscal 2002. The Company currently enters into short-term foreign currency
forward exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of the contracts
and related gains and losses have not been material. The adoption of SFAS No.
133 is not expected to have a significant effect on the financial position or
results of operations of the Company.
Market Risks17
MXG Media, Inc.
On February 5, 1998 the Company entered into an agreement with MXG Media,
Inc. ("MXG," formerly HMB Publishing, Inc.) for the purchase of securities
convertible into a minority interest in the company through Series B Convertible
Preferred Stock and certain convertible debentures. The agreement called for
additional investments and ownership if MXG met certain performance milestones.
MXG publishes the "MXG magalog" and operates the www.MXGonline.com and
www.MXGtv.com web sites, all of which cater to teenage girls.
As of January 31, 2000, the Company has invested approximately $2.0 million
in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures. MXG has incurred losses since its inception and, accordingly, during
Fiscal 2000, the Company has recorded reserves for its portion of operating
losses related to the minority interest in MXG. Included in other income
(expense) for Fiscal 2000 is a net charge to earnings of $4.4 million to fully
reserve for the Company's investment. Additionally, from March 1999 through
October 1999, the Company advanced $7.6 million of bridge financing to MXG in
the form of promissory notes.
Pursuant to an agreement dated October 31, 1999, MXG received an additional
equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest at 8%. The Company has no plans to increase its
investment in MXG or advance additional funds.
Subsequent Event
In January 2000, the Board of Directors approved a stock buyback program
that authorized the Company to repurchase up to 1,000,000 of its shares. During
the period from February 1, 2000 through February 25, 2000, in a series of
individual open market transactions, the Company repurchased 104,700 shares of
its common stock at a cost of $1.4 million.
Forward-Looking Statements
Pursuant to the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, this report contains forward-looking statements
which may be identified by their use of words such as "plans," "expects,"
"will," "anticipates," "intends," "projects," "estimates" or other words of
similar meaning. Any one or all of the following factors could cause actual
financial results to differ materially from those financial results mentioned in
the forward-looking statements: industry competition factors, availability of
suitable retail space for expansion, difficulty in predicting and responding to
fashion trend shifts, seasonal fluctuations in gross sales, the level of returns
experienced by the business segments, the levels of margins achievable in the
marketplace, the departure of one or more key senior managers, and other risks
identified in filings with the Securities and Exchange Commission. The Company
disclaims any intent or obligation to update forward-looking statements and
cannot guarantee that the assumptions and expectations are accurate or will be
realized.
18
SEASONALITY AND QUARTERLY RESULTS
While Urban Outfitters has been profitable in each of its last 40 operating
quarters, its operating results are subject to seasonal fluctuations. The
Company's highest sales levels have historically occurred during the five-month
period from August 1 to December 31 of each year (the Back-to-School and Holiday
periods). Sales generated during these periods have traditionally had a
significant impact on the Company's results of operations. Any decreases in
sales for these periods or in the availability of working capital needed in the
months preceding these periods could have a material adverse effect on the
Company's results of operations. The Company's results of operations in any one
fiscal quarter are not necessarily indicative of the results of operations that
can be expected for any other fiscal quarter or for the full fiscal year.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of expenses incurred in connection
with, and sales contributed by, new stores, store expansions and the integration
of new stores into the operations of the Company or by the size and timing of
catalog mailings and web site traffic for the Company's direct response
operations. Fluctuations in the bookings and shipments of Wholesale merchandise
between quarters can also have positive or negative effects on earnings during
the quarters.
The following tables, which are unaudited, set forth the Company's net
sales, gross profit, net income and income per share for each quarter during the
last two fiscal years and the amount of such net sales and net income,
respectively, as a percentage of annual net sales and annual net income. The
Company has revised its manner of reporting gross profit to group certain
buying, distribution and occupancy costs with cost of sales in order to enhance
comparability of its results with other specialty apparel retailers. Prior
period amounts have been reclassified to conform to the current year
presentation.
FISCAL 1999 QUARTER ENDED
-----------------------------------------------
(Dollars in thousands, except per share data)
APRIL 30, JULY 31, OCT. 31, JAN. 31,
1998 1998 1998 1999
------- ------- ------- -------
Net sales ..................... $39,384 $48,068 $60,462 $61,055
Gross profit .................. 13,855 16,980 22,956 24,827
Net income .................... 2,100 3,440 5,035 5,185
Net income per share - diluted $ 0.12 $ 0.19 $ 0.28 $ 0.29
AS A PERCENTAGE OF FISCAL YEAR:
Net sales ..................... 19% 23% 29% 29%
Net income .................... 13% 22% 32% 33%
19
FISCAL 2000 QUARTER ENDED
---------------------------------------------
(Dollars in thousands, except per share data)
APRIL 30, JULY 31, OCT. 31, JAN. 31,
1999 1999 1999 2000
--------- -------- -------- -------
Net sales ..................... $57,991 $67,976 $75,384 $74,755
Gross profit .................. 21,428 26,296 28,668 28,058
Net income .................... 2,950 4,097 6,100 5,533
Net income per share - diluted $ 0.17 $ 0.23 $ 0.34 $ 0.31
AS A PERCENTAGE OF FISCAL YEAR:
Net sales ..................... 21% 25% 27% 27%
Net income .................... 16% 22% 33% 29%
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the following types of market risks -
fluctuations in the purchase price of merchandise, as well as other goods and
services; the value of foreign currencies in relation to the U.S. dollar; and
changes in interest rates. Due to the Company's inventory turn and its
historical ability to pass through the impact of any generalized changes in its
cost of goods to its customers through pricing adjustments, commodity and other
product risks are not expected to be material. The Company purchases
substantially all its merchandise in U.S. dollars, including a portion of the
goods for its stores located in Canada and the United Kingdom. As explained in
the section above on "Recent Accounting Pronouncements," the market risk is
further limited by the Company's purchase of foreign currency forward exchange
contracts.
Since the Company has not been a borrower, its exposure to interest rate
fluctuations is limited to the impact on its marketable securities portfolio.
This exposure is minimized by the limited investment maturities and "put"
options available to the Company as explained in the notes to the financial
statements appearing elsewhere in this report. The impact of a hypothetical two
percent increase or decrease in prevailing interest rates would not materially
affect the Company's consolidated financial position or results of operations.
HMB Publishing, Inc.
On February 5, 1998 the Company entered into an agreement with HMB
Publishing, Inc. ("HMB") for the purchase of securities convertible into a
minority interest in the company through Series B Convertible Preferred Stock
("Series B Preferred") and certain convertible debentures. The agreement called
for additional investments and ownership if HMB met certain performance
milestones. HMB is a development stage company that publishes mXg(TM), a
combination magazine and catalog and operates a website - www.mXgonline.com -
that caters to teenage girls. The original business plan contemplated
substantial losses in the first two fiscal years.
19
As of January 31, 1999, the Company has invested approximately $2.0 million
in the Series B Preferred and an additional $1.75 million in the convertible
debentures. Since January 31, 1999, the Company has advanced an additional $1.1
million to fund further marketing efforts and additional development of the
website and, together with additional investors, will seek to position HMB for
more rapid expansion. The Company expects to realize a return on its investment,
and it is the Company's intent to maintain an equity interest following any
public offering by HMB.
Subsequent Event
In accordance with its previously announced stock buyback program, that
authorized the Company to repurchase up to 800,000 of its shares, the Company
has repurchased 279,000 shares of its common stock at a cost of $3.7 million
during the period from February 1, 1999 through March 12, 1999 in a series of
individual open market transactions.
Forward-Looking Statements
Pursuant to the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, this report contains forward-looking statements
which may be identified by their use of words such as "plans," "expects,"
"will," "anticipates," "intends," "projects," "estimates" or other words of
similar meaning. Any one or all of the following factors could cause actual
financial results to differ materially from those financial results mentioned in
the forward-looking statements: industry competition factors, unavailability of
suitable retail space for expansion, difficulty in predicting and responding to
fashion trend shifts, seasonal fluctuations in gross sales, the level of returns
experienced by the business segments, the levels of margins achievable in the
marketplace, the departure of one or more key senior managers, the failure of
the Company or third parties to become Year 2000 capable and other risks
identified in filings with the Securities and Exchange Commission. The Company
disclaims any intent or obligation to update forward-looking statements and
cannot guarantee that the assumptions and expectations are accurate or will be
realized.
20
Seasonality and Quarterly Results
While Urban Outfitters has been profitable in each of its last 36 operating
quarters, its operating results are subject to seasonal fluctuations. The
Company's highest sales levels have historically occurred during the five-month
period from August 1 to December 31 of each year (the "Back-to-School" and
Holiday periods). Sales generated during these periods have traditionally had a
significant impact on the Company's results of operations. Any decreases in
sales for these periods or in the availability of working capital needed in the
months preceding these periods could have a material adverse effect on the
Company's results of operations. The Company's results of operations in any one
fiscal quarter are not necessarily indicative of the results of operations that
can be expected for any other fiscal quarter or for the full fiscal year.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of expenses incurred in connection
with, and sales contributed by, new stores, store expansions and the integration
of new stores into the operations of the Company or by the size and timing of
mailings of the Company's Anthropologie catalog. Fluctuations in the bookings
and shipments of Wholesale products between quarters can also have positive or
negative effects on earnings during the quarters.
21
The following tables, which are unaudited, set forth the Company's net
sales, gross profit, net income and income per share for each quarter during the
last three fiscal years and the amount of such net sales and net income,
respectively, as a percentage of annual net sales and annual net income. The
Company has revised its manner of reporting gross profit to group certain
buying, distribution and occupancy costs with cost of goods sold in order to
enhance comparability of its results with other specialty apparel retailers.
Prior period amounts have been reclassified to conform to the current year's
presentation.
Fiscal 1997 Quarter Ended
-----------------------------------------------------------
(Dollars in thousands, except per share data)
April 30, July 31, Oct. 31, Jan. 31,
1996 1996 1996 1997
--------- --------- --------- ---------
Net sales............................................ $ 33,635 $ 35,898 $ 44,884 $ 41,997
Gross profit......................................... 12,235 13,368 16,809 14,675
Net income........................................... 2,927 2,849 4,632 2,852
Net income per share - assuming dilution............. $ 0.17 $ 0.16 $ 0.26 $ 0.16
As a Percentage of Fiscal Year:
Net sales............................................ 21% 23% 29% 27%
Net income........................................... 22% 21% 35% 22%
Fiscal 1998 Quarter Ended
-----------------------------------------------------------
(Dollars in thousands, except per share data)
April 30, July 31, Oct. 31, Jan. 31,
1997 1997 1997 1998
--------- --------- --------- ---------
Net sales............................................ $ 37,197 $ 41,316 $ 48,373 $ 46,235
Gross profit......................................... 12,674 14,091 17,575 16,222
Net income........................................... 2,423 2,855 4,783 3,819
Net income per share - assuming dilution............. $ 0.14 $ 0.16 $ 0.27 $ 0.21
As a Percentage of Fiscal Year:
Net sales............................................ 21% 24% 28% 27%
Net income........................................... 17% 21% 34% 28%
22
Fiscal 1999 Quarter Ended
-----------------------------------------------------------
(Dollars in thousands, except per share data)
April 30, July 31, Oct. 31, Jan. 31,
1998 1998 1998 1999
--------- --------- --------- ---------
Net sales............................................ $ 39,384 $ 48,068 $ 60,462 $ 61,055
Gross profit......................................... 13,974 17,758 23,520 24,092
Net income........................................... 2,100 3,440 5,035 5,185
Net income per share - assuming dilution............. $ 0.12 $ 0.19 $ 0.28 $ 0.29
As a Percentage of Fiscal Year:
Net sales............................................ 19% 23% 29% 29%
Net income........................................... 13% 22% 32% 33%
ItemITEM 8. Financial Statements and Supplementary DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference tofrom
Pages F-1 through F-20.F-22.
20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 2, 1999, the Company replaced PricewaterhouseCoopers LLP as its
principal accountant. For neither of the past two years has the former principal
accountant's reports on the Company's financial statements contained an adverse
opinion or a disclaimer of opinion, nor has its opinion been qualified or
modified as to uncertainty, audit scope or accounting principles. The Company's
decision to replace its principal accountant was recommended by the Audit
Committee of the Board of Directors of the Company and approved by the Board of
Directors. During the Company's two most recent fiscal years prior to December
2, 1999 (Fiscal 1999 and Fiscal 1998) and through December 2, 1999, there were
no disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of the
former accountant, would have caused it to make reference to the subject matter
of the disagreement in connection with its report on the financial statements.
During the Company's two most recent fiscal years prior to December 2, 1999
and through December 2, 1999, there were no reportable events (as defined in
Regulation S-K Item 9. Changes304(a)(1)(v)).
On December 2, 1999, the Company engaged Arthur Andersen LLP as its new
principal accountant. The new principal accountant was not consulted during the
Company's two most recent fiscal years prior to December 2, 1999 and through
December 2, 1999 prior to its engagement regarding the application of accounting
principles.
PricewaterhouseCoopers LLP has furnished a letter to the Securities and
Exchange Commission (the "SEC") stating that it agrees with the statements set
forth in the Company's previously filed Form 8-K except that
PricewaterhouseCoopers has no basis to address whether the new principal
accountant had been consulted during the two most recent fiscal years prior to
December 2, 1999 and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
23through December 2, 1999 prior to their engagement
regarding the application of accounting principles.
21
PART III
Item 10. Directors and Executive Officers of the Registrant
The Company's bylaws provide for the Board of Directors to be comprised of
as many directors as are designated from time to time by the Board of Directors,
which designation is presently five.six. Each director shall be elected for the term
of one year and shall serve until his successor is elected and qualified. The
officers of the corporation are elected or appointed by the Board of Directors
and each shall serve at the pleasure of the Board.
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Richard A. Hayne 5253 Chairman of the Board of Directors and
President
Stephen A. Feldman 5152 Chief Financial Officer
and Treasurer
Glen A. Bodzy 4647 General Counsel and Secretary
Kenneth R. Bull 37 Treasurer
Michael A. Schultz 4546 President, Urban Outfitters
Wholesale, Inc.
Glen T. Senk 4243 President, Anthropologie, Inc.
Scott A. Belair(1)(2) 51Belair (1) 52 Director
Harry S. Cherken, Jr. 4950 Director
Kenneth K. Cleeland 5859 Director
Joel S. Lawson III(1)(2) 51III (1) 52 Director
Burton M. Sapiro 7273 Director
- ----------------------------------
(1) Member of the Audit Committee.
(2) Member ofCommittee and the Compensation Committee.
2422
Mr. Hayne co-founded the Company in 1970 and has been its President and
Chairman of the Board of Directors since the Company's incorporation in 1976.
Mr. Feldman became Chief Financial Officer of the Company in June 1998.
PriorPreviously, for the period from January 1995 to that time,June 1998, Mr. Feldman served as
Executive Vice President and Chief Financial Officer of One Price Clothing
Stores, a regionalnational chain of off-price retail women's and children's specialty
stores, from January 1995 to June 1998 and Senior Vice
President - Chief Financial Officer of Bradlees, Inc. a northeastern regional
discount department store chain from October 1992 to December 1994. In June
1995, Bradlees, Inc. filed a plan of reorganization under Chapter 11 of the
Bankruptcy Code and emerged from bankruptcy in February 1999.stores.
Mr. Bodzy joined the Company as its General Counsel in December 1997 and
was appointed Secretary in February 1999. Previously since 1985, Mr. Bodzy was
Vice President, General Counsel and Secretary of Service Merchandise Company,
Inc. andwhere he was responsible for legal affairs, the store development program
and various other corporate areas.
Mr. Bull joined the Company in April 1999 and was appointed Treasurer in
May 1999. Previously, for the period from January 1995 to April 1999, Mr. Bull
held the positions of Vice President, Finance and Controller for Asian American
Partners d/b/a Eagle's Eye, a wholesaler and retailer of women's and children's
better apparel.
Mr. Schultz has served as President of Urban Outfitters Wholesale, Inc.
since 1986.
Mr. Senk has served as President of Anthropologie, Inc. since joining the
company in April 1994. Prior to joining Anthropologie, Mr. Senk was Senior Vice
President and General Merchandise Manager of Williams-Sonoma, Inc. and Chief
Executive of the Habitat International Merchandise and Marketing Group in
London, England.
Mr. Belair co-founded the Company in 1970, has been a director since its
incorporation in 1976 and has served as Principal of the ZAC Group, a provider
of financial services, during the last seventen years. Previously, he was a managing
director of Drexel Burnham Lambert Incorporated. Mr. Belair is a director and
President of Balfour MacLaine Corporation.Corporation and a director and Chief Financial
Officer of W.P. Stewart and Company, Inc.
Mr. Cherken, a director since 1989, has been a partner in the law firm of
Drinker Biddle & Reath LLP in Philadelphia, Pennsylvania since 1984 and has
served
as a Managing Partner of that firm from February 1996 to January 2000.
Mr. Cleeland has been a director since February 1996.1998. He served as Chief Financial
Officer and Treasurer of the Company from 1987 until May 1998. Previously, he
was the Chief Financial Officer of MBI Business Center, Inc. and President of
MBIF Leasing. He was also the Chief Financial Officer and Vice President of J.G.
Hook, Inc. Mr. Cleeland has been the Principal of Wye Associates, a business
consulting firm, since May 1998.
Mr. Lawson, a director since 1985, has, since 1980, been the Managing
Partner and Chief Executive Officer of Howard, Lawson, & Co., an investment
banking and corporate finance firm located in Philadelphia, Pennsylvania. He is
also a director of Crusader Holding Corporation.
23
Mr. Sapiro, a director since 1989, has been a retail marketing consultant
since his retirement in 1985. Previously, he was Senior Vice President/General
Merchandise Manager and a member of the Executive Committee of both Macy's New
York and Gimbels Philadelphia/Gimbels East. He was also a director of Macy's New
York.
25
Item 11. Executive Compensation
Information required by this item is incorporated herein by reference from
the Company's Proxy Statement for the 19992000 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item is incorporated herein by reference from
the Company's Proxy Statement for the 19992000 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
Information required by this item is incorporated herein by reference from
the Company's Proxy Statement for the 19992000 Annual Meeting of Shareholders.
2624
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
--------------------
Financial Statements filed herewith are listed in the
accompanying index on page F-1.
(2) Financial Statement Schedules Page
----------------------------- ----
Schedule II-ValuationII -Valuation and Qualifying Accounts S-1
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the consolidated financial
statements or notes thereto.
(3) Exhibits
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Articles of
Incorporation are incorporated by
reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1
(File No. 33-69378) filed on
September 24, 1993.
3.2 Amended and Restated bylaws are
incorporated by reference to Exhibit 3.2
of the Company's Registration Statement
on Form S-1 (File No. 33-69378)
filed on September 24, 1993.
10.1 1987 Incentive Stock Option Plan is
incorporated by reference to Exhibit 10.1 of
the Company's Registration Statement on
Form S-1 (File No. 33-69378) filed on
September 24, 1993.
27
10.2 1992 Non-Qualified Stock Option Plan
is incorporated by reference to Exhibit 10.2
of the Company's Registration Statement
on Form S-1 (File No. 33-69378)
filed on September 24, 1993.
25
10.3 Consulting Agreement, dated September 22, 1995
and effective October 1, 1995, between the
Company and Burton M. Sapiro, incorporated by
reference to Exhibit 10.3 of the Company's
Annual Report on Form 10-K for the Fiscal
year ended January 31, 1996.
10.4 Urban Outfitters, Inc. Profit-Sharing
Fund is incorporated by reference to Exhibit 10.4 of
the Company's Registration Statement on Form S-1
(File No. 33-69378) filed on November 3, 1993.
10.5 1993 Non-Employee Directors' Non-Qualified
Stock Option Plan (as amended and restated)
incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the
Fiscal year ended January 31, 1995.
10.6 1997 Stock Option Plan is incorporated by reference
to Exhibit 10.6 of the Company's Annual Report on
Form 10-K for the Fiscal year ended January 31,
1997.
10.7 Urban Outfitters 401(k) Savings Plan is incorporated
by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-8 filed on August
3, 1999.
16.1 Letter from PricewaterhouseCoopers LLP, dated
December 8, 1999 re: change in certifying accountant
is incorporated by reference to Exhibit 16.1 of the
Company's Report on Form 8-K dated December 2, 1999.
21.1 List of Subsidiaries.
22.0 Income Per Share Calculation
23.1 Consent of Independent AccountantsArthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
(b) Reports on Form 8-K: No reports onA change in Registrant's certifying accountant
was reported pursuant to Item 4 of the Company's Form 8-K have
beendated
December 2, 1999 and filed during the period covered by this report.
28on December 9, 1999.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
URBAN OUTFITTERS, INC.
By: /s/ Richard A. Hayne
--------------------
Richard A. Hayne
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----SIGNATURE TITLE DATE
- --------------------------------------- ------------------------ --------------
/s/ Richard A. Hayne Chairman of the April 19, 199912, 2000
- -------------------------------------- Board, President and
Richard A. Hayne Director
(Principal Executive Officer)
/s/ Stephen A. Feldman Chief Financial Officer April 19, 199912, 2000
- -------------------------------------- andOfficer
Stephen A. Feldman
Treasurer
(Principal Financial andOfficer)
/s/ Kenneth R. Bull Treasurer April 12, 2000
- --------------------------------------
Kenneth R. Bull
(Principal Accounting Officer)
/s/ Scott A. Belair Director April 19, 199912, 2000
- --------------------------------------
Scott A. Belair
/s/ Harry S. Cherken, Jr. Director April 19, 199912, 2000
- --------------------------------------
Harry S. Cherken, Jr.
/s/ Kenneth K. Cleeland Director April 19, 199912, 2000
- --------------------------------------
Kenneth K. Cleeland
/s/ Joel S. Lawson III Director April 19, 199912, 2000
- --------------------------------------
Joel S. Lawson III
/s/ Burton M. Sapiro Director April 19, 199912, 2000
- --------------------------------------
Burton M. Sapiro
2927
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
URBAN OUTFITTERS, INC.
Page
- ----
ReportReports of Independent Accountants..........................................F-2Accountants......................................F-2, F-3
Consolidated Balance Sheets at January 31, 19992000
and January 31, 1998.......................................................F-31999.........................................................F-4
Consolidated Statements of Income for the fiscal
years ended January 31, 2000, 1999 1998 and 1997................................F-41998..................................F-5
Consolidated Statements of Shareholders' Equity for the fiscal
years ended January 31, 2000, 1999 1998 and 1997................................F-51998..................................F-6
Consolidated Statements of Cash Flows for the fiscal
years ended January 31, 2000, 1999 1998 and 1997................................F-61998..................................F-7
Notes to Consolidated Financial Statements.................................F-7Statements...................................F-8
F-1
Report of Independent AccountantsREPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the
Board of Directors and Shareholders of Urban Outfitters, Inc.:
We have audited the accompanying consolidated balance sheet of Urban Outfitters,
Inc. (a Pennsylvania corporation) and subsidiaries as of January 31, 2000, and
the related consolidated statements of income, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Urban Outfitters, Inc. and
subsidiaries as of January 31, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed under Item 14(a)(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, PA
March 15, 2000
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the
Board of Directors of Urban Outfitters, Inc.:
In our opinion, the consolidated financialbalance sheet as of January 31, 1999 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the two years in the period ended January 31, 1999 listed under Item
14(a)(1) present fairly, in all material respects, the financial position,
results of operations and cash flows of Urban Outfitters, Inc. and its subsidiaries at January 31,
1999 and 1998, and the
results of their operations and their cash flows for each of the threetwo years in the period ended January 31, 1999, in
conformity with accounting principles generally accepted accounting principles.in the United States.
In addition, in our opinion the financial statement schedulesschedule listed under Item
14(a)(2) presentpresents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedulesschedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedulesschedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted auditing standardsin the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. We have not audited the consolidated financial
statements of Urban Outfitters, Inc. for any period subsequent to January 31,
1999.
PricewaterhouseCoopers LLP
Philadelphia, PennsylvaniaPA
March 12, 1999
F-2
URBAN OUTFITTERS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
January 31,
------------------------------
1999 1998
--------- ---------
Assets
Current assets:
Cash and cash equivalents.......................................................... $ 25,165 $ 26,712
Marketable securities.............................................................. 13,032 10,865
Accounts receivable, net of allowance for doubtful accounts of $603 and $616
at January 31, 1999 and 1998, respectively ..................................... 4,824 4,497
Inventory.......................................................................... 21,881 17,128
Prepaid expenses and other current assets.......................................... 4,729 4,662
Deferred taxes..................................................................... 1,924 1,929
--------- ---------
Total current assets.................................................................. 71,555 65,793
Property and equipment, less accumulated depreciation and amortization................ 43,066 26,893
Marketable securities................................................................. 12,218 11,993
Other assets.......................................................................... 6,524 2,745
--------- ---------
$133,363 $107,424
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable............................................................. $ 14,763 $ 10,386
Income taxes payable............................................................... 1,300 366
Current portion of capital lease obligations....................................... 88 -
Accrued compensation............................................................... 2,011 1,024
Accrued expenses and other current liabilities..................................... 5,866 1,884
--------- ---------
Total current liabilities............................................................. 24,028 13,660
Capital lease obligations, net of current portion..................................... 185 -
Accrued rent and other liabilities.................................................... 3,856 3,106
--------- ---------
Total liabilities..................................................................... 28,069 16,766
--------- ---------
Commitments and contingencies
Shareholders' equity:.................................................................
Preferred shares; $.0001 par, 10,000,000 authorized, none issued - -
Common shares; $.0001 par, 50,000,000 shares authorized, 17,639,754,
and 17,649,360 issued at January 31, 1999 and 1998, respectively................ 2 2
Additional paid-in capital......................................................... 20,825 21,482
Retained earnings.................................................................. 84,934 69,174
Accumulated other comprehensive income (loss)...................................... (467) --
--------- ---------
Total shareholders' equity............................................................ 105,294 90,658
--------- ---------
$ 133,363 $ 107,424
========= =========
See accompanying notes
F-3
URBAN OUTFITTERS, INC.
Consolidated Statements of IncomeCONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Fiscal Year Ended JanuaryJANUARY 31,
2000 1999
--------- ----------
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 12,727 $ 25,165
Marketable securities ....................................................... 11,225 13,032
Accounts receivable, net of allowance for doubtful accounts of $518 and $603,
respectively ............................................................. 4,825 4,824
Inventories ................................................................. 26,868 21,881
Prepaid expenses and other current assets ................................... 7,486 4,729
Deferred taxes .............................................................. 2,947 1,924
--------- ---------
Total current assets ........................................................... 66,078 71,555
Property and equipment, net .................................................... 72,819 43,066
Marketable securities .......................................................... 8,646 12,218
Other assets ................................................................... 5,958 6,524
--------- ---------
$ 153,501 $ 133,363
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 16,760 $ 14,763
Income taxes payable ........................................................ 759 1,300
Accrued compensation ........................................................ 2,414 2,011
Accrued expenses and other current liabilities .............................. 8,139 6,139
--------- ---------
Total current liabilities ...................................................... 28,072 24,213
Deferred rent ............................................................... 4,513 3,856
--------- ---------
Total liabilities .............................................................. 32,585 28,069
--------- ---------
Commitments and contingencies (see note 12)
Shareholders' equity:
Preferred shares; $.0001 par value, 10,000,000 authorized, none issued ...... -- --
Common shares; $.0001 par value, 50,000,000 shares authorized, 17,358,186
and 17,639,754 issued and outstanding, respectively ...................... 2 2
Additional paid-in capital .................................................. 17,680 20,825
Retained earnings ........................................................... 103,614 84,934
Accumulated other comprehensive loss ........................................ (380) (467)
--------- ---------
Total shareholders' equity ..................................................... 120,916 105,294
--------- ---------
$ 153,501 $ 133,363
========= =========
The accompanying notes are an integral part of these statements.
F-4
URBAN OUTFITTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------
2000 1999 1998
1997
----------- ----------- ----------------------- ------------ ------------
Net sales...................................................sales .................................. $ 276,106 $ 208,969 $ 173,121
$ 156,414
Cost of sales, including certain buying,
distributionSales, Including Certain Buying,
Distribution and occupancy costs.......................... 129,625 112,559 99,327
----------- ----------- -----------Occupancy Costs ......... 171,656 130,351 113,031
------------ ------------ ------------
Gross profit...................................... 79,344 60,562 57,087Profit ..................... 104,450 78,618 60,090
Selling, generalGeneral and administrative expenses................ 54,227 38,500 35,731
----------- ----------- -----------Administrative Expenses 66,885 53,501 38,028
------------ ------------ ------------
Income from operations............................From Operations ........... 37,565 25,117 22,062
21,356
Interest income.............................................Income ............................ 1,791 2,126 1,772
1,506
Other expenses, net.........................................Expenses, Net ........................ (4,507) (531) (209)
(193)
----------- ----------- ----------------------- ------------ ------------
Income before income taxes........................Before Income Taxes ....... 34,849 26,712 23,625
22,669
Income tax expense..........................................Tax Expense ......................... 16,169 10,952 9,745
9,409
----------- ----------- ----------------------- ------------ ------------
Net income........................................Income ....................... $ 18,680 $ 15,760 $ 13,880
============ ============ ============
Net Income Per Common Share:
Basic ............................... $ 13,260
=========== =========== ===========
Net income per common share:
Basic................................................1.07 $ 0.89 $ 0.79
============ ============ ============
Diluted ............................. $ 0.76
=========== =========== ===========
Diluted..............................................1.05 $ 0.88 $ 0.78
$ 0.75
=========== =========== ======================= ============ ============
Weighted average common shares outstanding:
Basic................................................Average Common Shares Outstanding:
Basic ............................... 17,531,971 17,702,922 17,576,203
17,429,375
=========== =========== ===========
Diluted..............................................============ ============ ============
Diluted ............................. 17,844,356 17,929,109 17,843,873
17,722,629
=========== =========== ======================= ============ ============
See accompanying notes
F-4THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-5
URBAN OUTFITTERS, INC.
Consolidated Statements of Shareholders' Equity
(InCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Common SharesCOMMON SHARES
-------------------------------------------------------
Comprehensive
Income Number of Par Additional Retained
(Loss) Shares Value Paid-in Capital Earnings
-------------COMPREHENSIVE
INCOME NUMBER OF PAR ADDITIONAL RETAINED
(LOSS) SHARES VALUE PAID-IN CAPITAL EARNINGS
------------ ---------- ----- --------------- --------------------
Balances at January 31, 1996............. 17,080,3721997 ............. 17,528,698 $ 12 $20,396 $ 17,417 $ 42,034
Net income................................ $ 13,260 -- -- -- 13,260
Foreign currency translation.............. -- -- -- -- --
-------------
Comprehensive income...................... 13,260
=============
Exercise of stock options................. 448,326 -- 806 --
Tax effect of exercises................... -- -- 2,173 --
Effect of stock split..................... -- 1 -- --
---------- ----- ------------ ------------
Balances at January 31, 1997.............. 17,528,698 2 20,396 55,294
Net income................................income ............................... $ 13,880 -- -- -- 13,880
Foreign currency translation..............translation ............. -- -- -- -- --
-------------------------
Comprehensive income......................income ..................... $ 13,880
=========================
Exercise of stock options.................options ................ 120,662 -- 558 --
Tax effect of exercises...................exercises .................. -- -- -- 528 --
---------- ----- ------------ ------------------- --------
Balances at January 31, 1998..............1998 ............. 17,649,360 2 21,482 69,174
Net income................................income ............................... $ 15,760 -- -- -- 15,760
Foreign currency translation..............translation ............. (467) -- -- -- --
-------------------------
Comprehensive income......................income ..................... $ 15,293
=========================
Exercise of stock options.................options ................ 157,594 -- 688 --
Tax effect of exercises...................exercises .................. -- -- -- 909 --
Purchase and retirement of common shares..shares . (167,200) -- (2,254) --
---------- ----- ------------ ------------------- --------
Balances at January 31, 1999.............1999 ............. 17,639,754 2 20,825 84,934
Net income ............................... $ 18,680 -- -- -- 18,680
Foreign currency translation ............. 87 -- -- -- --
------------
Comprehensive income ..................... $ 18,767
============
Exercise of stock options ................ 366,032 -- 3,947 --
Tax effect of exercises .................. -- -- 1,623 --
Purchase and retirement of common shares . (647,600) -- (8,715) --
---------- ----- ------- --------
Balances at January 31, 2000 ............. 17,358,186 $ 2 $ 20,825 $ 84,934$17,680 $103,614
========== ===== ============ =================== ========
Accumulated
Other
Comprehensive
Income
(Loss) TotalACCUMULATED
OTHER
COMPREHENSIVE
INCOME
(LOSS) TOTAL
------------- --------------------
Balances at January 31, 1996.............1997 ............. $ -- $ 59,452
Net income................................ -- 13,260
Foreign currency translation.............. -- --
Comprehensive income......................
Exercise of stock options................. -- 806
Tax effect of exercises................... -- 2,173
Effect of stock split..................... -- 1
----------- -----------
Balances at January 31, 1997.............. -- 75,692
Net income................................income ............................... -- 13,880
Foreign currency translation..............translation ............. -- --
Comprehensive income......................income .....................
Exercise of stock options.................options ................ -- 558
Tax effect of exercises................... --exercises .................. 528
----------- ----------------- ---------
Balances at January 31, 1998..............1998 ............. -- 90,658
Net income................................income ............................... -- $ 15,760
Foreign currency translation..............translation ............. (467) (467)
Comprehensive income......................income .....................
Exercise of stock options.................options ................ -- 688
Tax effect of exercises...................exercises .................. -- 909
Purchase and retirement of common shares..shares . -- (2,254)
----------- ----------------- ---------
Balances at January 31, 1999.............1999 ............. (467) 105,294
Net income ............................... -- 18,680
Foreign currency translation ............. 87 87
Comprehensive income .....................
Exercise of stock options ................ -- 3,947
Tax effect of exercises .................. -- 1,623
Purchase and retirement of common shares . -- (8,715)
------ ---------
Balances at January 31, 2000 ............. $ (467)(380) $ 105,294
=========== ===========120,916
====== =========
SeeThe accompanying notes F-5are an integral part of these statements.
F-6
URBAN OUTFITTERS, INC.
Consolidated Statements of Cash FlowsCONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Year Ended JanuaryFISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
2000 1999 1998
1997
---------- --------- ----------------- -------- --------
Cash flows from operating activities:
Net income............................................................income .......................................................... $ 18,680 $ 15,760 $ 13,880 $ 13,260
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization......................................amortization .................................... 8,667 5,621 4,588
3,461Provision for losses of MXG Media, Inc. .......................... 4,354 -- --
Provision for deferred income taxes................................taxes .............................. (3,702) (561) (794)
(705)
Provision for losses (recovery)Recovery of accounts receivable.............bad debts ............................................ (85) (13) (27) 112
Changes in assets and liabilities:
Decrease (increase) in receivables ............................ 84 (314) (1,643)
Increase in receivables......................................... (314) (1,643) (1,366)
Increase in inventory...........................................inventory ......................................... (4,987) (4,753) (163)
(6,488)
Decrease (increase)(Increase) decrease in prepaid expenses and other assets........assets ...... (3,266) 474 249 (1,549)
Increase in payables, accrued expenses and other liabilities....liabilities .. 4,516 11,030 2,783
2,318
---------- --------- ----------------- -------- --------
Net cash provided by operating activities.............................activities ........................... 24,261 27,244 18,873
9,043
---------- --------- ----------------- -------- --------
Cash flows from investing activities:
Capital expenditures..................................................expenditures ............................................. (38,149) (21,521) (6,272) (11,980)
Purchases of marketable securities held-to-maturity................... (11,068) (9,333) (20,522)available-for-sale ............ (6,872) (3,110) (8,075)
Sales of marketable securities available-for-sale ................ 5,411 1,900 6,100
Purchases of marketable securities available-for-sale................. (3,110) (8,075) (2,425)
Sales of marketable securities available-for-sale..................... 1,900 6,100 5,035held-to-maturity .............. (5,287) (11,068) (9,333)
Maturities of marketable securities held-to-maturity..................held-to-maturity ............. 11,856 9,886 9,752
12,356
Purchase of investment................................................Advances to MXG Media, Inc. ...................................... (8,150) (3,754) --
Repayment of advances by MXG Media, Inc. ......................... 7,550 -- ---------- --------- -----------
-------- -------- --------
Net cash used in investing activities.................................activities ............................... (33,641) (27,667) (7,828)
(17,536)
---------- --------- ----------------- -------- --------
Cash flows from financing activities:
Exercise of stock options.............................................options ......................................... 5,570 1,597 1,086 2,979
Purchases and retirement of common stock..............................stock .......................... (8,715) (2,254) --
--
---------- --------- ----------------- -------- --------
Net cash (used in) provided by financing activities...................activities ................. (3,145) (657) 1,086
2,979
---------- --------- ----------------- -------- --------
Effect of exchange rate changes on cash and cash equivalents.............equivalents ........... 87 (467) --
--
---------- --------- ---------
Increase (decrease)-------- -------- --------
(Decrease) increase in cash and cash equivalents.........................equivalents ....................... (12,438) (1,547) 12,131 (5,514)
Cash and cash equivalents at beginning of period.........................period ....................... 25,165 26,712 14,581
20,095
---------- --------- ----------------- -------- --------
Cash and cash equivalents at end of period...............................period ............................. $ 12,727 $ 25,165 $ 26,712
======== ======== ========
Supplemental cash flow information: Cash paid during the year for:
Interest ......................................................... $ 14,581
========== ========= =========7 $ 6 $ 29
======== ======== ========
Income taxes ..................................................... $ 18,423 $ 8,843 $ 9,668
======== ======== ========
SeeThe accompanying notes F-6are an integral part of these statements.
F-7
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. NATURE OF BUSINESS
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements
(dollars, which was founded in thousands, except per share data)
1. Significant Accounting Policies
Principles1970 and originally operated
by a predecessor partnership, was incorporated in the state of Consolidation
The consolidated financial statements include the accounts of Urban
Outfitters, Inc. and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminatedPennsylvania in
consolidation.1976. The principal business activity of the Company is the operation of a
general consumer product retail business through retail stores, a catalog and
a website.two web sites. As of January 31, 2000 and 1999, the Company operated 57 and 46
stores, respectively. In addition, the Company engages in the wholesale
distribution of apparel to over 1,300 better specialty storesretailers worldwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year-End
The Company operates on a fiscal year ending January 31 of each year.
Principles of Consolidation
The consolidated financial statements include the accounts of Urban
Outfitters, Inc. and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net sales and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and highly liquid investments
with original maturities of less than three months. They are carried at
amortized cost, which approximates fair value because of the short maturity of
these instruments.At January 31, 2000 and
1999, cash and cash equivalents include cash on hand, cash in banks, money
market accounts and commercial paper.
Marketable Securities
The Company's debt and equity securities are classified as either held-to-maturity or
available-for-sale. Held-to-maturity securities represent those securities that
the Company has both the positive intent and ability to hold to maturity and are carried
at amortized cost. Interest on these securities as
F-8
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
well as amortization is included in interest income. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity, are not actively traded and are carried at amortized cost
which approximates fair value. Unrealized gains and losses on these securities
are excluded from earnings and should beare reported as a separate component of
shareholders' equity, net of applicable taxes, until realized. Gross unrealized
gains and losses, net of the related deferred taxes, have not been material.
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.
These amounts have not been material.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
investments. The Company manages the credit risk associated with cash
equivalents and investments by investing with high-quality institutions and, by
policy, limiting the amount of credit exposure to any one institution.
Inventories
Inventories, which consist primarily of general consumer merchandise held
for sale, are valued at the lower of cost or market. The cost is determined on
the first-in, first-out method.
F-7
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
Depreciationmethod and Amortizationincludes the cost of merchandise and freight.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over five years for furniture and
fixtures, "life of lease" for leasehold improvements and three to ten years for
other operating equipment.
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 current
market value, 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, 2000.
Deferred Rent
Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over the actual cash paid is recorded as
deferred rent.
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 response sales, net
of estimated customer returns. 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, have not
been material. Gift certificate sales to customers are initially recorded as
liabilities and recognized as sales upon redemption for merchandise.
F-9
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Advertising
The Company expenses the costs of advertising when the advertising occurs,
except for direct response advertising, which is capitalized and amortized over
its expected period of future benefit. Advertising costs reported as prepaid
expenses were $1,642 and $732 as of January 31, 2000 and 1999, respectively.
Advertising expenses were $6,309 and $4,486 for the fiscal years ended January
31, 2000 and 1999. Advertising expenses incurred for the fiscal year ended
January 31, 1998 were immaterial.
Start-up Costs
The Company has adopted Financial Accounting Standards Board Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," which was
effective for Fiscal 2000. The Company expenses as incurred all start-up and
organization costs, including travel, training, recruiting, salaries and other
operating costs. Previously, for Fiscal 1999 and 1998, the Company deferred
pre-operating costs until the store opened. The amounts deferred were then
amortized over the lesser of six months or the remainder of the Company's fiscal
year. This accounting change did not have a material effect on the Company's
results or the presentation of comparable financial statements.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Net Income Per Share
Basic earnings per share are based uponis computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding.
Diluted earnings per share areis computed based upon the weighted average number of
common shares outstanding and the potential dilution that could occur if stock
options were exercised.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of net sales and expenses during the reporting period.
Differences from those estimates, if any, are recorded in the period they become
known.
Accounting for Stock-Based Compensation
In October 1995,The Company accounts for stock-based compensation under the Financialprovisions of
Accounting StandardsPrinciples Board issuedOpinion (APB) No. 25, "Accounting for Stock Issued
to Employees." The Company has adopted the disclosure requirements of Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123")(see Note 10).
SFAS No. 123 defines a fair value-based methodF-10
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accumulated Other Comprehensive Income (Loss)
Comprehensive income is comprised of accounting for employee stock options ortwo subsets - net income and other
similar equity instruments.
Companies must either adopt the new method or disclose the pro formacomprehensive income statement effects(loss). All amounts in their financial statements.accumulated other comprehensive
income (loss) relate to foreign currency translation adjustments. The Company has chosen to
disclose the pro forma income statement effects of SFAS No. 123 only.
F-8
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
Advertising
The Company expenses the costs of advertising when the advertising occurs,
except for direct response advertising, which is capitalized and amortized over
its expected period of future benefit. Advertising costs reported as prepaid
expensesforeign
currency translation adjustments are not material. Advertising expense was $4,486adjusted for the fiscal year
ended January 31, 1999. Advertising expenses incurred for the fiscal years ended
January 31, 1998 and January 31, 1997 were immaterial.income taxes since these
adjustments related to indefinite investments in non-U.S. subsidiaries.
Foreign Currency Translation
The financial statements of the Company's foreign operations are translated
into U.S. dollars. Assets and liabilities are translated at current exchange
rates while income and expense accounts are translated at the average rates in
effect during the year. Translation adjustments are not included in determining
net income, but are included in accumulated other comprehensive income (loss)
within shareholders' equity.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities. The
carrying value of these assets and liabilities are considered to be
representative of their respective fair values (see also "Marketable Securities"
section above).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, accounts
receivable and investments. The Company manages the credit risk associated with
cash equivalents and investments by investing with high-quality institutions
and, by policy, limiting the amount of credit exposure to any one institution.
Receivables with third party credit cards are processed by financial
institutions which are monitored for financial stability. The Company
periodically evaluates the financial condition of its wholesale segment
customers. The Company's allowance for doubtful accounts reflects current market
conditions and management's assessment regarding the collectability of its
receivables.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
F-11
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133") which is required to be adopted in
fiscal years beginning after June 15, 1999. The Company plans to adopt SFAS No.
133 effective February 1, 2000.Fiscal 2002. The Company currently enters into short-term foreign currency
forward exchange contracts to manage exposures related to its Canadian dollar
denominated investments and anticipated cash flow. The amounts of these
contracts and related gains and losses have not been material. The adoption of
SFAS No. 133 is not expected to have a significant effect on the financial
position or results of operations of the Company.
Reclassifications
Certain reclassifications of prior years' data have been made to conform to
the Fiscal 1999 presentation.
F-9
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
2. Marketable Securities3. MARKETABLE SECURITIES
The amortized cost and estimated fair value of the marketable securities
are as follows:
JanuaryJANUARY 31, 2000 JANUARY 31, 1999
January 31, 1998
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- ----------------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
Current portion
Held-to-maturityCURRENT PORTION
HELD-TO-MATURITY
Tax-exempt municipal securities ........ $ 5,938 $ 5,938 $ 9,206 $ 9,273
$ 7,272 $ 7,294
U.S. government securities -- -- 1,318 1,318
-------- -------- -------- --------
Total current held-to-maturity 9,206 9,273 8,590 8,612
Available-for-saleAVAILABLE-FOR-SALE
Tax-exempt municipal securities, putable 5,287 5,312 3,826 3,844
2,275 2,275
-------- -------- -------- --------------- ------- ------- -------
Total current marketable securities ...... 11,225 11,250 13,032 13,117
10,865 10,887
-------- -------- -------- --------
Noncurrent portion
Held-to-maturity------- ------- ------- -------
NONCURRENT PORTION
HELD-TO-MATURITY
Tax-exempt municipal securities ........ 8,646 8,545 12,218 12,367
11,993 12,111
U.S. government securities -- -- -- --
-------- -------- -------- --------
Total noncurrent held-to-maturity 12,218 12,367 11,993 12,111
-------- -------- -------- --------
Total marketable securities $ 25,250 $ 25,484 $ 22,858 $ 22,998
======== ======== ======== ========------- ------- ------- -------
TOTAL MARKETABLE SECURITIES ................. $19,871 $19,795 $25,250 $25,484
======= ======= ======= =======
The noncurrent portion of investments held-to-maturity has contractual
maturities of one to four years. The investments available-for-sale have
a
contractual maturity ofmaturities greater than five years.one year. Actual maturities may differ from
contractual maturities as a result of put and call options that enable either
the Company and/or the issuer to redeem particular securities at an earlier
date. The fair value of the securities is determined based upon market prices.
F-10F-12
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
3. InventoryURBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventory is summarized as follows:
JanuaryJANUARY 31,
---------------------------------------------------------
2000 1999
1998
----------------- --------
Work-in-progress................................Work-in-process................................. $ 191 $ 711
$ 861
Finished goods.................................. 26,677 21,170 16,267
--------- --------
Total..............................TOTAL.............................. $ 26,868 $ 21,881
$ 17,128
======== ========
4. Property and Equipment========= ========
5. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
January
JANUARY 31,
---------------------------------------------------------
2000 1999
1998
----------------- --------
Land............................................ $ 543 $ 543
Furniture and fixtures.......................... 24,884 17,901
13,739Construction in progress........................ 4,938 2,520
Leasehold improvements.......................... 45,045 28,26768,246 42,525
Other operating equipment....................... 4,899 2,888
2,034--------- --------
--------103,510 66,377 44,583
Accumulated depreciation
and amortization......................... (30,691) (23,311)
(17,690)--------- --------
--------
Total..............................TOTAL........................... $ 72,819 $ 43,066
$ 26,893
======== ========
5. Accrued Expenses========= ========
6. INVESTMENT IN MXG MEDIA, INC.
On February 5, 1998 the Company entered into an agreement with MXG Media,
Inc. ("MXG," formerly HMB Publishing, Inc.) for the purchase of securities
convertible into a minority interest in the company through Series B Convertible
Preferred Stock and certain convertible debentures. The agreement called for
additional investments and ownership if MXG met certain performance milestones.
MXG publishes the "MXG magalog" and operates the www.MXGonline.com and
www.MXGtv.com web sites, all of which cater to teenage girls.
As of January 31, 2000, the Company has invested approximately $2.0 million
in Series B Convertible Preferred Stock and $2.4 million in convertible
debentures. MXG has incurred losses since its inception and in accordance with
the equity method of accounting, during Fiscal 2000, the Company has recorded
reserves for its portion of operating losses related to the minority interest in
MXG. Included in other income (expense) for Fiscal 2000 is a net charge to
F-13
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
earnings of $4.4 million to fully reserve for the Company's investment.
Additionally, from March 1999 through October 1999, the Company advanced $7.6
million of bridge financing to MXG in the form of promissory notes.
Pursuant to an agreement dated October 31, 1999, MXG received an additional
equity investment of $26 million from USA Networks Interactive, a USA company
(USA Networks, Inc. - NASDAQ:USAI), reducing the Company's proportionate
ownership. On November 1, 1999, the full amount of the bridge financing of $7.6
million was repaid with interest at 8%.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
January
JANUARY 31,
-------------------------------------------------------
2000 1999
1998
-------- --------------- -------
Accrued sales taxes . . . . . . . . . . . . . . .taxes................................. $ 956819 $ 489956
Accruals for construction in progress. .progress............... 1,727 1,223
--Gift certificates................................... 1,853 1,191
Other current liabilities . . . . . . . . . . . . 3,687 1,395
-------- --------
Total..............................liabilities........................... 3,740 2,769
------- -------
TOTAL............................... $ 5,8668,139 $ 1,884
======== ========6,139
======= =======
The reported amounts approximate fair value because of the short
maturity of these obligations.
F-11
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
6. Line of Credit8. LINE OF CREDIT
The Company has available a $16,200 revolving line of credit to facilitate
letter of credit transactions and cash advances.advances, which renews annually. Interest
on outstanding balances is payable monthly based on an "as offered"a rate not to exceed the
London Interbank Offered Rate (LIBOR) plus 1/2%. No principal amounts were outstandingborrowed under this
line at January 31, 1999in Fiscal 2000 and 1998.Fiscal 1999. Outstanding letters of credit totaled
$4,096$6,607 and $4,706$4,096 as of January 31, 19992000 and 1998,1999, respectively. These letters
of credit, which have terms from one month to one year, collateralize the
Company's obligation to third parties for the purchase of inventory. The fair
value of these letters of credit is estimated to be the same as the contract
values.
7. Segment ReportingF-14
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES
The components of income before income taxes are as follows:
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------
2000 1999 1998
-------- -------- --------
Domestic.................................... $ 34,520 $ 25,617 $ 24,399
Foreign..................................... 329 1,095 (774)
-------- -------- --------
$ 34,849 $ 26,712 $ 23,625
======== ======== ========
The components of the provision for income taxes are as follows:
FISCAL YEAR ENDED JANUARY 31,
------------------------------------------------
2000 1999 1998
-------- -------- --------
Current:
Federal................................... $ 14,104 $ 9,069 $ 8,433
State..................................... 5,061 1,955 2,106
Foreign................................... 706 489 --
-------- -------- --------
19,871 11,513 10,539
-------- -------- ---------
Deferred:
Federal................................... (3,865) (494) (499)
State..................................... (1,406) (98) (32)
Foreign .................................. (249) 31 (263)
-------- -------- --------
(5,520) (561) (794)
-------- -------- --------
Valuation allowance......................... 1,818 -- --
-------- -------- --------
$ 16,169 $ 10,952 $ 9,745
======== ========= ========
The effective tax rate was different than the statutory U.S. federal income
tax rate for the following reasons:
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
2000 1999 1998
---- ---- ----
Expected provision
at federal statutory rate................................ 35% 35% 35%
State and local income taxes,
net of federal tax benefit............................... 7 6 6
Non-deductible expenses relating to
provision for investment in MXG Media, Inc.,
and other................................................ 4 -- --
--- --- ---
Effective rate.............................................. 46% 41% 41%
== == ===
F-15
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of deferred tax assets and liabilities at
January 31, 2000 and 1999 are as follows:
2000 1999
------- -------
Deferred tax liability:
Prepaid expenses............................................. $ (82) $ (303)
Deferred tax assets:
Depreciation and deferred rent............................... 4,860 2,640
Inventory.................................................... 2,998 1,687
Provision for investment in MXG Media, Inc................... 1,818 --
Accounts receivable.......................................... 216 461
Net operating loss carryforwards............................. 481 232
Accrued salaries and benefits, and other..................... 53 107
------- ------
Gross deferred tax assets, before valuation.................... 10,344 4,824
Valuation allowance............................................ (1,818) --
------- ------
Net deferred tax assets........................................ $ 8,526 $4,824
======= ======
At January 31, 2000, a non-U.S. subsidiary of the Company had net operating
loss carry forwards for tax purposes of approximately $1,400 that do not expire.
At January 31, 2000 and 1999, the noncurrent portion of deferred tax assets
aggregating $5,579 and $2,900, respectively, is included in other assets.
The cumulative amount of the Company's share of undistributed earnings of
non-U.S. subsidiaries for which no deferred taxes have been provided was $2,247
as of January 31, 2000. These earnings are deemed to be permanently reinvested
to finance growth programs.
In JuneFiscal 2000, the Company provided a full valuation allowance for
deferred tax assets relating to its provision for investment in MXG Media, Inc.
F-16
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLANS
The 1997 Stock Option Plan authorizes up to an aggregate of 1,250,000
common shares which can be granted as either incentive stock options or
nonqualified stock options. The vesting periods for this Plan can range from one
to ten years. This 1997 Plan replaced the Financialprevious 1987, 1992 and 1993 Plans
which were precluded from making additional grants due either to expiration or
insufficient available shares. Individual grants outstanding under certain of
the superseded plans, however, have expiration dates which extend into the year
2008. As of January 31, 2000, 340,500 shares of common stock were available for
grant under the 1997 Stock Option Plan.
The Company applies Accounting StandardsPrinciples Board issued Statement of
Financial Accounting Standardsopinion No. 131, "Disclosures about Segments of an
Enterprise25, "Accounting
for Stock Issued to Employees," and related Information" ("interpretations in accounting for
its plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed under SFAS
No. 131").123, "Accounting for Stock-Based Compensation," the Company's net income and
net income per common share would have been reduced in 2000, 1999 and 1998 as
follows:
FOR THE YEAR ENDED JANUARY 31,
------------------------------------------
2000 1999 1998
-------- -------- -------
Net income - as reported $18,680 $15,760 $13,880
Net income - pro forma $16,460 $14,412 $12,693
Net income per share - diluted - as reported $ 1.05 $ 0.88 $ 0.78
Net income per share - diluted - pro forma $ 0.92 $ 0.80 $ 0.72
The adoptionpro forma results may not be representative of SFAS No.
131 has no impactthe effects on reported
operations for future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
FISCAL 2000 FISCAL 1999 FISCAL 1998
------------ ----------- -----------
Expected life 6.7 years 7.0 years 6.7 years
Risk-free interest rate 5.7% 5.8% 6.9%
Volatility 53.8% 50.0% 50.7%
Dividend rate 0% 0% 0%
F-17
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information regarding these option plans for Fiscal 2000, 1999, and 1998 is
as follows:
FY 2000 FY 1999 FY 1998
--------------------------- --------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- ------ -------------- ------ -------------- ------ --------------
Options outstanding at
beginning of year 1,702,500 $ 12.63 1,305,094 $ 10.60 1,010,756 $ 9.50
Options granted 334,500 21.71 565,500 15.10 415,000 11.54
Options exercised (366,032) 10.78 (157,594) 4.37 (120,662) 4.62
Options canceled (176,168) 11.35 (10,500) 12.61 - n/a
----------- ---------- ----------
Options outstanding at
end of year 1,494,800 13.34 1,702,500 12.63 1,305,094 10.60
========== ========== ==========
Options exercisable at
end of year 442,233 614,999 603,426
========== ========== ==========
Weighted average fair
value of grants per
share $ 13.20 $ 8.49 $ 6.89
========== ========== ==========
The following table summarizes information concerning currently outstanding
and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
AMOUNT WTD. AVG. WTD. AVG. AMOUNT WTD. AVG.
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 1/31/00 CONTRACTUAL LIFE PRICE AT 1/31/00 PRICE
- --------------- ---------- ---------------- ----- ---------- -----
$ 8.27 - $11.03 297,800 6.5 $10.40 73,800 $9.73
$11.03 - $13.78 218,000 4.3 $11.67 206,000 $11.57
$13.78 - $16.54 658,500 8.2 $14.74 67,433 $15.40
$16.54 - $19.29 85,000 8.3 $17.17 55,000 $16.80
$19.29 - $22.05 40,000 6.3 $20.88 40,000 $20.88
$24.80 - $27.56 195,500 9.3 $26.92 - -
F-18
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME PER SHARE
The following is a reconciliation of the denominators of the net income per
share and net income per share -- assuming dilution ("EPS") computations:
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
Basic weighted average
shares outstanding.............. 17,531,971 17,702,922 17,576,203
Effect of dilutive options......... 312,385 226,187 267,670
---------- ---------- ----------
Diluted weighted average
shares outstanding.............. 17,844,356 17,929,109 17,843,873
========== ========== ==========
Options to purchase 50,000 shares at $27.56 per share, 40,000 shares at
$20.88 per share, 50,000 shares at $26.19 per share and 95,500 shares at $26.97
per share were outstanding during Fiscal 2000, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
Options to purchase 40,000 shares at $20.88 per share and 10,000 shares at
$17.69 per share were outstanding during Fiscal 1999, but were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
Options to purchase 40,000 shares at $20.88 per share, 10,000 shares at
$17.69 per share, 35,000 shares at $16.88 per share and 69,500 shares at $15.19
per share were outstanding during Fiscal 1998, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
F-19
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its stores under noncancelable operating leases. The
following is a schedule by year of the future minimum lease payments for
operating leases with terms in excess of one year:
FISCAL YEAR
- -----------
2001.................................................. 25,453
2002.................................................. 28,307
2003.................................................. 27,745
2004.................................................. 27,233
2005.................................................. 26,399
Thereafter............................................ 119,660
---------
Total minimum lease payments.......................... $ 254,797
=========
Subsequent to year end, the Company entered into leases for additional
locations. Commitments related to these leases are included above.
The store leases generally provide for payment of direct operating costs
including real estate taxes. Certain store leases provide for contingent rentals
when sales exceed specified levels.
Rent expense consisted of the following:
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
2000 1999 1998
---- ---- ----
Minimum rentals................ $18,591 $14,110 $11,631
Contingent rentals............. 441 484 380
------- ------- -------
Total .................. $19,032 $14,594 $12,011
======= ======= =======
F-20
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Benefit Plan
Urban Outfitters 401(k) Savings Plan (formerly known as the Urban
Outfitters, Inc. Profit-Sharing Fund prior to July 1, 1999) covers all employees
who are at least 18 years of age and have completed six months of service. Under
the plan, employees can defer 1% to 20% of compensation as defined. The Company
will make matching contributions of $0.25 per employee contribution dollar on
the first 6% of employee contribution. The employees' contribution is 100%
vested while the Company's matching contribution vests at 20% per year of
employee service. The Company's contributions were $142 and $198 for the years
ended January 31, 2000 and January 31, 1999, respectively. No contribution was
made by the Company for the fiscal year ended January 31, 1998.
Contingencies
The Company is party to various legal proceedings arising from normal
business activities. Management believes that the ultimate resolution of these
matters will not have a material adverse effect on the Company's consolidatedfinancial
condition or results of operations, financial
position or cash flows. Its effect is limitedoperations.
13. SUBSEQUENT EVENT
In January 2000, the Board of Directors approved a stock buyback program
that authorized the Company to repurchase up to 1,000,000 of its shares. During
the disclosures containedperiod from February 1, 2000 through February 25, 2000, in a series of
individual open market transactions, the financial statements.Company repurchased 104,700 shares of
its common stock at a cost of $1.4 million.
14. SEGMENT REPORTING
Urban Outfitters is a national retailer of lifestyle-oriented general
merchandise through 4657 stores operating under the retail names "Urban
Outfitters" and "Anthropologie," and through a catalog and website.two web sites. Sales
from this retail segment account for over 90% of total consolidated sales for
the fiscal years ended January 31, 2000 and 1999 and over 80% for the fiscal
year ended January 31, 1999.1998. The remainder is derived from a wholesale division
that manufactures and distributes apparel to the retail segment and to over
1,300 better specialty storesretailers worldwide.
The Company has aggregated its operations into these two reportable
segments based upon their unique management, customer base and economic
characteristics. Reporting in this format provides management with the financial
information necessary to evaluate the success of the segments and the overall
business. The Company evaluates the performance of the segments based on the net
sales and pre-tax income from operations (excluding intercompany royalty and
interest charges) of the segment. Corporate expenses include expenses incurred
in and directed by the corporate office that are not allocated to segments. The
principal identifiable assets for each operating segment are inventory and fixed
assets. Other assets are comprised primarily of
F-21
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
general corporate assets, which principally consist of cash and cash
equivalents, marketable securities and other assets. Intersegment sales were immaterial in each of the last three
fiscal years. The Company accounts for
intersegment sales and transfers as if the sales and transfers were made to
third parties making similar volume purchases.
F-12
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
Both the retail and wholesale segment are highly diversified. No customer
comprises more than 10% of sales. Foreign operations are immaterial relative to
the overall Company.
The accounting policies of the operating segments are the same as the
policies described above in Note 1, "Significant2, "Summary of Significant Accounting
Policies". A summary of the information about the Company's operations by
segment is as follows:
Fiscal Year
----------------------------------------------FISCAL YEAR
-----------------------------------------------
2000 1999 1998 1997
---------- ---------- ----------
Operating revenues
Retail operations $ 189,034 $ 142,638 $ 128,081
Wholesale operations 23,652 35,343 31,944
Intersegment elimination (3,717) (4,860) (3,611)
---------- ---------- ----------
Total net sales $ 208,969 $ 173,121 $ 156,414
========== ========== ==========
Income from operations
Retail operations $ 25,886 $ 17,600 $ 16,104
Wholesale operations 985 5,397 5,995
---------- ---------- ----------
Total segment operating income 26,871 22,997 22,099
General corporate expenses (1,754) (935) (743)
---------- ---------- ----------
Total income from operations $ 25,117 $ 22,062 $ 21,356
========== ========== ==========
Depreciation and amortization expense
Retail operations $ 5,409 $ 4,382 $ 3,400
Wholesale operations 211 205 60
Corporate 1 1 1
---------- ---------- ----------
Total depreciation and amortization expense $ 5,621 $ 4,588 $ 3,461
========== ========== ==========
Inventory
Retail operations $ 19,397 $ 14,353 $ 13,323
Wholesale operations 2,484 2,775 3,642
---------- ---------- ----------
Total inventory $ 21,881 $ 17,128 $ 16,965
========== ========== ===========
Net fixed assets
Retail operations $ 42,230 $ 25,993 $ 24,736
Wholesale operations 835 898 471
Corporate 1 2 2
---------- ---------- ----------
Total net fixed assets $ 43,066 $ 26,893 $ 25,209
========== ========== ==========
Capital expenditures
Retail operations $ 21,373 $ 5,640 $ 11,935
Wholesale operations 148 632 45
---------- ---------- ----------
Total capital expenditures $ 21,521 $ 6,272 $ 11,980
========== ========== ==========
F-13
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
8. Profit-Sharing Plan
The Company has a profit-sharing plan that covers all employees who are at
least 18 years of age and have completed at least one thousand hours of service.
Plan contributions are at the discretion of management but may not exceed 15% of
qualified employee earnings.
A contribution of $198 was made by the Company for the fiscal year ended
January 31, 1999; no contributions were made by the Company for the fiscal years
ended January 31, 1998 or January 31, 1997.
9. Income Taxes
Income tax expense consists of:
Fiscal Year Ended January 31,
------------------------------------------------
1999 1998 1997
-------- -------- --------
Current:
Federal................................... $ 9,069 $ 8,433 $ 8,041
State and local .......................... 1,955 2,106 2,073
Foreign................................... 489 -- --
Deferred:
Federal................................... (494) (499) (613)
State and local........................... (98) (32) (92)
Foreign .................................. 31 (263) --
-------- -------- --------
Total....................................... $ 10,952 $ 9,745 $ 9,409
======== ======== ========
F-14
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
The effective tax rate was different than the statutory U.S. federal income
tax rate for the following reasons:
Fiscal Year Ended January 31,
---------------------------------------
1999 1998 1997
---- ---- ----
Expected provision
at federal statutory rate.......................... 35% 35% 35%
StateOPERATING REVENUES
Retail operations $ 253,775 $ 189,034 $ 142,638
Wholesale operations 25,718 23,652 35,343
Intersegment elimination (3,387) (3,717) (4,860)
----------- ----------- -----------
Total net sales $ 276,106 $ 208,969 $ 173,121
========= =========== ===========
INCOME FROM OPERATIONS
Retail operations $ 37,790 $ 25,736 $ 17,600
Wholesale operations 1,682 985 5,397
----------- ----------- -----------
Total segment operating income 39,472 26,721 22,997
General corporate expenses (1,907) (1,604) (935)
----------- ----------- -----------
Total income from operations $ 37,565 $ 25,117 $ 22,062
========== =========== ===========
DEPRECIATION AND AMORTIZATION EXPENSE
Retail operations $ 8,473 $ 5,409 $ 4,382
Wholesale operations 193 211 205
Corporate 1 1 1
----------- ----------- -----------
Total depreciation and local income taxes,amortization expense $ 8,667 $ 5,621 $ 4,588
=========== =========== ===========
INVENTORY
Retail operations $ 25,217 $ 19,397 $ 14,353
Wholesale operations 1,651 2,484 2,775
----------- ----------- -----------
Total inventory $ 26,868 $ 21,881 $ 17,128
========== =========== ===========
NET FIXED ASSETS
Retail operations $ 71,805 $ 42,230 $ 25,993
Wholesale operations 1,013 835 898
Corporate 1 1 2
----------- ----------- -----------
Total net of federal tax benefit, and other.............. 6 6 7
--- --- ---
Effective rate........................................ 41% 41% 42%
=== === ===fixed assets $ 72,819 $ 43,066 $ 26,893
=========== =========== ===========
CAPITAL EXPENDITURES
Retail operations $ 37,797 $ 21,373 $ 5,640
Wholesale operations 352 148 632
----------- ----------- -----------
Total capital expenditures $ 38,149 $ 21,521 $ 6,272
=========== =========== ===========
The significant components of deferred tax assets and liabilities at
January 31, 1999 and 1998 are as follows:
1999 1998
---------- ---------
Deferred tax liability:
Prepaid expenses.................................... $ (303) $ (242)
Deferred tax assets:
Depreciation and lease transactions................. 2,640 2,221
Inventory........................................... 1,687 1,328
Accounts receivable................................. 461 533
Loss carryforwards.................................. 232 263
Accrued salaries and benefits....................... 91 145
Other............................................... 16 15
---------- ---------
Net deferred tax assets............................... $ 4,824 $ 4,263
========== =========
At January 31, 1999, the Company had net operating loss carry forwards for
tax purposes of approximately $750 in the United Kingdom that do not expire. At
January 31, 1999 and 1998, a deferred tax asset of $2,900 and $2,334,
respectively, is included in Other assets.
The cumulative amount of the Company's share of undistributed earnings of
non-U.S. subsidiaries for which no deferred taxes have been provided was $804 as
of January 31, 1999. These earnings are deemed to be permanently reinvested to
finance growth programs.
F-15
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
10. Leases
The Company leases its stores and certain warehouse space under
noncancelable operating leases. The following is a schedule by year of the
future minimum lease payments for operating leases with terms in excess of one
year:
Fiscal Year
- -----------
2000.................................................. $ 15,686
2001.................................................. 15,960
2002.................................................. 15,913
2003.................................................. 15,118
2004.................................................. 14,178
Thereafter............................................ 62,650
---------
Total minimum lease payments.......................... $ 139,505
=========
Certain store leases provide for predetermined escalations in future
minimum annual rentals. The pro rata portion of future minimum rent escalations,
amounting to $3,856 and $3,095, at January 31, 1999 and 1998, respectively, has
been included in Other liabilities in the accompanying consolidated balance
sheets. Subsequent to year end, the Company entered into leases for additional
locations. Commitments related to these leases are included in the above.
The store leases provide for payment of direct operating costs including
real estate taxes. Certain store leases provide for contingent rentals when
sales exceed specified levels.
Rent expense consisted of the following:
Fiscal Year Ended January 31,
------------------------------------------
1999 1998 1997
------- ------- -------
Minimum rentals................ $14,110 $11,631 $ 9,946
Contingent rentals............. 484 380 599
------- ------- -------
Total................... $14,594 $12,011 $10,545
======= ======= =======
During the year ended January 31, 1999, the Company entered into a
three-year capitalized lease for certain computer equipment. The capital lease
obligation of $273 was recorded as a liability, and the offsetting asset is
being amortized over the lease period. Remaining principal payments for the next
three fiscal years are $88, $91 and $94, respectively.
F-16
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued
11. Contingencies
The Company is party to various legal proceedings arising from normal
business activities. Management believes that the ultimate resolution of these
matters will not have an adverse material effect on the Company's financial
condition or results of operations.
12. Stock Option Plans
The 1997 Stock Option Plan authorizes up to an aggregate of 1,250,000
common shares which can be granted as either incentive stock options or
nonqualified stock options. The vesting period for this Plan can range from one
to ten years. This 1997 Plan replaced the previous 1987, 1992 and 1993 Plans
which were precluded from making additional grants due either to expiration or
insufficiently available shares. Individual grants outstanding under certain of
the superseded plans, however, have expiration dates which extend into the year
2008.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
four stock option plans been determined based on the fair value provisions of
SFAS No. 123 at the grant date for awards during Fiscal 1999, 1998 and 1997, the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
For the year ended January 31,
------------------------------------------
1999 1998 1997
------- ------- -------
Net income - as reported $15,760 $13,880 $13,260
Net income - pro forma $14,412 $12,693 $12,649
Net income per share - assuming dilution - as reported $ 0.88 $ 0.78 $ 0.75
Net income per share - assuming dilution - pro forma $ 0.80 $ 0.72 $ 0.72
The pro forma results may not be representative of the effects on reported
operations for future years.
F-17
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
1999 1998 1997
------ ----- ------
Expected life (years) 7.0 6.7 5.7
Risk-free interest rate 5.8% 6.9% 6.1%
Volatility 50.0% 50.7% 49.5%
Dividend rate 0% 0% 0%
Information regarding these option plans for Fiscal 1999, 1998, and 1997 is
as follows:
FY 1999 FY 1998 FY 1997
-------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ------------- ------------ ------- ------------ ------- ------------- --------
Options outstanding at beginning
of year 1,305,094 $ 10.60 1,010,756 $ 9.50 1,274,582 $ 5.99
Options granted 545,500 15.10 415,000 11.54 185,000 15.02
Options exercised (157,594) 4.37 (120,662) 4.62 (448,326) 1.80
Options canceled (10,500) 12.61 -- n/a (500) 15.19
------------ ------- ------------ ------- ------------- --------
Options outstanding at end of year 1,682,5000 $ 12.63 1,305,094 $ 10.60 1,010,756 $ 9.50
============ ======= ============ ======= ============ ========
Options exercisable at end of year 614,999 603,426 472,920
============ ============ ============
Weighted average fair value of grants
per share $ 8.49 $ 6.89 $ 7.99
============ ============ ============
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Amount Wtd. Avg. Wtd. Avg. Amount Wtd. Avg.
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 1/31/99 Contractual Life Price at 1/31/99 Price
- --------------- ----------- ---------------- --------- ----------- ---------
$ 8.35 - $10.44 227,000 1.9 $9.19 160,332 $ 9.27
$10.44 - $12.53 737,000 4.9 $11.00 320,000 $11.15
$12.53 - $14.61 350,000 9.7 $14.02 40,000 $13.25
$14.61 - $16.70 243,500 7.5 $15.92 52,667 $15.34
$16.70 - $20.88 125,000 8.6 $18.25 42,000 $20.72
F-18
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
13. Net Income Per Share
The following is a reconciliation of the denominators of the net income per
share and net income per share -- assuming dilution ("EPS") computations:
Fiscal Year Ended January 31,
(in shares)
-----------------------------------------------
1999 1998 1997
---------- ---------- ----------
Net income per share............... 17,702,922 17,576,203 17,429,375
Effect of dilutive options......... 226,187 267,670 293,254
---------- ---------- ----------
Net income per share - 17,929,109 17,843,873 17,722,629
assuming dilution ========== ========== ==========
Options to purchase 40,000 shares at $20.88 per share and 10,000 at $17.69
per share were outstanding during Fiscal 1999, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
Options to purchase 40,000 shares at $20.88 per share, 10,000 shares at
$17.69 per share, 35,000 shares at $16.88 per share and 69,500 shares at $15.19
per share were outstanding during Fiscal 1998, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
14. Accumulated Other Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130") that the Company adopted in the first quarter of Fiscal 1999. SFAS No.
130 requires presentation of comprehensive income and its components in the
financial statements. Comprehensive income includes charges and credits to
equity that are not the result of transactions with shareholders. Comprehensive
income is comprised of two subsets - net income and other comprehensive income.
All amounts in Accumulated Other Comprehensive Income (Loss) relate to foreign
currency translation adjustments. The foreign currency translation adjustments
are not adjusted for income taxes since these adjustments related to indefinite
investments in non-U.S. subsidiaries.
F-19
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
15. Supplemental Cash Flow Information
Fiscal year ended January 31,
-----------------------------------------
1999 1998 1997
------- ------- -------
Cash paid during the year for:
Interest................................................. $ 6 $ 29 $ 28
Income taxes............................................. $ 8,843 $ 9,668 $ 8,260
16. Stock Split
During 1996, the Board of Directors declared a two-for-one stock split in
the form of a stock dividend for shareholders of record on June 1, 1996.
17. Investment in HMB Publishing, Inc.
On February 5, 1998 the Company entered into an agreement with HMB
Publishing, Inc. ("HMB") for the purchase of securities convertible into a
minority interest in the company through Series B Convertible Preferred Stock
("Series B Preferred") and certain convertible debentures. The agreement called
for additional investments and ownership if HMB met certain performance
milestones. HMB is a development stage company that publishes mXg(TM), a
combination magazine and catalog and operates a website - www.mXgonline.com -
that caters to teenage girls. The original business plan contemplated
substantial losses in the first two fiscal years and a public offering as soon
as feasible.
As of January 31, 1999, the Company has invested approximately $2,000 in
the Series B Preferred and an additional $1,750 in the convertible debentures.
Since January 31, 1999, the Company has advanced an additional $1,100 to fund
further marketing efforts and additional development of the website and,
together with additional investors, will seek to position HMB for more rapid
expansion. It is the Company's intent to maintain an equity interest following
any public offering by HMB.
F-20
Urban Outfitters, Inc.
Notes to Consolidated Financial Statements (continued)
18. Subsequent Event
In accordance with its previously announced stock buyback program that
authorized the Company to repurchase up to 800,000 of its shares, the Company
has repurchased 279,000 shares of its common stock at a cost of $3,729 during
the period from February 1, 1999 through March 12, 1999 in a series of
individual open market transactions.
F-21F-22
FINANCIAL STATEMENT SCHEDULES
URBAN OUTFITTERS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)(IN THOUSANDS)
Charged
Balance at to costs Balance
beginning and at end
Description of period expenses Deductions of period
----------- ---------- -------- ---------- ---------
Year ended January 31, 19971998
Inventory reserves $2,211 $2,471 $1,956 $2,726 $2,190 $2,144 $2,772
Year ended January 31, 19981999
Inventory reserves $2,726 $2,190 $2,144 $2,772 $3,081 $2,633 $3,220
Year ended January 31, 19992000
Inventory reserves $2,772 $3,081 $2,633 $3,220 $6,640 $4,726 $5,134
S-1